As filed with the Securities and Exchange Commission on February 16, 2007
Securities Act File No. 333-
Investment Company Act File No. 811-06471
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
[ ] PRE-EFFECTIVE AMENDMENT NO. _
[ ] POST-EFFECTIVE AMENDMENT NO. _
(CHECK APPROPRIATE BOX OR BOXES)
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
(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 Offering: As soon as practicable after this
Registration Statement is declared effective.
==============================================================================================================================
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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TITLE OF SECURITIES AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
UNIT PRICE
------------------------------------------ ----------------- --------------------- ----------------------- -------------------
Common Shares ($0.01 par value) 1,000 $ 15.61(1) $ 15,610 $ 117.70
------------------------------------------ ----------------- --------------------- ----------------------- -------------------
Auction Preferred Shares ($0.01 par value) 40 25,000 $ 1,000,000 $ 117.70
------------------------------------------ ----------------- --------------------- ----------------------- -------------------
(1) Average of high and low reported price for common shares on
February 15, 2007.
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 Shareholders of Van Kampen Trust for Investment
Grade Florida Municipals and Van Kampen Trust for Investment Grade Municipals
o Notice of Special Meeting of Shareholders of Van Kampen Trust for Investment
Grade Florida Municipals and Van Kampen Trust for Investment Grade Municipals
o Joint Proxy Statement/Prospectus of Van Kampen Trust for Investment Grade
Florida Municipals and Van Kampen Trust for Investment Grade Municipals
o Statement of Additional Information regarding the Reorganization of Van
Kampen Trust for Investment Grade Florida Municipals into Van Kampen Trust
for Investment Grade Municipals
o Part C Information
o Exhibits
-- MAY 2007 --
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IMPORTANT NOTICE
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TO SHAREHOLDERS OF VAN KAMPEN TRUST
FOR INVESTMENT GRADE FLORIDA MUNICIPALS
AND
VAN KAMPEN TRUST
FOR INVESTMENT GRADE MUNICIPALS
--------------------------------------------------------------------------------
QUESTIONS & ANSWERS
---------------------------------------
Although we recommend that you read the complete Joint Proxy Statement/
Prospectus, we have provided for your convenience a brief overview of the issues
to be voted on.
---------------------------------------
Q WHY IS A SHAREHOLDER
MEETING BEING HELD?
A Shareholders of
Van Kampen Trust for Investment Grade Florida Municipals: You are being asked to
vote on a reorganization (the "Reorganization") of Van Kampen Trust for
Investment Grade Florida Municipals (the "Target Fund") into Van Kampen Trust
for Investment Grade Municipals (the "Acquiring Fund"), a closed-end investment
company that pursues the same investment objective and has similar investment
policies as the Target Fund.
Shareholders of Van Kampen Trust for Investment Grade Municipals: You are being
asked to vote on the issuance of common shares of beneficial interest by the
Acquiring Fund in connection with the Reorganization.
Q WHY IS THE
REORGANIZATION BEING RECOMMENDED?
A The Board of Trustees of
each Fund has determined that the Reorganization will benefit common
shareholders of the Target Fund and the Acquiring Fund. The Target Fund seeks to
offer its shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes. As such, the Target Fund invests
substantially all of its total assets in Florida municipal securities, which are
exempt from such tax; however, effective January 1, 2007, the State of Florida
repealed the intangible personal property tax, thereby eliminating the Florida-
specific tax benefit to Florida taxpayers of investing in the Fund. Thus, the
Board of Trustees of the Funds has determined that the
Reorganization of the Target Fund into the similar Acquiring Fund would benefit
common shareholders. The Target Fund and the Acquiring Fund are similar. Each
Fund's investment objective is to seek to provide shareholders with a high level
of current income exempt from federal income taxes, consistent with preservation
of capital. Each Fund invests substantially all of its total assets in municipal
securities rated investment grade at the time of investment. Each Fund is
managed by the same investment advisory personnel. After the Reorganization, it
is anticipated that common shareholders of each Fund will experience a reduced
overall operating expense ratio, as certain fixed administrative costs will be
spread across the combined fund's larger asset base. In addition, it is
anticipated that shareholders of the Target Fund will benefit from increased
diversification as a result of the Reorganization. It is not anticipated that
the Reorganization will directly benefit holders of preferred shares of the
Funds; however, it is anticipated that preferred shareholders will not be
adversely effected 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 and shareholders of the Acquiring
Fund approve the issuance of common shares of beneficial interest by that Fund,
the assets and liabilities of the Target Fund will be combined with those of the
Acquiring Fund and the Target Fund will dissolve.
Shareholders of the Target Fund: You will become a shareholder of the Acquiring
Fund. 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.
Shareholders of the Acquiring Fund: You will remain a shareholder of the
Acquiring Fund.
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 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 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 WHY IS THE VOTE OF
COMMON SHAREHOLDERS OF THE ACQUIRING FUND BEING SOLICITED?
A Although the Acquiring
Fund will continue its legal existence and operations after the Reorganization,
the rules of the New York Stock Exchange and the Chicago Stock Exchange, on
which the Acquiring Fund's common shares are listed, require the common
shareholders of the Acquiring Fund to approve the issuance of additional common
shares of beneficial interest by the Acquiring Fund in connection with the
Reorganization. If the issuance of additional common shares of the Acquiring
Fund is not approved, the Reorganization will not occur.
Q HOW DOES THE BOARD OF
TRUSTEES OF MY FUND SUGGEST I VOTE?
A After careful consideration,
the Board of Trustees of each Fund recommend that you vote "FOR" each of the
items proposed.
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 Joint Proxy Statement/Prospectus. To vote by phone or
internet, you will need the "control number" that appears on the proxy card.
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 each issue using blue or black ink to mark an X in one of the
boxes provided on the proxy card.
SHAREHOLDERS OF VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS:
APPROVAL OF REORGANIZATION - mark "For," "Against" or "Abstain."
COMMON SHAREHOLDERS OF VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS:
APPROVAL OF ISSUANCE OF COMMON SHARES - 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.
[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE
VAN KAMPEN XXXXX
JOINT SPECIAL MEETING OF SHAREHOLDERS
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
FOR AGAINST ABSTAIN
1. The proposal to [ ] [ ] [ ] 2. The proposal to approve the issuance of
approve the Common Shares.
Reorganization.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4.
To transact such other business as may
properly come before the Meeting.
Please be sure to sign and date this Proxy, Date
Shareholder sign here Co-owner sign here
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
SAMPLE
VAN KAMPEN TRUST FOR INVESTMENT GRADE
FLORIDA MUNICIPALS
AND
VAN KAMPEN TRUST FOR INVESTMENT GRADE
MUNICIPALS
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 341-2929
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 18, 2007
Notice is hereby given that a joint special meeting of shareholders (the
"Special Meeting") of Van Kampen Trust for Investment Grade Florida Municipals
(the "Target Fund") and Van Kampen Trust for Investment Grade Municipals (the
"Acquiring Fund") will be held at the offices of Van Kampen Investments Inc., 1
Parkview Plaza, Oakbrook Terrace, Illinois 60181-5555, on May 18, 2007 at 10:00
a.m. for the following purposes:
For shareholders of the Target Fund:
1. To approve an Agreement and Plan of Reorganization (the "Reorganization
Agreement") between the Target Fund and 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;
For common shareholders of the Acquiring Fund:
2. To approve the issuance of additional common shares of the Acquiring Fund
in connection with the Reorganization Agreement; and
For shareholders of both funds:
3. 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 March 23, 2007 are
entitled to vote at the Special Meeting or any adjournment thereof.
THE BOARD OF TRUSTEES OF EACH 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 AGREEMENT AS DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
THE BOARD OF TRUSTEES OF THE ACQUIRING FUND RECOMMENDS THAT YOU CAST YOUR
VOTE:
- FOR THE ISSUANCE OF ADDITIONAL COMMON SHARES OF THE ACQUIRING FUND IN
CONNECTION WITH THE REORGANIZATION AGREEMENT AS DESCRIBED IN THE JOINT
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 Trust for Investment Grade
Florida Municipals
Van Kampen Trust for Investment Grade
Municipals
March , 2007
------------------
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 JOINT 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 JOINT 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 FEBRUARY 16, 2007
JOINT PROXY STATEMENT/PROSPECTUS
VAN KAMPEN TRUST FOR INVESTMENT GRADE
FLORIDA MUNICIPALS
AND
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
1221 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020
(800) 341-2929
JOINT SPECIAL MEETING OF SHAREHOLDERS
MAY 18, 2007
This Joint Proxy Statement/Prospectus is furnished to you as a shareholder of
Van Kampen Trust for Investment Grade Florida Municipals (the "Target Fund") or
Van Kampen Trust for Investment Grade Municipals (the "Acquiring Fund"). A joint
special meeting of shareholders of the Funds (the "Special Meeting") will be
held at the offices of Van Kampen Investments Inc., 1 Parkview Plaza, Oakbrook
Terrace, Illinois 60181-5555 on May 18, 2007 at 10:00 a.m. to consider the items
listed below and discussed in greater detail elsewhere in this Joint Proxy
Statement/Prospectus. If you are unable to attend the Special Meeting or any
adjournment thereof, the Board of Trustees of each 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 Joint Proxy Statement/Prospectus and accompanying form of
proxy is April 3, 2007.
The purposes of the Special Meeting are:
For shareholders of the Target Fund:
1. To approve an Agreement and Plan of Reorganization (the "Reorganization
Agreement") between the Target Fund and the Acquiring Fund, the
termination of the Target Fund's registration under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the dissolution of
the Target Fund under applicable state law;
For common shareholders of the Acquiring Fund:
2. To approve the issuance of additional common shares of the Acquiring Fund
in connection with the Reorganization Agreement; and
For shareholders of both funds:
3. To transact such other business as may properly be presented at the
Special Meeting or any adjournment thereof.
The Reorganization Agreement that you are being asked to consider involves a
transaction that will be referred to in this Joint Proxy Statement/Prospectus as
the "Reorganization." The Reorganization seeks to combine two similar funds to
achieve certain economies of scale and other operational efficiencies, and the
Target Fund shareholders will benefit from increased diversification. Each Fund
pursues the same investment objective to seek to provide shareholders with a
high level of current income exempt from federal income taxes, consistent with
preservation of capital. The Acquiring Fund invests substantially all of its
total assets in municipal securities rated investment grade at the time of
investment. The Target Fund invests substantially all of its total assets in
Florida municipal securities rated investment grade at the time of investment.
The Target Fund and the Acquiring Fund are sometimes referred to herein each as
a "Fund" and collectively as the "Funds."
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, par value $0.01 per share ("Acquiring Fund Common Shares")
and newly-issued 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 auction preferred shares of the Target Fund
("Target Fund APS") (the Target Fund APS and the Acquiring Fund APS are
sometimes referred to herein collectively as "Preferred Shares" or as "APS"),
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 Target Fund Common Shares held immediately prior to the Reorganization less
the costs of the Reorganization (though common shareholders may receive cash for
their fractional shares), and the aggregate liquidation preference of the
Acquiring Fund APS received in the Reorganization will equal the aggregate
liquidation preference of the Target Fund APS 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 Joint Proxy Statement/Prospectus.
In connection with the Reorganization, common shareholders of the Acquiring
Fund are being asked to approve the issuance of additional Acquiring Fund Common
Shares.
The Board of Trustees of each Fund has determined that including both
proposals in one Joint Proxy Statement/Prospectus will reduce costs and is in
the best interests of each Funds' shareholders.
2
In the event that Target Fund shareholders do not approve the Reorganization
or Acquiring Fund common shareholders do not approve the issuance of Acquiring
Fund Common Shares, 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 Joint Proxy Statement/Prospectus sets forth concisely the information
shareholders of the Funds should know before voting on the proposals 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 March , 2007, relating to this Joint 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, 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 100 F Street, N.E., 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) 551-8090. 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, D.C. 20549.
The Acquiring Fund Common Shares are listed on the NYSE and the CHX under the
ticker symbol "VGM" and will continue to be so listed subsequent to the
Reorganization. The Target Fund Common Shares are listed on the NYSE and the CHX
under the ticker symbol "VTF." Reports, proxy statements and other information
concerning the Funds may be inspected at the offices of the NYSE,
3
20 Broad Street, New York, New York 10005 or the officers of the CHX, 440 South
LaSalle Street, Chicago, Illinois, 60605.
This Joint 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 Joint Proxy
Statement/Prospectus and, if so given or made, such information or
representation must not be relied upon as having been authorized. This Joint
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 each 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.
---------------------
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is March , 2007.
4
TABLE OF CONTENTS
PAGE
----
SUMMARY..................................................... 7
PROPOSAL 1: REORGANIZATION OF THE TARGET FUND............... 13
RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 15
Market Risk............................................... 15
Interest Rate Risk........................................ 16
Credit Risk............................................... 16
Income Risk............................................... 17
Nonpayment Risk........................................... 17
Call Risk................................................. 17
Municipal Securities Risk................................. 17
Florida Municipal Securities Risk......................... 17
Risks of Using Strategic Transactions..................... 18
Manager Risk.............................................. 18
Market Discount Risk...................................... 18
Leverage Risk............................................. 19
Anti-Takeover Provisions.................................. 20
Special Risks Related to Preferred Shares................. 20
COMPARISON OF THE FUNDS..................................... 21
Investment Objective and Policies......................... 21
Other Investment Practices and Policies................... 27
Investment Restrictions................................... 34
Management of the Funds................................... 36
Other Service Providers................................... 39
Capitalization............................................ 40
Additional Information about Common Shares of the Funds... 41
Additional Information about Preferred Shares of the
Funds................................................... 44
Governing Law............................................. 48
Certain Provisions of the Declaration of Trust............ 49
Conversion to Open-End Funds.............................. 50
Voting Rights............................................. 51
Financial Highlights...................................... 52
INFORMATION ABOUT THE REORGANIZATION........................ 54
General................................................... 54
Terms of the Reorganization Agreement..................... 56
5
PAGE
----
Material U.S. Federal Income Tax Consequences of the
Reorganization.......................................... 58
Shareholder Approval...................................... 60
PROPOSAL 2: ISSUANCE OF ADDITIONAL ACQUIRING FUND COMMON
SHARES.................................................... 61
Shareholder Approval...................................... 61
OTHER INFORMATION........................................... 62
Voting Information and Requirements....................... 62
Shareholder Information................................... 64
Section 16(a) Beneficial Ownership Reporting Compliance... 64
Shareholder Proposals..................................... 64
Solicitation of Proxies................................... 65
Legal Matters............................................. 65
Other Matters to Come Before the Meeting.................. 65
EXHIBIT I: DESCRIPTION OF SECURITIES RATINGS................ I-1
6
------------------------------------------------------------------------------
SUMMARY
------------------------------------------------------------------------------
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus and is qualified in its entirety by reference
to the more complete information contained in this Joint Proxy
Statement/Prospectus and in the Reorganization Statement of Additional
Information. Shareholders should read the entire Joint Proxy
Statement/Prospectus carefully.
PROPOSAL 1: REORGANIZATION OF THE TARGET FUND
THE PROPOSED REORGANIZATION. The Board of Trustees of each Fund, including the
trustees who are not "interested persons," as defined in the 1940 Act, of each
Fund, has unanimously approved the Reorganization Agreement. If the shareholders
of the Target Fund approve the Reorganization Agreement and the shareholders of
the Acquiring Fund approve the issuance of Acquiring Fund Common Shares (see
"Proposal 2: Issuance of Additional Acquiring Fund Common Shares"), Acquiring
Fund Common Shares and Acquiring Fund APS will be issued to holders of Target
Fund Common Shares and Target Fund APS, 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 common shareholders may receive cash for
fractional shares). The aggregate liquidation preference of Acquiring Fund APS
received in the Reorganization will equal the aggregate liquidation preference
of Target Fund APS held immediately prior to the Reorganization.
BACKGROUND AND REASONS FOR THE PROPOSED REORGANIZATION. The Target Fund seeks
to offer its shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes. As such, the Target Fund invests
substantially all of its total assets in Florida municipal securities, which are
exempt from such tax; however, effective January 1, 2007, the State of Florida
repealed the intangible personal property tax, thereby eliminating the
Florida-specific tax benefit to Florida taxpayers of investing in the Fund.
Thus, the Board of Trustees of the Funds has determined that the Reorganization
of the Target Fund into the similar Acquiring Fund would benefit common
shareholders. The Reorganization seeks to combine two similar Funds to achieve
certain economies of scale and other operational efficiencies, and the Target
Fund shareholders will benefit from greater diversification.
Each Fund is registered as a diversified, closed-end management investment
company under the 1940 Act. Each Fund invests primarily in investment grade
7
municipal securities. The investment objective of each Fund is to seek to
provide shareholders with a high level of current income exempt from federal
income taxes, consistent with preservation of capital. The Target Fund also
seeks to offer its shareholders the opportunity to own securities exempt from
Florida intangible personal property taxes. The Target Fund intends to achieve
its investment objective primarily by investing in a portfolio of Florida
municipal securities which the Target Fund's investment adviser believes does
not involve undue risk to income or principal. Under normal market conditions,
the Target Fund invests substantially all of its total assets in Florida
municipal securities rated investment grade at the time of investment, but may
invest up to 20% of its total assets in non-Florida securities, securities below
investment grade (but not lower than B by Standard and Poor's ("S&P"), Moody's
Investors Services, Inc. ("Moody's") or Fitch Ratings, Ltd. ("Fitch")) and/or in
unrated securities (including securities deemed by the Funds' investment adviser
to be investment grade or lower, but not lower than B). The Acquiring Fund seeks
to achieve its investment objective primarily by investing in a diversified
portfolio of municipal securities which the Acquiring Fund's investment adviser
believes does not involve undue risk to income or principal. Under normal market
conditions, the Acquiring Fund invests substantially all of its total assets in
municipal securities rated investment grade at the time of investment, but may
invest up to 20% of its total assets in securities below investment grade (but
not lower than B by S&P, Moody's or Fitch) and/or in unrated securities
(including securities deemed by the Funds' investment adviser to be investment
grade or lower, but not lower than B). The Acquiring Fund generally will not
invest more than 25% of its assets in issuers located in the same state. Each
Fund may invest without limit 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
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. The Board of Trustees of the Acquiring Fund (the
"Acquiring Fund Board"), based upon its evaluation of all relevant information,
anticipates that the Reorganization will benefit holders of Acquiring Fund
Common Shares. The Board of Trustees of each Fund believes, based on data
presented by Van Kampen Asset Management, investment adviser to each of the
Funds (the "Adviser"), that holders of common shares of each Fund will
experience a reduced annual 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
8
expense ratio for common shareholders of the combined fund. In addition,
shareholders of the Target Fund are expected to benefit from increased
diversification.
The table below illustrates the anticipated reduction in operating expenses
experienced by holders of common shares of the Target Fund and the Acquiring
Fund that are 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, 2006, (ii) the fees,
expenses and distributions to preferred shareholders paid by the Acquiring Fund
for the 12-month period ended October 31, 2006 and (iii) the pro forma fees,
expenses and distributions to preferred shareholders for the Acquiring Fund for
the 12-month period ended October 31, 2006, 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 each
Fund (although such savings will not be immediately realized (see footnote (c)
to the table)).
FEE, EXPENSE AND DISTRIBUTIONS ON PREFERRED SHARES TABLE FOR COMMON SHAREHOLDERS
OF THE FUNDS AS OF OCTOBER 31, 2006
ACTUAL
----------------------- PRO FORMA
VAN KAMPEN ----------
TRUST FOR VAN KAMPEN VAN KAMPEN
INVESTMENT TRUST FOR TRUST FOR
GRADE INVESTMENT INVESTMENT
FLORIDA GRADE GRADE
MUNICIPALS MUNICIPALS MUNICIPALS
---------- ---------- ----------
Common Shareholder Transaction Expenses(a):
Maximum Sales Load (as a percentage of
offering price(b).................... 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(c)............ 0.85% 0.87% 0.87%
Interest Payments on Borrowed Funds.... 0.00% 0.00% 0.00%
Other Expenses......................... 0.42% 0.41% 0.39%
------ ------ ------
Total Annual Expenses(c)............... 1.27% 1.28% 1.26%
------ ------ ------
Distributions:
Distributions on Preferred Shares(d)... 1.88% 2.10% 2.05%
------ ------ ------
Total Annual Expenses and Distributions
on Preferred Shares.................. 3.15% 3.38% 3.31%
------ ------ ------
---------------
(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
9
any of the Funds 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 broker-
age 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 Joint 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 Reorganization Agreement
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 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 Board of Trustees
of each Fund and management have agreed to limit the allocation of
Reorganization expenses to each Fund based on a maximum payback period of two
years. To the extent that the expenses of the Reorganization exceed such
amount, the additional expenses of the Reorganization will be borne by the
Adviser. The table below summarizes each Fund's net assets (common shares
only) at October 31, 2006, projected annual savings to each Fund as a result
of the Reorganization, allocation of Reorganization expenses among the Funds
and the Adviser 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, 2006. The Acquiring Fund will benefit more from
projected annual expense savings of the Reorganization than the Target Fund.
The projected annual expense savings are generally not expected to be
immediately realized. If a 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 each Fund will be
reduced at the closing date of the Reorganization to reflect the allocation
of Reorganization expenses to each 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
10
greater for the Acquiring Fund than the Target 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.
REORGANIZATION ESTIMATED REDUCTION TO NET
NET ASSETS PROJECTED EXPENSE PAYBACK ASSET VALUE
(COMMON ANNUAL ALLOCATION IN PERIOD PER COMMON
FUND SHARES ONLY) SAVINGS DOLLARS/PERCENTAGE (IN YEARS) SHARE
---- ------------ --------- ------------------ ---------- ----------------
Target Fund $200,562,076 $ 20,058 $ 40,115/7% 2.00 < $0.01
Acquiring Fund $743,366,993 $148,669 $ 297,338/54% 2.00 $0.01
The Adviser $ 210,547/39%
Total Expenses $548,000/100%
---------------
(d)In seeking to enhance the income for its common shareholders, each of the
Funds uses preferred shares as financial leverage. Leverage created by
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 auctions as described herein and thus will differ based on varying
market conditions at the times of such auctions. As of October 31, 2006, VTF
had an outstanding preferred share leverage ratio (i.e., the liquidation
preference of preferred shares relative to total assets of such Fund) of
approximately 35% and VGM had an outstanding preferred share leverage ratio
of approximately 37%. Assuming the Reorganization was completed as of October
31, 2006, the combined fund on a pro-forma basis would have had a preferred
share leverage ratio of approximately 36%. Because the line "Distributions on
Preferred Shares" shows preferred share distributions as a percentage of net
assets attributable to common shares, the amount shown is affected not only
by the applicable preferred share dividend rates and capital gain
distribution rates but also by the applicable preferred share leverage ratio
of each Fund. Funds with higher preferred share leverage ratios, all other
things equal, would have higher "Distributions on Preferred Shares" than
funds with lower leverage ratios; and, if the leverage is producing its
intended results (i.e., providing more income for common shareholders than
its costs), funds with higher preferred share leverage ratios, all other
things equal, would have higher distributions on common shares than funds
with lower leverage ratios. Thus, the increase in "Distributions on Preferred
Shares" for VTF from the actual to the pro forma column is due in part to
changes in the expected leverage ratio of the combined fund. The proposed
Reorganization is intended to combine the Funds with their existing capital
structures, which will result in a weighted combined leverage ratio that each
Fund's Board and management believe is within an appropriate range
11
under current market conditions; the combined fund may consider changes to
its leverage ratio based on varying market conditions in the future.
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Van Kampen Trust for Investment Grade
Florida Municipals................... $ 13 $ 40 $ 70 $153
Van Kampen Trust for Investment Grade
Municipals........................... $ 13 $ 41 $ 70 $155
Pro Forma--Van Kampen Trust for
Investment Grade Municipals.......... $ 13 $ 40 $ 69 $152
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, the Reorganization will not adversely
affect the holders of Preferred Shares of either Fund 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 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
12
receipt 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 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 May 18, 2007.
Shareholder approval of the Reorganization requires the affirmative vote of
shareholders of the Target Fund representing more than 50% of the outstanding
Target Fund Common Shares and 50% of the outstanding Target Fund APS, each
voting separately as a class. Subject to the requisite approval of the
shareholders of each Fund with regard to 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 1, 2007, but it may be at a different time as
described herein.
The Target Fund Board recommends that you vote "FOR" the proposed
Reorganization.
PROPOSAL 2: ISSUANCE OF ACQUIRING FUND COMMON SHARES
In connection with the proposed Reorganization described under "Proposal 1:
Reorganization of the Target Fund," the Acquiring Fund will issue additional
Acquiring Fund Common Shares and list such shares on the NYSE and CHX. The
Acquiring Fund will acquire substantially all of the assets and assume
substantially all of the liabilities of the Target Fund in exchange for the
newly-issued Acquiring Fund Common Shares and newly-issued Acquiring Fund APS.
The Reorganization will result in no reduction of net asset value of the
Acquiring Fund Common Shares, other than the costs of the Reorganization. No
gain or loss will be recognized by the Acquiring Fund or its shareholders in
connection with the Reorganization. The Acquiring Fund Board, based upon its
evaluation of all relevant information, anticipates that the Reorganization will
benefit holders of Acquiring Fund Common Shares. In particular, the Acquiring
Fund Board believes, based on data presented by the Adviser, that the Acquiring
Fund will experience a reduced overall operating expense ratio as a result of
the Reorganization.
The Acquiring Fund Board requests that shareholders of the Acquiring Fund
approve the issuance of additional Acquiring Fund Common Shares at the Special
Meeting to be held on May 18, 2007. Shareholder approval of the issuance of
additional Acquiring Fund Common Shares requires the affirmative vote of a
majority of the votes cast on the proposal, provided that the total votes cast
on the proposal represents more than 50% in interest of all securities entitled
to vote on the proposal. Subject to the requisite approval of the shareholders
of each Fund with regard to the Reorganization, it is expected that the Closing
Date will be after
13
the close of business on or about June 1, 2007, but it may be at a different
time as described herein.
The Acquiring Fund Board recommends that you vote "FOR" the issuance of
additional Acquiring Fund Common Shares in connection with the Reorganization.
------------------------------------------------------------------------------
PROPOSAL 1: REORGANIZATION OF THE TARGET FUND
------------------------------------------------------------------------------
The Reorganization seeks to combine two similar Funds to achieve certain
economies of scale and other operational efficiencies and the Target Fund
shareholders will benefit from greater diversification. The Target Fund seeks to
offer its shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes. As such, the Target Fund invests
substantially all of its total assets in Florida municipal securities, which are
exempt from such tax; however, effective January 1, 2007, the State of Florida
repealed the intangible personal property tax, thereby eliminating the
Florida-specific tax benefit to Florida taxpayers of investing in the Fund.
Thus, the Board of Trustees of the Funds has determined that the Reorganization
of the Target Fund into the similar Acquiring Fund would benefit common
shareholders.
Each Fund is registered as a diversified, closed-end management investment
company under the 1940 Act. Each Fund pursues the same investment objective to
seek to provide shareholders with a high level of current income exempt from
federal income taxes, consistent with preservation of capital. The Target Fund
also seeks to offer its shareholders the opportunity to own securities exempt
from Florida intangible personal property taxes. The Target Fund intends to
achieve its investment objective primarily by investing in a portfolio of
Florida municipal securities which the Target Fund's investment adviser believes
does not involve undue risk to income or principal. Under normal market
conditions, the Target Fund invests substantially all of its total assets in
Florida municipal securities rated investment grade at the time of investment.
The Acquiring Fund seeks to achieve its investment objective primarily by
investing in a diversified portfolio of municipal securities which the Acquiring
Fund's investment adviser believes does not involve undue risk to income or
principal. Under normal market conditions, the Acquiring Fund invests
substantially all of its total assets in municipal securities rated investment
grade at the time of investment. The Acquiring Fund generally will not invest
more than 25% of its assets in issuers located in the same state. The Funds are
managed by the same investment advisory personnel.
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 Acquiring Fund Common Shares and
Acquiring Fund APS. The Target Fund will distribute Acquiring Fund Common Shares
to
14
holders of Target Fund Common Shares and Acquiring Fund APS to holders of Target
Fund APS, 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 on the Target Fund Common Shares held immediately prior to the
Reorganization less the costs of the Reorganization (though common shareholders
may receive cash for fractional shares). The aggregate liquidation preference of
Acquiring Fund APS received in the Reorganization will equal the aggregate
liquidation preference of Target Fund APS held immediately prior to the
Reorganization. The Acquiring Fund will continue to operate as a registered
closed-end investment company with the investment objective and policies
described in this Joint Proxy Statement/Prospectus.
The Target Fund Board, based upon its evaluation of all relevant information,
anticipates that the common shareholders of the Target Fund will benefit from
the Reorganization. In particular, the Target Fund Board believes, based on data
presented by the Target Fund's investment adviser, that common shareholders of
the Target Fund will experience a reduced annual operating expense ratio as a
result of the Reorganization. The combined fund resulting from the
Reorganizations will have a larger asset base than either Fund 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 common shareholders of the combined fund. In addition,
shareholders of the Target Fund are expected to benefit from improved
diversification.
RISK FACTORS AND SPECIAL CONSIDERATIONS
Because each Fund, under normal market conditions, invests substantially all
of its total assets in municipal securities rated investment grade at the time
of investment, any risks inherent in such investments are equally applicable to
both Funds and will apply to the combined fund after the Reorganization. As the
Target Fund invests primarily in Florida municipal securities, it is subject to
additional risks applicable to such investments. See "-- Florida Municipal
Securities Risk." The Reorganization itself 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
15
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 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. Each Fund invests substantially
all of its total assets in municipal securities rated investment grade at the
time of investment. 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. Each Fund may also invest up to 20% of
its total assets in municipal securities that are rated, at the time of
investment, BB/Ba or B by S&P, Moody's or Fitch or that are unrated, but
determined to be of comparable quality by its investment adviser. To the extent
that a Fund may hold securities rated below investment grade, it may be subject
to a higher level of credit risk than a fund that holds solely investment grade
securities. The credit quality of below-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 its
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.
16
INCOME RISK
The income shareholders receive from a Fund is based primarily on interest
rates, 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 substantially all of the municipal securities in which the Funds
invest 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
them 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 an unlimited portion of its assets in municipal
securities 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 on municipal securities or
otherwise adversely affect the current federal or state tax status of municipal
securities.
FLORIDA MUNICIPAL SECURITIES RISK
Since the Target Fund, under normal market conditions, invests substantially
all of its total assets in Florida municipal securities, it is more exposed to
risks affecting issuers of Florida municipal securities than the Acquiring Fund.
Many different social, environmental and economic factors may affect the
financial condition of Florida and its political subdivisions. The yields of
Florida municipal securities may
17
move differently and adversely compared to the yields of overall debt securities
markets. The Target Fund had faced the additional risk of investing in Florida
Municipal securities that changes in applicable tax laws or tax treatments
reduce or eliminate the certain Florida-specific tax benefits. On January 1,
2007, the State of Florida repealed the intangible personal property tax,
thereby eliminating the Florida-specific tax benefits to Florida taxpayers of
investing in the Fund.
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 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 Fund's 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, reviews 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
18
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 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 a Fund were not leveraged as long as such 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 each Fund's net realized capital gains is generally payable to
holders of a Fund's Common Shares, the use of leverage will increase the amount
of such gains distributed to holders of a Fund's 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
19
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 a Fund
were not leveraged. If a Fund is liquidated, holders of that 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 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.
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 RISK. The dividend rate for the Preferred Shares of each Fund normally
is set through an auction process. In the auction, holders of Preferred Shares
may indicate the dividend rate at which they would be willing to hold or sell
their shares
20
or purchase additional shares. An auction fails if there are more Preferred
Shares offered for sale than there are buyers, in which case holders of
Preferred Shares may not be able to sell their shares. Also, if holders of
Preferred Shares 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 holders of Preferred Shares buy shares or
elect to retain shares without specifying a dividend rate below which they would
not wish to buy or continue to hold those shares, they could receive a lower
rate of return on their shares than the market rate. Finally, the dividend
period for the Preferred Shares may be changed by a Fund, subject to certain
conditions, including notice to preferred shareholders, which could also affect
the liquidity of an investment in Preferred Shares.
SECONDARY MARKET RISK. Broker-dealers may maintain a secondary trading market
in the Preferred Shares outside of auctions; 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 holders of Preferred Shares with a
liquid trading market. It may not be possible to sell Preferred Shares between
auctions, 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 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 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 voluntarily
redeem preferred shares under certain circumstances in order to meet asset
coverage tests.
COMPARISON OF THE FUNDS
INVESTMENT OBJECTIVE AND POLICIES
The Funds pursue the same investment objective and have similar investment
policies. Each Fund's investment objective is to seek to provide shareholders
with a high level of current income exempt from federal income taxes, consistent
with preservation of capital. The Target Fund also seeks to offer its
shareholders the opportunity to own securities exempt from Florida intangible
personal property taxes.
21
Each Fund seeks to achieve its investment objective primarily by investing in
a portfolio of municipal securities which the its investment adviser believes
does not involve undue risk to income or principal. Under normal market
conditions, each Fund invests at least 80% of its total assets in municipal
securities. The foregoing policy is a fundamental policy of each Fund and cannot
be changed without shareholder approval. In normal market conditions, the
Acquiring Fund invests substantially all of its total assets in municipal
securities rated investment grade at the time of investment. In normal market
conditions, the Target Fund invests substantially all of its total assets in
Florida municipal securities rated investment grade at the time of investment.
Each Fund considers securities rated BBB or higher by S&P or Baa or higher by
Moody's and equivalent rated short-term obligations to be investment grade. Up
to 20% of each Fund's total assets may be invested in securities below
investment grade (but not lower than B by S&P, Moody's or Fitch) and/or in
unrated municipal securities (including securities deemed by its investment
adviser to be investment grade or lower, but not lower than B). Each Fund may be
more dependent upon the investment adviser's investment analysis of such unrated
municipal securities than is the case with respect to rated municipal
securities.
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 determining whether
a Fund will retain or sell such a security, the investment adviser may consider
such factors as the investment 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.
The most significant difference between the Funds is that the Target Fund
invests substantially all of its total assets in Florida municipal securities,
whereas the Acquiring Fund invests substantially all of its total assets in
municipal securities and generally will not invest more than 25% of its assets
in issuers located in the same state. As such, the Target Fund is more likely to
be affected by adverse political, economic or regulatory developments affecting
issuers of Florida municipal securities.
Each Fund may invest in municipal securities subject to the alternative
minimum tax provisions of federal tax law. Neither Fund has established any
limit on the percentage of its respective portfolio 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 either Fund may be taxable under the alternative minimum tax. The Funds may
not be suitable investments for investors who are already subject to the federal
alternative minimum tax or who would become
22
subject to the federal alternative minimum tax as a result of an investment in
the Funds.
Each Fund may engage in certain hedging transactions and may purchase and sell
put and call options on municipal securities and municipal securities indices.
Such transactions are not treated as investments in municipal securities for the
purpose of each Fund's policy of investing 80% of its total assets in municipal
securities.
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. Florida
municipal securities are municipal securities the interest on which, in the
opinion of bond counsel or other counsel to the issuer of such securities is, at
the time of issuance, exempt from Florida intangible personal property taxes;
however, as of January 1, 2007, the State of Florida repealed the intangible
personal property tax, thereby eliminating the Florida-specific tax benefit to
Florida investors of investing in Florida municipal securities.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. "General obligation" securities
are secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. "Revenue" securities are usually payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source. Industrial development bonds are usually revenue securities, the
credit quality of which is normally directly related to the credit standing of
the industrial user involved.
Within these principal classifications of municipal securities, there are a
variety of categories of municipal securities, including fixed and variable rate
securities, municipal bonds, municipal notes, municipal leases, custodial
receipts, participation certificates and municipal securities the terms of which
include elements of, or are similar in effect to, certain Strategic Transactions
in which the Funds may engage. Variable rate securities bear rates of interest
that are adjusted periodically according to formulae intended to reflect market
rates of interest and include securities whose rates vary inversely with changes
in market rates of interest. Municipal notes include tax, revenue and bond
anticipation notes of short maturity, generally less than three years, which are
issued to obtain temporary funds for various public purposes. Municipal leases
are obligations issued by state and local governments or authorities to finance
the acquisition of equipment and facilities. Certain municipal lease obligations
may include "nonappropriation" 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.
23
Custodial receipts are underwritten by securities dealers or banks and evidence
ownership of future interest payments, principal payments or both on certain
municipal securities. Participation certificates are obligations issued by state
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. Municipal securities may not
be backed by the faith, credit and taxing power of the issuer. The Funds may
also invest in municipal securities backed by original issue insurance or
secondary market insurance (collectively, "insurance").
The yields of municipal securities depend on, among other things, general
money market conditions, general conditions of the municipal securities market,
size of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of S&P and Moody's represent their opinions of the quality of
the municipal securities they undertake to rate. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, municipal securities with the same maturity, coupon and rating may
have different yields while municipal securities of the same maturity and coupon
with different ratings may have the same yield.
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. Under normal market
conditions, longer-term municipal securities generally provide a higher yield
than short-term municipal securities of similar credit quality and therefore
each Fund generally emphasizes investments in municipal securities with
long-term maturities. 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 an securities of different maturities and its
expectations of future changes in interest rates.
Each Fund may also invest in inverse floating rate investments. Inverse
floating rate investments are variable rate debt instruments that pay interest
at rates that move in the opposite direction of prevailing interest rates.
Inverse floating rate investments tend to underperform the market for fixed rate
bonds in a rising interest rate environment, but tend to outperform the market
for fixed rate bonds when interest rates decline or remain relatively stable.
Inverse floating rate investments have varying degrees of liquidity. Inverse
floating rate investments in which each Fund may invest may include derivative
instruments, such as residual interest bonds ("RIBs") or tender option bonds
("TOBs"). Such instruments are typically created by a special purpose trusts
that hold long-term fixed rate bonds and sells two classes of beneficial
interests: short-term floating rate interests, which are sold to third party
investors, and the inverse floating residual interests, which are purchased by a
Fund. The short-term floating rate interests have first priority on the cash
flow from the bond held by the special purpose trust and a Fund is paid the
24
residual cash flow from the bond held by the special purpose trust. Each Fund
generally invests in inverse floating rate investments that include embedded
leverage, thus exposing the Fund to greater risks and increased costs. The
market value of a "leveraged" inverse floating rate investment generally will
fluctuate in response to changes in market rates of interest to a greater extent
than the value of an unleveraged inverse floating rate investment. The extent of
increases and decreases in the value of inverse floating rate investments
generally will be larger than changes in an equal principal amount of a fixed
rate securities having similar credit quality, redemption provisions and
maturity, which may cause each Fund's net asset value to be more volatile than
if it had not invested in inverse floating rate investments. Consistent with
applicable SEC guidance, to the extent that a Fund has ongoing obligations to
any party in connection with investments in inverse floating rate investments,
any such obligations will not be senior securities for purposes of the 1940 Act
or borrowings for purposes of a Fund's limitations on borrowings provided that
the Fund segregates an amount of cash and/or liquid securities equal in value to
its obligations in respect of such inverse floating rate investments. Each Fund
will not invest more than 15% of its net assets in inverse floating rate
investments.
Each Fund may invest more than 25% of its total assets in a particular segment
of the municipal securities market if the Adviser determines that the yields
available from obligations in a particular segment justify the additional risks
of a larger investment in such segment.
Under normal market conditions, the Target Fund invests substantially all of
its total assets in Florida municipal securities. Therefore it is more
susceptible to factors adversely affecting issuers of Florida municipal
securities than the Acquiring Fund. The Acquiring Fund does not have a policy
limiting its investments in municipal securities whose issuers are located in
the same state. However, it is not the present intention of the Acquiring Fund
to invest more than 25% of the value of its total assets in issuers located in
the same state. If the Acquiring Fund were to invest more than 25% of its total
assets in issuers located in the same state, it would be more susceptible to
adverse economic, business or regulatory conditions in that state.
MUNICIPAL LEASES AND CERTIFICATES OF PARTICIPATION. 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 is ordinarily backed
by the municipality's covenant to budget for, appropriate and make the payments
due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in
25
future years unless money is appropriated for such purpose on a yearly basis.
Although non-appropriation lease obligations are often secured by the underlying
property, disposition of the property in the event of foreclosure might prove
difficult.
There is no limitation on the percentage of either Fund's assets that may be
invested in lease obligations that contain non-appropriation clauses. In
evaluating such lease obligations, the Adviser will consider such factors as it
deems appropriate, which may include (1) whether the lease can be cancelled, (2)
the ability of the lease obligee to direct the sale of the underlying assets,
(3) the general creditworthiness of the lease obligor, (4) the likelihood that
the municipality will discontinue appropriating funding for the leased property
in the event such property is no longer considered essential by the
municipality, (5) the legal recourse of the lease obligee in the event of such a
failure to appropriate funding and (6) any limitations which are imposed on the
lease obligor's ability to utilize substitute property or services than those
covered by the lease obligation. The Funds invest in lease obligations which
contain non-appropriation clauses only if such obligations are rated investment
grade at the time of investment or if the Adviser believes, at the time of
investment, such obligations have credit characteristics equivalent to, and to
be of comparable quality as, securities that are rated investment grade.
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.
TEMPORARY DEFENSIVE STRATEGIES. At times, the Adviser may judge that
conditions in the markets for 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 other
investment grade municipal securities, including liquid, high-quality,
short-term municipal securities. If these other municipal securities are not
available or, in the Adviser's judgment, do not afford sufficient protection
against adverse market conditions, each Fund may invest in investment grade
taxable securities. To the extent that a Fund invests in taxable securities for
temporary defensive purposes, that Fund will not be invested in a manner
primarily designed to achieve its investment objective of seeking to provide
common shareholders with a high level of current income exempt from federal
income tax.
To the extent that the use of certain of these strategies produces taxable
income, this taxable income will be distributed on a pro rata basis among the
Preferred Shares and the 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
26
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 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
27
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 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.
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
28
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 of which have received) a short-term credit
rating of "A-1" from S&P or "P-1" from Moody's or an equivalent rating from any
other nationally recognized statistical rating organization ("NRSRO").
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 the 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 the Fund to hold a security or instrument which it
might otherwise have sold. In the event of exercise of a call option sold by 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 the 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
29
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 the Fund, as seller, to deliver to the buyer the
specific type of financial instrument called for in the contract at a specific
future time for a specified price (or, with respect to index futures and
Eurodollar instruments, the net cash amount). Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such option.
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 the 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 a
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
30
security or other instrument except that, rather than settling by physical
delivery of the underlying instrument, they settle by cash settlement, i.e., an
option on an index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the index upon which the
option is based exceeds, in the case of a call, or is less than, in the case of
a put, the exercise price of the option (except if, in the case of an OTC
option, physical delivery is specified). This amount of cash is equal to the
excess of the closing price of the index over the exercise price of the option,
which also may be multiplied by a formula value. The seller of the option is
obligated, in return for the premium received, to make delivery of this amount.
The gain or loss on an option on an index depends on price movements in the
instruments making up the market, market segment, industry or other composite on
which the underlying index is based, rather than price movements in individual
securities, as is the case with respect to options on securities.
COMBINED TRANSACTIONS. 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 a 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 a 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
31
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 the Funds segregate cash and/or
liquid securities to the extent a 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
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.
32
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.
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.
Each 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 the Fund. Such income earned or realized by
either Fund is allocated to the Fund Common Shares and the 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 such Fund actually takes delivery of such
securities. These transactions are subject to market fluctuation; the value of
the municipal securities at delivery may be more or less than their purchase
price, and yields generally available on municipal securities when delivery
occurs may be higher than yields on the municipal securities obtained pursuant
to such transactions. Because
33
the 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 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, its investment policy with respect to
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 a Fund's outstanding voting
securities (defined in the 1940 Act as the lesser of (i) more than 50% of a
Fund's outstanding Common Shares and of its outstanding Preferred Shares, voting
by class, or (ii) 67% of such outstanding Common Shares and of its 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 investment restrictions of the Acquiring Fund are set
forth below. Except as noted herein the investment restrictions of the Target
Fund are similar. The Acquiring Fund may not:
1. Invest more than 25% of its assets in a single industry; however, as
described in the Fund's prospectus, the Fund may from time to time invest
more than 25% of its assets in a particular segment of the municipal
securities market.
2. 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 (3) below or with
respect to
34
hedging and risk management transactions or the writing of options within
limits described in the Fund's Prospectus.
3. 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 in the Fund's prospectus.
4. Make loans of money or property to any person, except to the extent the
securities in which the Fund may invest are considered to be loans and
except that the Fund may lend money or property in connection with
maintenance of the value of or the Fund's interest with respect to the
securities owned by the Fund.
5. Buy any securities "on margin." 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.
6. Sell any securities "short," write, purchase or sell puts, calls or
combinations thereof, or purchase or sell financial futures or options,
except as described in the Fund's prospectus.
7. Act as an underwriter of securities, except to the extent the Fund may be
deemed to be an underwriter in connection with the sale of securities held
in its portfolio.
8. Make investments for the purpose of exercising control or participation in
management, except to the extent that exercise by the Fund of its rights
under agreements related to municipal securities would be deemed to
constitute such control or participation, and except that the Fund may
purchase securities of other investment companies to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the 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.
9. 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) the 1940 Act, as amended from time to time, (ii) the
rules and regulations promulgated by the Securities and Exchange
Commission under
35
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
10. Invest in equity interests in oil, gas or other mineral exploration or
development programs except pursuant to the exercise by the Fund of its
rights under agreements relating to municipal securities.
11. Purchase or sell real estate, commodities or commodity contracts, except
to the extent the 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.
12. 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) the 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.
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 services more than three million retail investor
accounts, has extensive capabilities for managing institutional portfolios and
has more than $116 billion under management or supervision as of December 31,
2006. Van Kampen Investments is an indirect wholly owned subsidiary of Morgan
Stanley, a preeminent global financial services firm that maintains leading
36
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 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. 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.
The Adviser furnishes offices, necessary facilities and equipment and provides
administrative services to both the Target Fund and the Acquiring Fund, in
addition to providing investment advisory services to both the Target Fund and
the Acquiring Fund. A discussion regarding the basis for the Board of Trustees'
approval of the investment advisory agreement between the (i) Acquiring Fund and
the Adviser is available in the Acquiring Fund's Annual Report for the period
ended October 31, 2006 and (ii) the Target Fund and the Adviser is available in
the Target Fund's Annual Report for the period ended October 31, 2006.
Under a separate accounting services and legal services agreement, the Adviser
(or its affiliates) provides accounting and legal services to each Fund. The
Adviser (or its affiliates) allocates the cost of such services to each Fund.
PORTFOLIO MANAGEMENT. Each Fund's portfolio is managed by members of the
Adviser's Municipal Fixed Income team. The Municipal Fixed Income team is made
up of established investment professionals. Current members of the team jointly
and primarily responsible for the day-to-day management of each Fund's portfolio
are Thomas Byron and Robert Wimmel, each a Vice President of the Adviser, and
John Reynoldson, an Executive Director of the Adviser.
Thomas Byron has been associated with the Adviser in an investment management
capacity since 1981 and joined the team that manages each Fund in 1997. Robert
Wimmel has been associated with the Adviser in an investment management capacity
since 1996 and joined the team that manages each Fund in 2001. John Reynoldson
has been associated with the Adviser in an investment management capacity since
1987 and joined the team that manages each Fund in 2001.
Mr. Byron is the lead portfolio manager of each Fund. Messrs. Wimmel and
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.
37
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.
LEGAL PROCEEDINGS INVOLVING THE ADVISER. The Adviser and certain affiliates of
the Adviser are named as defendants in a derivative action 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 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
derivative action was coordinated with a direct action alleging related
violations of defendants' statutory disclosure obligations and fiduciary duties
with respect to the payments described above. In addition, this derivative
action was stayed by agreement of the parties pending rulings on the motions to
dismiss the direct action and the motion to dismiss another derivative action,
brought by the same plaintiff that brought this derivative action, alleging
market timing and late trading in the Van Kampen funds. In April 2006, the court
granted defendants' motion to dismiss the direct action. In June 2006, the court
granted defendants' motion to dismiss the market timing action. Accordingly, the
stay on this action was lifted. Plaintiff and defendants have agreed, subject to
court approval, that this action should be dismissed in light of the rulings
dismissing the two cases discussed above. The court has approved a notice to
shareholders regarding the dismissal.
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. On October 16, 2006,
38
pursuant to an order of the United States Supreme Court finding a lack of
appellate jurisdiction, the federal court of appeals vacated a prior order of
the district court dismissing the case with prejudice, and remanded the case to
the Illinois state court where it had been filed. In November 2006, defendants
again removed the case to the federal district court based on intervening
authority. In December 2006, plaintiffs moved to remand the case back to
Illinois state court. While defendants believe they have meritorious defenses,
the ultimate outcome of this matter is not presently determinable at this stage
of the litigation.
OTHER SERVICE PROVIDERS
CUSTODIAN, TRANSFER AGENT, AUCTION AGENT AND DIVIDEND PAYING AGENT. State
Street Bank and Trust Company is the custodian for each Fund. Its principal
business address is One Lincoln Street, Boston, Massachusetts, 02111.
Computershare Trust Company, N.A., c/o Computershare Investor Services, P.O. Box
43011, Providence, Rhode Island, 02940-3011, is the transfer agent, dividend
disbursing agent and registrar for the Common Shares of each Fund. Deutsche Bank
Trust Company Americas ("Deutsche Bank"), 280 Park Avenue, New York, New York
10017, is the auction agent and dividend paying agent for each Fund's APS.
39
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. The table below sets forth the capitalization of
the Target Fund and the Acquiring Fund as of October 31, 2006, and the pro forma
capitalization of the combined fund as if the Reorganization had occurred on
that date.
CAPITALIZATION AS OF OCTOBER 31, 2006 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
ACTUAL PRO FORMA
-------------------------- ----------
VAN KAMPEN VAN KAMPEN VAN KAMPEN
TRUST FOR TRUST FOR TRUST FOR
INVESTMENT INVESTMENT INVESTMENT
GRADE FLORIDA GRADE GRADE
MUNICIPALS MUNICIPALS MUNICIPALS
------------- ---------- ----------
NET ASSETS CONSIST OF:
Common Shares ($.01 par value)*.... $ 117 $ 438 $ 556
Paid in surplus.................... 181,662 664,624 846,044
Net unrealized appreciation........ 19,011 72,245 91,256
Accumulated undistributed net
investment income................ 249 2,330 2,579
Accumulated net realized gain
(loss)........................... (477) 3,730 3,253
NET ASSETS APPLICABLE TO
COMMON SHARES.................... 200,562 743,367 943,688**
PREFERRED SHARES ($.01 par value,
with liquidation preference of
$25,000)*........................ 106,000 430,000 536,000
NET ASSETS INCLUDING PREFERRED
SHARES........................... 306,562 1,173,367 1,479,688
---------------
* Based on the number of outstanding shares listed in "Outstanding Securities
of the Funds" table below.
** Reflects a non-recurring cost associated with the Reorganization of
approximately $548,000, with $40,115 to be borne by Target Fund common
shareholders, $297,338 to be borne by Acquiring Fund common shareholders and
$210,547 to be borne by the Adviser, assuming the Reorganization is approved
and completed.
40
OUTSTANDING SECURITIES OF THE FUNDS AS OF OCTOBER 31, 2006
AMOUNT OUTSTANDING
AMOUNT HELD EXCLUSIVE OF AMOUNT
AMOUNT BY FUND FOR ITS SHOWN IN
TITLE OF CLASS AUTHORIZED OWN ACCOUNT PREVIOUS COLUMN
-------------- ---------- --------------- -------------------
Van Kampen Trust for
Investment Grade Florida
Municipals
Common Shares............. Unlimited 0 11,711,732
Preferred Shares.......... 100,000,000 0 4,240
Van Kampen Trust for
Investment Grade
Municipals
Common Shares............. Unlimited 0 43,799,086
Preferred Shares.......... 100,000,000 0 17,200
ADDITIONAL INFORMATION ABOUT COMMON SHARES OF THE FUNDS
GENERAL. Common shareholders of a Fund are entitled to share equally in
dividends declared by the Fund's Board of Trustees payable to holders of the
common shares and in the net assets of the 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 the Fund's common shares will not be entitled to receive
any dividends or other distributions from the Fund unless all accumulated
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.
41
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
of the current fiscal year of each Fund, along with the net asset value and
discount or premium to net asset value for each quotation.
TARGET FUND
----------------------
NET ASSET PREMIUM NET ASSET PREMIUM
QUARTERLY PERIOD ENDING HIGH PRICE VALUE (DISCOUNT) LOW PRICE VALUE (DISCOUNT)
----------------------- ---------- --------- ---------- --------- --------- ----------
January 31, 2007...... $ $ % $ $ %
October 31, 2006...... $14.95 $17.13 (12.73) $14.32 $16.71 (14.30)
July 31, 2006......... $14.89 $16.86 (11.68) $14.04 $16.48 (14.81)
April 30, 2006........ $15.27 $17.12 (10.81) $14.50 $16.70 (13.17)
January 31, 2006...... $14.89 $17.11 (12.97) $14.09 $16.77 (15.98)
October 31, 2005...... $15.32 $17.50 (12.46) $14.41 $16.89 (14.68)
July 31, 2005......... $15.34 $17.63 (12.99) $14.79 $17.24 (14.21)
April 30, 2005........ $15.52 $17.78 (12.71) $14.48 $16.83 (13.96)
January 31, 2005...... $15.67 $17.51 (10.51) $14.85 $16.92 (12.23)
ACQUIRING FUND
----------------------
NET ASSET PREMIUM NET ASSET PREMIUM
QUARTERLY PERIOD ENDING HIGH PRICE VALUE (DISCOUNT) LOW PRICE VALUE (DISCOUNT)
----------------------- ---------- --------- ---------- --------- --------- ----------
January 31, 2007...... $ $ % $ $ %
October 31, 2006...... $15.05 $16.97 (11.31) $14.42 $16.52 (12.71)
July 31, 2006......... $14.81 $16.64 (11.00) $14.02 $16.23 (13.62)
April 30, 2006........ $14.91 $16.89 (11.72) $14.45 $16.44 (12.10)
January 31, 2006...... $14.97 $16.84 (11.10) $14.14 $16.49 (14.25)
October 31, 2005...... $15.20 $17.38 (12.54) $14.31 $16.79 (14.77)
July 31, 2005......... $15.17 $17.49 (13.26) $14.72 $17.13 (14.07)
April 30, 2005........ $15.40 $17.70 (12.99) $14.27 $16.81 (15.11)
January 31, 2005...... $15.40 $17.45 (11.75) $14.72 $16.93 (13.05)
As of [ ], 2007, (i) the net asset value per share for Target Fund
Common Shares was $[ ] and the market price per share was $[ ],
representing a discount to net asset value of [ ]), and (ii) the net asset
value per share for Acquiring Fund Common Shares was $[ ] and the market
price per share was $[ ], representing a discount to net asset value of
[ ]).
Common Shares of the Target Fund have traded at both a discount and a premium
to net asset value since the Target Fund's inception. Common Shares of the
Acquiring Fund have historically traded at a discount to net asset value. 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 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
42
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 the 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 such 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. Each Fund is required to allocate net capital gains and
other taxable income, if any, received by the Fund among its Common Shares and
Preferred Shares 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 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 the Fund's total assets (determined after deducting the amount
of such dividend or other distribution), less all liabilities and indebtedness
of the 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 a
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 limitation on a Fund's ability to make
distributions on its Common Shares could in certain circumstances impair the
ability of a 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 the Fund's status as a regulated investment company.
43
For information concerning the manner in which dividends and distributions to
holders of a Fund's Common Shares may be reinvested automatically in such 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, all common shareholders will
receive distributions of dividends and capital gains in cash. Computershare
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 currently 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 43010,
Providence, Rhode Island 02940-3010. 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. Both Target Fund APS 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. Both Funds' APS have a liquidation preference of $25,000 per share.
Neither Target Fund APS nor Acquiring Fund APS are traded on a stock exchange or
over-the-counter. Holders of each Fund's APS do not have preemptive rights to
purchase any shares of APS, 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.
SERIES. Under the 1940 Act, each Fund is permitted to have outstanding more
than one series of preferred shares so long as no single series has priority
over another to the distribution of assets of the Fund or the payment of
dividends. The Target Fund currently has two series of APS outstanding, Series A
APS and Series B APS. Except as described in the Prospectus offering Target Fund
APS, the terms of each series of Target Fund APS are the same. The Acquiring
Fund currently has seven series of APS outstanding, Series A APS, Series B APS,
Series C APS, Series D APS, Series E APS, Series F APS and Series G APS. Except
as described in the Prospectus offering Acquiring Fund APS, the terms of each
series of Acquiring Fund APS are the same. If the Reorganization is approved
44
and completed, the combined fund will have nine series of APS. The Acquiring
Fund will issue Series H APS and Series I APS in exchange for Target Fund APS.
The aggregate liquidation preference of each series will equal the aggregate
liquidation preference of the existing shares that the respective series
replaces. The number of days in the regular dividend period for each series, the
number of shares in each series and the liquidation preference per share will be
similar to the existing preferred shares.
PURCHASE AND SALE. APS of the Acquiring Fund and APS of the Target Fund are
purchased or sold using similar procedures. Series A APS of the Target Fund and
Series C APS and Series D APS of the Acquiring Fund generally are purchased and
sold through auctions generally conducted on the first business day of each
calendar month by Deutsche Bank, as the auction agent for the applicable Fund's
APS (the "Auction Agent") unless the applicable Fund elects to declare a special
dividend period. Series B APS of the Target Fund and Series A APS, Series B APS,
Series E APS, Series F APS and Series G APS of the Acquiring Fund generally are
purchased and sold through auctions generally conducted every 28 days by the
Auction Agent unless the applicable Fund elects to declare a special dividend
period. Unless otherwise permitted by the Funds, existing and potential holders
of each Fund's APS only may participate in auctions through broker-dealers who
have entered into agreements with the APS Auction Agent ("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 APS of either Fund.
DIVIDENDS AND DISTRIBUTIONS. The holders of the APS are entitled to receive,
when, as and if declared by the Board of Trustees of the Fund, out of funds
legally available therefore, cumulative cash dividends on their shares.
Dividends on a Fund's APS so declared and payable shall be paid in preference to
and in priority over any dividends so declared and payable on such Fund's Common
Shares.
Both Funds are required to allocate net capital gains and other taxable
income, if any, proportionately among Common Shares and APS. The amount of
taxable income allocated to the APS depends upon the amount of such income
realized by each Fund, but is generally not expected to be significant.
In normal circumstances, whenever a Fund intends to include any net capital
gains or other taxable income in any dividend on APS, such Fund will notify the
Auction Agent of the amount to be so included prior to the Auction establishing
the
45
applicable rate for such dividend. The Auction Agent will in turn notify each
broker-dealer who will notify existing and potential holders of each Fund's 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 a Fund retroactively allocates any net capital gains
or other income taxable for federal income tax purposes to its APS without
having given advance notice thereof, as described above, by reason of the fact
that such allocation is made as a result of (i) the realization of net capital
gains or other income taxable for federal income tax purposes, (ii) the
redemption of all or a portion of the Fund's outstanding APS or (iii) the
liquidation of the Fund, the Fund will make certain payments to holders of its
APS to which such allocation was made to substantially offset the tax effect
thereof. In no other instances will the relevant Fund be required to make
payments to holders of APS to offset the tax effect of any reallocation of net
capital gains or other taxable income.
While the Funds normally utilize the auction 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 Preferred Shares as of a recent auction.
AUCTION DATE PREFERRED SHARES RATE
------------ ---------------- ----
[ ] Target Fund APS--Series A [ ]
[ ] Target Fund APS--Series B [ ]
Acquiring Fund APS--Series
[ ] A [ ]
Acquiring Fund APS--Series
[ ] B [ ]
Acquiring Fund APS--Series
[ ] C [ ]
Acquiring Fund APS--Series
[ ] D [ ]
Acquiring Fund APS--Series
[ ] E [ ]
Acquiring Fund APS--Series
[ ] F [ ]
Acquiring Fund APS--Series
[ ] G [ ]
The dividend rates in effect at the closing of the Reorganization will be the
rates determined in the auction most recently proceeding such closing.
RATINGS. The Target Fund APS 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 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
46
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 Trustees
Establishing Preferred Shares of each Fund (each a "Certificate of Vote"), the
Board of Trustees of each Fund, without shareholder approval, may modify certain
definitions or restrictions that have been adopted by the 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 the Target Fund APS or Acquiring Fund APS 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 each Fund's Preferred
Shares are similar. It is anticipated that shares of each Fund's Preferred
Shares will generally be 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. The liquidation preference per share of each Fund's APS
is $25,000.
LIQUIDATION RIGHTS. Upon any liquidation, dissolution or winding up of either
Fund, whether voluntary or involuntary, the holders of each Fund's Preferred
Shares will be entitled to receive, out of the assets of such Fund available for
47
distribution to shareholders, before any distribution or payment is made upon
any of the Fund's Common Shares or any other capital shares of the Fund ranking
junior in right of payment upon liquidation to the 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. The
liquidation preference per share of each Fund's APS is $25,000. If the assets of
a Fund are insufficient to make the full liquidation payment on the Preferred
Shares of such Fund 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. 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 the Fund shall not be deemed or
construed to be a liquidation, dissolution or winding up of the Fund for this
purpose.
ADDITIONAL INFORMATION. For additional information, 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. Acquiring Fund 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 new series and the issuance of
additional Acquiring Fund 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 January 21, 1992 and
commenced operations on March 27, 1992; the Acquiring Fund was organized on
November 13, 1991 and commenced operations on January 24, 1992.
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 the Fund and provides for
indemnification and reimbursement of expenses out of the Fund's property for any
shareholder held
48
personally liable for the obligations of that Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the 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 the 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 the 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 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,
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 the Fund. The
transactions subject to these special approval requirements are: (i) the merger
or consolidation of the Fund or any subsidiary of the Fund with or into any
Principal Shareholder; (ii) the issuance of any securities of the 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 the Fund to any Principal Shareholder (except assets having an
aggregate fair market
49
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 the Fund
or any subsidiary thereof, in exchange for securities of the 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 the Fund is liable to the Fund or to any
shareholder, nor is any trustee, officer, employee or agent liable to any third
persons in connection with the affairs of the 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 the Fund property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a trustee or officer is entitled to be
indemnified against all liability in connection with the affairs of the 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 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 the 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
50
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 the Fund's investment
policies and strategies would have to be modified to assure sufficient portfolio
liquidity. In particular the 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 the 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 the 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.
Holders of Preferred Shares of 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 the Fund's Trustees until all
dividends have been paid or declared and set apart for payment. 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 other 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.
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, 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. For
additional information with respect to the voting rights of holders of Acquiring
Fund APS, 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.
51
FINANCIAL HIGHLIGHTS
TARGET FUND. The following schedule presents financial highlights for one
Target Fund Common Share outstanding throughout the periods indicated.
YEAR ENDED OCTOBER 31
2006 2005 2004 2003 2002 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 16.91 $ 17.37 $ 17.16 $ 17.79 $ 17.69 $ 16.53 $ 16.00 $ 17.89 $ 17.71 $ 17.32
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Net Investment Income.... 1.07(a) 1.01 1.05 1.10 1.20 1.16 1.25 1.26 1.28 1.30
Net Realized and
Unrealized Gain/Loss... .27 (.42) .57 .04 .12 1.40 .60 (1.79) .26 .50
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders:
Net Investment Income.... (.31) (.23) (.11) (.04) (.14) (.27) (.38) (.30) (.34) (.32)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
Total from Investment
Operations............... 1.02 .36 1.50 1.03 1.16 2.19 1.47 (.85) 1.19 1.46
Distributions Paid to
Common Shareholders:
Net Investment Income.... (.77) (.82) (1.03) (1.10) (.97) (.83) (.94) (.99) (.99) (.99)
Net Realized Gain........ (.04) -0- (.26) (.56) (.09) (.20) -0- (.05) (.02) (.08)
------- ------- ------- ------- ------- ------- ------- ------- -------- --------
NET ASSET VALUE, END OF
THE PERIOD............... $ 17.12 $ 16.91 $ 17.37 $ 17.16 $ 17.79 $ 17.69 $ 16.53 $ 16.00 $ 17.89 $ 17.71
======= ======= ======= ======= ======= ======= ======= ======= ======== ========
Common Share Market Price
at End of the Period..... $ 14.85 $ 14.52 $ 15.64 $ 16.32 $ 15.80 $ 15.14 $ 13.50 $ 14.75 $ 18.625 $17.1875
Total Return(b)........... 8.03% -1.97% 3.71% 14.37% 11.63% 20.31% -2.28% -15.79% 14.75% 11.00%
Net Assets Applicable to
Common Shares at End of
the Period (In
millions)................ $ 200.6 $ 198.0 $ 96.7 $ 95.4 $ 98.9 $ 98.4 $ 68.6 $ 66.4 $ 74.1 $ 73.3
Ratio of Expenses to
Average Net Assets
Applicable to Common
Shares(c)................ 1.27% 1.54% 1.44% 1.43% 1.52% 2.01% 1.78% 1.73% 1.68% 1.70%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares(c)......... 6.33% 5.85% 6.16% 6.33% 6.84% 7.72% 7.76% 7.36% 7.19% 7.47%
Portfolio Turnover........ 39% 15% 14% 25% 33% 23% 42% 24% 18% 2%
SUPPLEMENTAL RATIOS:
Ratio of Expenses
(Excluding Interest and
Residual Trust Expense)
to Average Net Assets
Applicable to Common
Shares(c)................ 1.17% 1.17% 1.27% 1.28% 1.41% 1.55% 1.68% 1.61% 1.58% 1.60%
Ratio of Expenses
(Excluding Interest and
Residual Trust Expense)
to Average Net Assets
Including Preferred
Shares(c)................ .73% .74% .80% .82% .89% .98% 1.03% 1.02% 1.01% 1.01%
Ratio of Expenses to
Average Net Assets
Including Preferred
Shares(c)................ .83% .97% .90% .91% .96% 1.14% 1.11% 1.11% 1.09% 1.09%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares(d)......... 4.51% 4.51% 5.51% 6.11% 6.05% 5.99% 5.39% 5.59% 5.27% 5.62%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding.............. 4,240 4,240 2,240 2,240 2,240 2,240 1,600 1,600 800 800
Asset Coverage Per
Preferred Share(e)....... $72,359 $71,725 $68,169 $67,613 $69,188 $68,932 $67,875 $66,491 $142,646 $141,590
Involuntary Liquidating
Preference Per Preferred
Share.................... $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $ 50,000 $ 50,000
Average Market Value Per
Preferred Share.......... $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $ 50,000 $ 50,000
(a) Based on average shares outstanding.
(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 distributions to preferred shareholders.
(d) Ratios reflect the effect of distributions 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.
52
ACQUIRING FUND. The following schedule presents financial highlights for one
Acquiring Fund Common Share outstanding throughout the periods indicated.
YEAR ENDED OCTOBER 31,
2006 2005 2004 2003 2002(A) 2001 2000
---- ---- ---- ---- ------- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 16.80 $ 17.34 $ 17.15 $ 17.46 $ 17.51 $ 16.22 $ 15.63
------- ------- ------- ------- ------- ------- --------
Net Investment Income............. 1.11(a) 1.09 1.09 1.10 1.18 1.25 1.32
Net Realized and Unrealized
Gain/Loss....................... 0.47 (0.48) .31 .09 .18 1.24 .64
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (0.29) (0.22) (.10) (.08) (.10) (.32) (.40)
Net Realized Gain............... (0.06) 0.00 (.01) (.03) (.07) -0- -0-
------- ------- ------- ------- ------- ------- --------
Total from Investment Operations... 1.23 0.39 1.29 1.08 1.19 2.17 1.56
Distributions Paid to Common
Shareholders:
Net Investment Income........... (0.82) (0.93) (1.00) (1.07) (1.03) (.88) (.97)
Net Realized Gain............... (0.24) 0.00 (.10) (.32) (.21) -0- -0-
------- ------- ------- ------- ------- ------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 16.97 $ 16.80 $ 17.34 $ 17.15 $ 17.46 $ 17.51 $ 16.22
======= ======= ======= ======= ======= ======= ========
Common Share Market Price at End of
the Period........................ $ 14.94 $ 14.61 $ 15.34 $ 15.58 $ 15.80 $ 14.94 $13.5625
Total Return(b).................... 9.86% 1.31% 5.76% 7.60% 14.56% 16.85% 6.41%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 743.4 $ 736.0 $ 468.3 $ 463.3 $ 471.6 $ 473.0 $ 438.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.28% 1.17% 1.27% 1.28% 1.41% 1.55% 1.68%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 6.68% 6.51% 6.43% 6.40% 6.89% 7.37% 8.44%
Portfolio Turnover................. 25% 25% 18% 23% 33% 29% 31%
SUPPLEMENTAL RATIOS:
Ratio of Expenses (Excluding
Interest and Residual Trust
Expenses) to Average Net Assets
Applicable to Common Shares(c).... 1.22% 1.54% 1.44% 1.43% 1.52% 2.01% 1.78%
Ratio of Expenses (Excluding
Interest and Residual Trust
Expenses) to Average Net Assets
Including Preferred Shares(c)..... .79% .97% .90% .91% .96% 1.14% 1.11%
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 0.81% 0.74% .80% .82% .89% .98% 1.03%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 4.94% 5.22% 5.82% 5.92% 6.30% 5.49% 5.86%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 17,200 17,200 10,600 10,600 10,600 10,600 10,600
Asset Coverage Per Preferred
Share(e).......................... $68,253 $67,812 $69,204 $68,721 $69,511 $69,623 $ 66,332
Involuntary Liquidating Preference
Per Preferred Share............... $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $ 25,000
Average Market Value Per Preferred
Share............................. $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 $ 25,000
YEAR ENDED OCTOBER 31,
1999 1998 1997
---- ---- ----
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $ 17.64 $ 17.29 $ 16.58
-------- -------- --------
Net Investment Income............. 1.33 1.35 1.37
Net Realized and Unrealized
Gain/Loss....................... (1.94) .42 .74
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders:
Net Investment Income........... (.32) (.34) (.35)
Net Realized Gain............... (.02) (.02) -0-
-------- -------- --------
Total from Investment Operations... (.95) 1.41 1.76
Distributions Paid to Common
Shareholders:
Net Investment Income........... (.99) (1.00) (1.05)
Net Realized Gain............... (.07) (.06) -0-
-------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD............................ $ 15.63 $ 17.64 $ 17.29
======== ======== ========
Common Share Market Price at End of
the Period........................ $13.6875 $ 17.00 $ 16.125
Total Return(b).................... -13.97% 12.40% 8.92%
Net Assets Applicable to Common
Shares at End of the Period (In
millions)......................... $ 422.2 $ 476.6 $ 467.0
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares(c)......................... 1.61% 1.58% 1.60%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(c).................. 7.87% 7.73% 8.16%
Portfolio Turnover................. 33% 29% 40%
SUPPLEMENTAL RATIOS:
Ratio of Expenses (Excluding
Interest and Residual Trust
Expenses) to Average Net Assets
Applicable to Common Shares(c).... 1.73% 1.68% 1.70%
Ratio of Expenses (Excluding
Interest and Residual Trust
Expenses) to Average Net Assets
Including Preferred Shares(c)..... 1.11% 1.09% 1.09%
Ratio of Expenses to Average Net
Assets Including Preferred
Shares(c)......................... 1.02% 1.01% 1.01%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares(d).................. 6.00% 5.80% 6.06%
SENIOR SECURITIES:
Total Preferred Shares
Outstanding....................... 10,600 5,300 5,300
Asset Coverage Per Preferred
Share(e).......................... $ 64,827 $139,932 $138,116
Involuntary Liquidating Preference
Per Preferred Share............... $ 25,000 $ 50,000 $ 50,000
Average Market Value Per Preferred
Share............................. $ 25,000 $ 50,000 $ 50,000
(a) Based on average shares outstanding.
(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.
53
INFORMATION ABOUT THE REORGANIZATION
GENERAL
Under the Reorganization Agreement (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 APS to be issued by the Acquiring Fund. The Acquiring
Fund will issue and cause to be listed on the NYSE and the 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
Acquiring Fund APS issued to the Target Fund will have an aggregate liquidation
preference equal to the aggregate liquidation preference of the Target Fund APS.
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 Acquiring Fund APS to the holders of Target Fund
APS. 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
Acquiring Fund APS received by it pro rata to its holders of record of Target
Fund Common Shares and Target Fund APS, 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 in an account other than 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 Dividend
Reinvestment Plan account). In the event of fractional shares held in an account
other than a Dividend Reinvestment 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
54
Fund for the former preferred shareholders of Target Fund APS would represent
the respective pro rata number of Acquiring Fund APS due such shareholder. See
"Terms of the Reorganization Agreement -- 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. 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
APS. Each holder of Target Fund APS would receive Acquiring Fund APS that would
have an aggregate liquidation preference immediately after the Closing Date
equal to the aggregate liquidation preference of that shareholder's Target Fund
APS 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, other than to reflect the costs of the Reorganization, and will
result in no dilution of the value per share of Acquiring Fund Common Shares,
Acquiring Fund APS or Target Fund APS. 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 APS 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 schedule of
dividend payment dates for Target Fund APS. The auction procedures for the
Acquiring Fund APS and the Target Fund APS are similar. As a result of the
Reorganization, the last dividend period for the Target Fund APS 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.
55
TERMS OF THE REORGANIZATION AGREEMENT
The following is a summary of the significant terms of the Reorganization
Agreement. This summary is qualified in its entirety by reference to the
Reorganization Agreement, 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 after the close of business on the NYSE (generally, 4:00
p.m., Eastern time) on the Closing 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 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 Preferred Shares of the Fund is divided by
the total number of common shares of the Fund outstanding at such time. Daily
expenses, including the fees payable to the Adviser, will accrue on the Closing
Date.
AMENDMENTS AND CONDITIONS. The Reorganization Agreement 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 Reorganization Agreement 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,
approval of the issuance of additional Acquiring Fund Common Shares by Common
Shareholders of the Acquiring Fund, receipt of an opinion of counsel as to U.S.
federal income 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 Reorganization Agreement, 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 Reorganization Agreement 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 Reorganization Agreement 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 certificate or certificates, a certificate or certificates representing the
number of Acquiring Fund Common Shares distributable with respect to such
holder's Target
56
Fund Common Shares, together with cash in lieu of any fractional Acquiring Fund
Common Shares held in an account other than 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 in an account
other than a Dividend Reinvestment 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 and
as shown in the table 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, as applicable, and cash in lieu of fractional shares, if any,
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. The Board of Trustees of
each Fund and management have agreed to limit the allocation of Reorganization
expenses to each Fund based on a maximum payback period of two years. To the
extent that the expenses of the Reorganization exceed such amount, the
additional expenses of the Reorganization will be borne by the Adviser. In the
event the
57
Reorganization is not completed, the Adviser will bear the costs associated with
the Reorganization.
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 Reorganization Agreement 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 Joint 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 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
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 solely for Acquiring Fund Common
Shares
58
and Acquiring Fund APS and the assumption by the Acquiring Fund of
substantially all of the 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 solely for Acquiring Fund Common Shares pursuant to the
Reorganization or all of his, her or its Target Fund APS 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
59
assume, among other things, that the Reorganization will be consummated in
accordance with the Reorganization Agreement and as described herein. An opinion
of counsel is not binding on the IRS or any court.
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
Reorganization Agreement requires the affirmative vote of shareholders of the
Target Fund representing more than 50% of the outstanding Target Fund Common
Shares and 50% of the outstanding Target Fund APS, each voting separately as a
class.
60
------------------------------------------------------------------------------
PROPOSAL 2: ISSUANCE OF ADDITIONAL ACQUIRING FUND COMMON SHARES
------------------------------------------------------------------------------
Pursuant to the Reorganization Agreement, which is described more fully under
"Proposal 1: Reorganization of the Target Fund" herein, the Acquiring Fund will
acquire substantially all of the assets and assume substantially all of the
liabilities of the Target Fund in exchange for Acquiring Fund Common Shares and
Acquiring Fund APS. The Target Fund will distribute Acquiring Fund Common Shares
to holders of Target Fund Common Shares and Acquiring Fund APS to holders of
Target Fund APS, and will then terminate its registration under the 1940 Act and
dissolve under applicable state law. The Acquiring Fund Board, based upon its
evaluation of all relevant information, anticipates that the Reorganization will
benefit holders of Acquiring Fund Common Shares.
The aggregate net asset value of Acquiring Fund Common Shares received in the
Reorganization will equal the aggregate net asset value on the Target Fund
Common Shares held immediately prior to the Reorganization, less the costs of
the Reorganization (though Target Fund common shareholders may receive cash for
fractional shares). The aggregate liquidation preference of Acquiring Fund APS
received in the Reorganization will equal the aggregate liquidation preference
Target Fund APS held immediately prior to the Reorganization. The Reorganization
will result in no dilution of net asset value of the Acquiring Fund Common
Shares. No gain or loss will be recognized by the Acquiring Fund or its
shareholders in connection with the Reorganization. The Acquiring Fund will
continue to operate as a registered closed-end investment company with the
investment objective and policies described in this Joint Proxy
Statement/Prospectus.
In connection with the Reorganization and as contemplated by the
Reorganization Agreement, the Acquiring Fund will issue additional Acquiring
Fund Common Shares and list such shares on the NYSE and the CHX. While
applicable state and federal law does not require the shareholders of the
Acquiring Fund to approve the Reorganization, applicable NYSE and CHX rules
require the common shareholders of the Acquiring Fund to approve the issuance of
additional Acquiring Fund Common Shares to be issued in connection with the
Reorganization.
SHAREHOLDER APPROVAL
Shareholder approval of the issuance of additional Acquiring Fund Common
Shares requires the affirmative vote of a majority of the votes cast on the
proposal, provided that the total votes cast on the proposal represents more
than 50% in interest of all securities entitled to vote on the proposal. For
more information regarding voting requirements, see the section entitled "Other
Information--Voting Information and Requirements" below.
61
------------------------------------------------------------------------------
OTHER INFORMATION
------------------------------------------------------------------------------
VOTING INFORMATION AND REQUIREMENTS
GENERAL. A list of shareholders of the each Fund entitled to be present and
vote at the Special Meeting will be available at the offices of such 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 Funds' Boards have fixed the close of business on March 23,
2007 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 [ ] Target Fund Common Shares
and [ ] Target Fund APS and the Acquiring Fund had outstanding [ ]
Acquiring Fund Common Shares and [ ] Acquiring Fund APS.
PROXIES. 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 each 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 Funds, 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 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 therein. Unless instructions to the contrary are marked, proxies will
be voted
62
"FOR" the approval of each proposal. Abstentions and broker non-votes (i.e.,
where a nominee such as a broker, holding shares for beneficial owners,
indicates that instructions have not been received from the beneficial owners,
and the nominee does not exercise discretionary authority) are not treated as
votes "FOR" a proposal.
With respect to Proposal 1, abstentions and broker non-votes have the same
effect as votes "AGAINST" the proposals since their approvals are based on the
affirmative vote of a majority of the total Target Fund Common Shares
outstanding and a majority of the total Target Fund APS outstanding, each voting
as a separate class. With respect to Proposal 2, abstentions will not be treated
as votes "FOR" the proposal but will be counted as votes cast on the proposal
and will therefore have the same effect as votes "AGAINST" the proposal. Broker
non-votes will not be treated as votes "FOR" the proposal and will not be
counted as votes cast on the proposal and will therefore have the effect of
reducing the aggregate number of shares voting on the proposal and reducing the
number of votes "FOR" required to approve the proposal.
With respect to each proposal, a majority of the outstanding shares entitled
to vote on the 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 APS. Pursuant to the rules of
the NYSE, Target Fund APS 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
Special Meeting or, if adjourned, one business day before the day to which the
Special Meeting is adjourned. These conditions include, among others, that (i)
at least 30% of the Target Fund's preferred shares outstanding have voted on the
Reorganization and (ii) less than 10% of the Target Fund's preferred shares
outstanding have voted against the Reorganization. In such instance, the
broker-dealer firm will vote such uninstructed Target Fund APS on the
Reorganization in the same proportion as the votes cast by all holders of Target
Fund APS who voted on the Reorganization. The 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 Fund exists.
63
SHAREHOLDER INFORMATION
As of March 23, 2007, to the knowledge of the Funds, no shareholder owned
beneficially more than 5% of the outstanding common shares of either Fund.
The table below indicates the number of common shares of the Funds owned
beneficially by each trustee that owns shares of the Funds, as of March 23,
2007, and the percentage of such Trustee's Common Shares to the total Common
Shares outstanding for such Fund.
TARGET FUND ACQUIRING FUND
---------------------------------- ----------------------------------
COMMON SHARES OWNED COMMON SHARES OWNED
AS A PERCENTAGE OF AS A PERCENTAGE OF
COMMON COMMON SHARES COMMON COMMON SHARES
INDEPENDENT TRUSTEES SHARES OWNED OUTSTANDING SHARES OWNED OUTSTANDING
-------------------- ------------ ------------------- ------------ -------------------
Arch....................
Choate..................
Dammeyer................
Heagy...................
Kennedy.................
Kerr....................
Nelson..................
Sonnenschein............
Woolsey.................
INTERESTED TRUSTEE
Whalen..................
To the knowledge of the Funds, no executive officers owned, directly or
beneficially, Common Shares of the Funds as of March 23, 2007 and no trustees or
executive officers owned Preferred Shares of the Funds as of that date.
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 Fund's equity securities to file forms with the SEC
and the NYSE, as applicable, reporting their affiliation with the Fund and
reports of ownership and changes in ownership of Fund shares. These persons and
entities are required by SEC regulation to furnish the 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.
SHAREHOLDER PROPOSALS
To be considered for presentation at a shareholder's meeting, rules
promulgated by the SEC generally require that, among other things, a
shareholder's proposal must be received at the offices of the relevant Fund a
reasonable time before solicitation is made. Timely submission of a proposal
does not necessarily mean that
64
such proposal will be included. Any shareholder who wishes to submit a proposal
for consideration at a meeting of such shareholder's Fund should send such
proposal to the relevant Fund at the principal executive offices of the Fund at
1221 Avenue of the Americas, New York, New York 10020.
Information regarding the deadline for timely submission of proposals intended
to be presented at the year 2008 Annual Meetings of the Funds will be provided
in the proxy statement relating to the 2007 Annual Meetings of the Funds, which
is expected to take place later this year. If the Reorganization of the Target
Fund is approved and completed prior to its 2007 Annual Meeting, such Fund will
cease to exist and will not hold its 2007 Annual Meeting.
SOLICITATION OF PROXIES
Solicitation of proxies on behalf of the Funds is being made primarily by the
mailing of this Notice and Joint Proxy Statement/Prospectus with its enclosures
on or about April 3, 2007. Shareholders whose shares are held by nominees such
as brokers can vote their proxies by contacting their respective nominee. In
addition to the solicitation 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 Funds have retained
Computershare Fund Services ("CFS") to make telephone calls to shareholders of
the Funds 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 the solicitation by CFS will cost approximately $[ ] for the
Target Fund, approximately $[ ] for the Acquiring Fund and approximately
$[ ] for the Adviser. 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) and, to the extent Reorganization expenses exceed certain
limits, the additional expenses will be borne by the Adviser.
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 Funds and the Acquiring Fund. Wayne W. Whalen, a partner of Skadden Arps,
is a trustee of both the Target Funds and the Acquiring Fund.
OTHER MATTERS TO COME BEFORE THE MEETING
The Board of Trustees of each Fund knows of no business other than that
described in this Joint Proxy Statement/Prospectus which will be presented for
consideration at the Special Meeting. If any other matters are properly
presented, it
65
is the intention of the persons named on the enclosed proxy card to vote proxies
in accordance with their best judgment.
Representatives of D&T will attend the Special Meeting, will have the
opportunity to make a statement if they desire to do so and will be available to
answer appropriate questions.
In the event that a quorum is present at the Special Meeting but sufficient
votes to approve any of the proposals 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 such proposals, provided that the Board of Trustees of each Fund 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.
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 Trust for Investment Grade
Florida Municipals
Van Kampen Trust for Investment
Grade Municipals
March , 2007
66
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 addresses 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;
I-1
- 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 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
to a 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
I-2
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 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.
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 S&P short-term rating is a current assessment of the likelihood of timely
payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: 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.
I-3
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 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. Ratings of "B-1", "B-2" and "B-3" may be assigned
to indicate finer distinctions within the "B" category. 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.
B-1: A short-term obligation rated "B-1" is regarded as having significant
speculative characteristics, but the obligor has a relatively stronger capacity
to meet its financial commitments over the short-term compared to other
speculative-grade obligors.
B-2: A short-term obligation rated "B-2" is regarded as having significant
speculative characteristics, and the obligor has an average speculative-grade
capacity to meet its financial commitments over the short-term compared to other
speculative-grade obligors.
B-3: A short-term obligation rated "B-3" is regarded as having significant
speculative characteristics, and the obligor has a relatively weaker capacity to
meet its financial commitments over the short-term compared to other
speculative-grade obligors.
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's believes that
such payments will be made during such grace period. The "D" rating also will be
used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
A short-term 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
I-4
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.
DUAL RATINGS
S&P assigns "dual" ratings to all debt issues that have a put option or demand
feature as part of their structure. The first rating addresses the likelihood of
repayment of principal and interest as due, and the second rating addresses only
the demand feature. The long-term debt rating symbols are used for bonds to
denote the long-term maturity and the commercial paper rating symbols for the
put option (for example, "AAA/A-1+"). With short-term demand debt, S&P note
rating symbols are used with the commercial paper rating symbols (for example,
"SP-1+/A-1+").
MOODY'S INVESTORS SERVICE INC. -- A brief description of the applicable
Moody's Investors Service, Inc. (Moody's) rating symbols and their meanings (as
published by Moody's) follows:
LONG-TERM OBLIGATION RATINGS
Moody's long-term obligation ratings are opinions of the relative credit risk
of fixed-income obligations with an original maturity of one year or more. They
address the possibility that a financial obligation will not be honored as
promised. Such ratings reflect both the likelihood of default and any financial
loss suffered in the event of default.
MOODY'S LONG-TERM RATING DEFINITIONS:
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.
I-5
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.
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.
MEDIUM-TERM NOTE RATINGS
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 (i.e., credit-linked
notes);
- 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.
For credit-linked securities, Moody's policy is to "look through" to the
credit risk of the underlying obligor. Moody's policy with respect to non-credit
linked obligations is to rate the issuer's ability to meet the contract as
stated, regardless of potential losses to investors as a result of non-credit
developments. In other words, as long as the obligation has debt standing in the
event of bankruptcy, we will assign the appropriate debt class level rating to
the instrument.
I-6
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 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 (not rated)
symbol.
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 debt 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-7
[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 FEBRUARY 16, 2007
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION OF THE ASSETS AND LIABILITIES OF
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
BY AND IN EXCHANGE FOR SHARES OF
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
DATED MARCH , 2007
This Statement of Additional Information is available to the shareholders
of Van Kampen Trust for Investment Grade Florida Municipals (the "Target Fund")
in connection with a proposed transaction (the "Reorganization") whereby Van
Kampen Trust for Investment Grade Municipals (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 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
Acquiring Fund APS to holders of auction preferred shares of the Target Fund
("Target Fund APS"), 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 Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement/Prospectus dated March , 2007
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 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 Statement of Additional
Information is a part.
TABLE OF CONTENTS
Trustees and Officers....................................... S-3
Investment Advisory Agreement............................... S-14
Other Agreements............................................ S-14
Fund Management............................................. S-16
Code of Ethics.............................................. S-18
Portfolio Transactions and Brokerage Allocation............. S-18
Other Information........................................... S-21
Financial Statements........................................ S-21
Pro Forma Financial Statements.............................. S-21
Appendix A--Agreement and Plan of Reorganization............ A-1
Appendix B--Certificate of Vote of Trustees Establishing
Preferred Shares.......................................... B-1
Appendix C--Annual Report of the Acquiring Fund............. C-1
Appendix D--Annual Report of the Target Fund................ D-1
Appendix E--Proxy Voting Policy and Procedures.............. E-1
Appendix F--Pro Forma Financial Statements.................. F-1
S-2
TRUSTEES AND OFFICERS
GENERAL
The business and affairs of each Fund are managed under the direction of
each Fund's Board of Trustees and each Fund's officers appointed by the Board of
Trustees. The Acquiring Fund and Target Fund share the same Board of Trustees
and executive officers. The tables below list the trustees and executive
officers of each 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 Statement of
Additional Information. Trustees of the Funds serve until reaching their
retirement age or until their successors are duly elected and qualified.
Officers are annually elected by the trustees.
INDEPENDENT TRUSTEES
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 FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (61) Trustee Trustee of Chairman and Chief Executive 73 Trustee/Director/
Blistex Inc. Target Officer of Blistex Inc., a Managing General
1800 Swift Drive Fund since consumer health care products Partner of funds in
Oak Brook, IL 60523 1992 and manufacturer. Director of the the Fund Complex.
of Heartland Alliance, a
Acquiring nonprofit organization serving
Fund since human needs based in Chicago.
1991 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 (68) Trustee Trustee of Prior to January 1999, 73 Trustee/Director/
33971 Selva Road each Fund Chairman and Chief Executive Managing General
Suite 130 since 2003 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.
S-3
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 FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (66) Trustee Trustee of President of CAC, L.L.C., a 73 Trustee/Director/
CAC, L.L.C. Target private company offering Managing General
4350 LaJolla Village Drive Fund since capital investment and Partner of funds in
Suite 980 1992 and management advisory services. the Fund Complex.
San Diego, CA 92122-6223 of Prior to February 2001, Vice Director of Quidel
Acquiring Chairman and Director of Corporation,
Fund since Anixter International, Inc., a Stericycle, Inc.,
1991 global distributor of wire, Ventana Medical
cable and communications Systems, Inc., and
connectivity products. Prior GATX Corporation, and
to July 2000, Managing Partner Trustee of The
of Equity Group Corporate Scripps Research
Investment (EGI), a company Institute. Prior to
that makes private investments January 2005, Trustee
in other companies. of the University of
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 (58) Trustee Trustee of Managing Partner of Heidrick & 73 Trustee/Director/
Heidrick & Struggles each Fund Struggles, an executive search Managing General
233 South Wacker Drive since 2003 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
1990, Executive Vice President
of The Exchange National Bank.
S-4
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 FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (54) Trustee Trustee of Director and President of the 73 Trustee/Director/
1744 R Street, NW each Fund German Marshall Fund of the Managing General
Washington, DC 20009 since 2003 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 (71) Trustee Trustee of Prior to 1998, President and 73 Trustee/Director/
14 Huron Trace each Fund Chief Executive Officer of Managing General
Galena, IL 61036 since 1992 Pocklington Corporation, Inc., Partner of funds in
an investment holding company. the Fund Complex.
Director of the Marrow Director of the Lake
Foundation. Forest Bank & Trust.
Jack E. Nelson (70) Trustee Trustee of President of Nelson Investment 73 Trustee/Director/
423 Country Club Drive each Fund Planning Services, Inc., a Managing General
Winter Park, FL 32789 since 2003 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 (66) Trustee Trustee of President Emeritus and 73 Trustee/Director/
1126 E. 59th Street each Fund Honorary Trustee of the Managing General
Chicago, IL 60637 since 1994 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.
S-5
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 FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (65) Trustee Trustee of Chief Communications Officer 73 Trustee/Director/
815 Cumberstone Road each Fund of the National Academy of Managing General
Harwood, MD 20776 since 2003 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.
S-6
INTERESTED TRUSTEE*
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 FUNDS SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (67) Trustee Trustee of Partner in the law firm of 73 Trustee/Director/
333 West Wacker Drive Target Skadden, Arps, Slate, Meagher Managing General
Chicago, IL 60606 Fund since & Flom LLP, legal counsel to Partner of funds in
1992 and funds in the Fund Complex. the Fund Complex.
of Director of the
Acquiring Abraham Lincoln
Fund since Presidential Library
1991 Foundation.
------------------------------------
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) 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.
S-7
OFFICERS
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUNDS SERVED DURING PAST 5 YEARS
Ronald E. Robison (68) President and Officer of President of funds in the Fund Complex since September 2005,
1221 Avenue of the Americas Principal each Fund and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Executive since 2003 since May 2003. Managing Director of Van Kampen Advisors
Officer Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution 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 of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.
Dennis Shea (53) Vice President Officer of Managing Director of Morgan Stanley Investment Advisors
1221 Avenue of the Americas each Fund Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10020 since 2006 and Van Kampen Advisors Inc. Chief Investment
Officer -- Global Equity of the same entities since February
2006. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006. Previously, Managing
Director and Director of Global Equity Research at Morgan
Stanley from April 2000 to February 2006.
J. David Germany (52) Vice President Officer of Managing Director of Morgan Stanley Investment Advisors
25 Cabot Square, Canary Wharf each Fund Inc., Morgan Stanley Investment Management Inc., the Adviser
London, GBR E14 4QA since 2006 and Van Kampen Advisors Inc. Chief Investment
Officer -- Global Fixed Income of the same entities since
December 2005. Managing Director and Director of Morgan
Stanley Investment Management Ltd. Director of Morgan
Stanley Investment Management (ACD) Limited since December
2003. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006.
Amy R. Doberman (44) Vice President Officer of Managing Director and General Counsel-U.S. Investment
1221 Avenue of the Americas each Fund Management; Managing Director of Morgan Stanley Investment
New York, NY 10020 since 2004 Management, Inc., Morgan Stanley Investment Advisors 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 since 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.
Stefanie V. Chang (40) Vice President Officer of Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary each Fund Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 since 2003 Complex.
S-8
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUNDS SERVED DURING PAST 5 YEARS
John L. Sullivan (51) Chief Compliance Officer of Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer each Fund August 2004. Prior to August 2004, Director and Managing
Oakbrook Terrace, IL 60181 since 1998 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 Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
James W. Garrett (38) Chief Financial Officer of Managing Director of Morgan Stanley Investment Management,
1221 Avenue of the Americas Officer and each Fund Inc. since December 2006; Chief Financial Officer and
New York, NY 10020 Treasurer since 2006 Treasurer of Morgan Stanley Institutional Funds since 2002
and of funds in the Fund Complex from January 2005 to August
2005 and since September 2006. Previously, Executive
Director of Morgan Stanley Investment Management Inc. from
2002 to December 2006.
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 Van Kampen Funds Inc. (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 such trustees to defer receipt of their
compensation until retirement and earn a return on such deferred amounts.
Amounts deferred are retained by the Funds and earn a rate of return determined
by reference to the return on the common shares of the Funds or other funds in
the Fund Complex as selected by the respective Non-Affiliated Trustee. To the
extent permitted by the 1940 Act, the Funds 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 Funds. 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 Funds 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 Funds. 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 Funds.
S-9
Additional information regarding compensation and benefits for trustees of
the Funds is set forth below for the periods described in the notes accompanying
the table.
COMPENSATION TABLE
Fund Complex
---------------------------------------------
Aggregate
Aggregate Estimated
Pension or Maximum Total
Retirement Annual Compensation
Aggregate Aggregate Benefits Benefits from before
Compensation Compensation Accrued as the Fund Deferral from
from the from the Part of Complex Upon Fund
Target Acquiring Expenses Retirement Complex
Name Fund(1) Fund(2) (3) (4) (5)
---- ------------ ------------ ----------- ------------- -------------
INDEPENDENT TRUSTEES
David C. Arch $ 35,373 $105,000 $259,418
Jerry D. Choate 80,600 105,000 254,394
Rod Dammeyer 64,051 105,000 259,418
Linda Hutton Heagy 25,769 105,000 254,394
R. Craig Kennedy 18,372 105,000 254,394
Howard J Kerr 140,735 143,750 259,418
Jack E. Nelson 92,953 105,000 238,523
Hugo F. Sonnenschein 64,671 105,000 259,418
Suzanne H. Woolsey 57,060 105,000 254,394
INTERESTED TRUSTEE
Wayne W. Whalen 67,997 105,000 259,418
(1) The amounts shown in this column represent the aggregate compensation before
deferral with respect to the Target Fund's fiscal year ended October 31,
2006. The following trustees deferred compensation from the Target Fund
during the fiscal year ended October 31, 2006: Mr. Choate, $ ; Mr.
Dammeyer, $ ; Ms. Heagy, $ ; Mr. Nelson, $ ; Mr.
Sonnenschein, $ ; and Mr. Whalen, $ . The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from the Target Fund as of Target Fund's fiscal
year ended October 31, 2006 is as follows: Mr. Branagan, $ ; Mr.
Choate, $ ; Mr. Dammeyer, $ ; Ms. Heagy, $ ; Mr. Kennedy,
$ ; Mr. Miller, $ ; Mr. Nelson, $ ; Mr. Rees, $ ; Mr.
Robinson, $ ; Mr. Rooney, $ ; Mr. Sisto, $ ; Mr.
Sonnenschein, $ ; and Mr. Whalen, $ . The deferred compensation
plan is described above the Compensation Table.
(2) The amounts shown in this column represent the aggregate compensation before
deferral with respect to the Acquiring Fund's fiscal year ended October 31,
2006. The following trustees deferred compensation from the Acquiring Fund
during the fiscal year ended October 31, 2006: Mr. Choate, $ ; Mr.
Dammeyer, $ ; Ms. Heagy, $ ; Mr. Nelson, $ ; Mr.
Sonnenschein, $ ; and Mr. Whalen, $ . The cumulative deferred
compensation (including interest) accrued with respect to each trustee,
including former trustees, from the Acquiring Fund as of Acquiring Fund's
fiscal year ended October 31, 2006 is as follows: Mr. Branagan, $ ; Mr.
Choate, $ ; Mr. Dammeyer, $ ; Ms. Heagy, $ ; Mr. Kennedy,
$ ; Mr. Miller, $ ; Mr. Nelson, $ ; Mr. Rees,
S-10
$ ; Mr. Robinson, $ ; Mr. Rooney, $ ; Mr. Sisto, $ ; Mr.
Sonnenschein, $ ; and Mr. Whalen, $ . 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 2006. 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 as of the date of this Statement of
Additional Information for each year of the 10-year period commencing in the
year of such trustee's anticipated retirement. The retirement plan is
described above the Compensation Table.
(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, 2006 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 of each Fund has the same 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 either Fund as defined by the 1940 Act and (2) are "independent" of each 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 each
Fund's independent registered public accounting firm, reviews with such
independent registered public accounting firm the scope and results of each
Fund's annual audit and considers any comments which the independent registered
public accounting firm may have regarding each Fund's financial statements,
accounting records 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 each Fund with management as well as with the
independent registered public accounting firm of each 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 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 each Fund that each Fund's audited
financial statements be included in each Fund's annual report to
S-11
shareholders for the most recent fiscal year for filing with the Securities and
Exchange Commission (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 each Fund's allocation of brokerage transactions and
soft-dollar practices and reviews the transfer agency and shareholder servicing
arrangements.
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 each 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 each Fund select and nominate any other nominee Independent Trustees for each
Fund. While the Independent Trustees of each 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 as described below.
During each Fund's last fiscal year, its Board of Trustees held
meetings. During each Fund's last fiscal year, its audit committee of the Board
held meetings, the brokerage and services committee of the Board held
meetings and the governance committee of the Board held meetings.
SHAREHOLDER COMMUNICATIONS
Shareholders may send communications to the Board of Trustees. Shareholders
should send communications intended for the Board by addressing the
communication directly to the Board (or individual Board members) and/or
otherwise clearly indicating in the salutation that the communication is for the
Board (or individual Board members) and by sending the communication to either
the Fund's office or directly to such Board member(s) at the address specified
for such trustee above. Other shareholder communications received by the Fund
not directly addressed and sent to the Board will be reviewed and generally
responded to by management, and will be forwarded to the Board only at
management's discretion based on the matters contained therein.
SHARE OWNERSHIP
Excluding any deferred compensation balances as described in the
Compensation Table, as of December 31, 2006, the most recently completed
calendar year prior to the date of this Statement of Additional Information,
each trustee of the Funds beneficially owned equity securities of each Fund and
of all of the funds in the Fund Complex overseen by the trustee in the dollar
range amounts specified below.
S-12
2006 TRUSTEE BENEFICIAL OWNERSHIP OF SECURITIES
INDEPENDENT TRUSTEES
TRUSTEE
-----------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- ------- -------- -------- -------- ------- ------- ------------ --------
Dollar range of equity securities
in the Target Fund................ none none none none none none none
Dollar range of equity securities
in the Acquiring Fund............. $1- none over $1- $1- none none $1- $10,001-
$10,000 $100,000 $10,000 $10,000 $10,000 $50,000
Aggregate dollar range of equity
securities in all registered
investment companies overseen by
trustee in the Fund Complex....... $50,001- $1- over $50,001- over $1- $1- $50,001- $10,001-
$100,000 $10,000 $100,000 $100,000 $100,000 $10,000 $10,000 $100,000 $50,000
INTERESTED TRUSTEE
TRUSTEE
--------
WHALEN
--------
Dollar range of equity securities in the Target Fund........ none
Dollar range of equity securities in the Acquiring Fund..... $10,001-
$50,000
Aggregate dollar range of equity securities in all
registered investment companies overseen by trustee in the
Fund Complex............................................... over
$100,000
Including deferred compensation balances (which are amounts deferred and
thus retained by the Funds as described in the Compensation Table), as of
December 31, 2006, the most recently completed calendar year prior to the date
of this Statement of Additional Information, each trustee of the Funds had in
the aggregate, combining beneficially owned equity securities and deferred
compensation of each Fund and of all of the funds in the Fund Complex overseen
by the trustee, the dollar range of amounts specified below.
2006 TRUSTEE BENEFICIAL OWNERSHIP AND DEFERRED COMPENSATION
INDEPENDENT TRUSTEES
TRUSTEE
--------------------------------------------------------------------------------------------
ARCH CHOATE DAMMEYER HEAGY KENNEDY KERR NELSON SONNENSCHEIN WOOLSEY
-------- -------- -------- -------- -------- -------- -------- ------------ --------
Dollar range of equity
securities and deferred
compensation in the Target
Fund........................... none none none none none none none none none
Dollar range of equity
securities and deferred
compensation in the Acquiring
Fund........................... $1- none over $1- $1- none none $1- $10,001-
$10,000 $100,000 $10,000 $10,000 $10,000 $50,000
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by trustee in Fund Complex..... over over over over over over over over $10,001-
$100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $50,000
S-13
INTERESTED TRUSTEE
TRUSTEE
--------
WHALEN
------
Dollar range of equity
securities and deferred
compensation in the Target
Fund...........................
Dollar range of equity
securities and deferred
compensation in the Acquiring
Fund........................... $10,001-
$50,000
Aggregate dollar range of equity
securities and deferred
compensation in all registered
investment companies overseen
by trustee in the Fund
Complex........................ over
$100,000
INVESTMENT ADVISORY AGREEMENT
Each Fund and the Adviser are parties to an investment advisory agreement
(each an "Advisory Agreement"). Under an Advisory Agreement, a Fund retains the
Adviser to manage the investment of such 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 such Fund's investment objective. The Adviser also
furnishes offices, necessary facilities and equipment, provides administrative
services to such Fund, renders periodic reports to such Fund's Board of Trustees
and permits its officers and employees to serve without compensation as trustees
or officers of such Fund if elected to such positions. A Fund, however, bears
the costs of its day-to-day operations, including auction agent fees, fees for
broker-dealers participating in auctions of such Fund's preferred shares,
custodian fees, legal and independent registered public accounting firm fees,
the costs of reports and proxies to shareholders, compensation of trustees of
such Fund (other than those who are affiliated persons of Van Kampen
Investments, the Adviser or Van Kampen Funds Inc.) 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 a Fund for any
error of judgment or of law, or for any loss suffered by a Fund in connection
with the matters to which the Advisory Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its obligations and duties, or by reason of
its reckless disregard of its obligations and duties under the Advisory
Agreement.
ADVISORY FEES
The Adviser received the approximate advisory fees from each Fund as
follows:
FISCAL YEAR ENDED OCTOBER 31,
------------------------------------
2006 2005 2004
---------- ---------- ----------
Target Fund.................................... $ $ $
Acquiring Fund................................. $ $ $
OTHER AGREEMENTS
ACCOUNTING SERVICES AGREEMENT
Each Fund has entered into an accounting services agreement pursuant to
which the Adviser provides accounting services to each Fund supplementary to
those provided by the custodian. Such services are expected to enable each Fund
to more closely monitor and
S-14
maintain its accounts and records. Each 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. Each 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.
LEGAL SERVICES AGREEMENT
Each 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, 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.
CHIEF COMPLIANCE OFFICER EMPLOYMENT AGREEMENT
Each Fund has entered into an employment agreement with John Sullivan and
Morgan Stanley pursuant to which Mr. Sullivan, an employee of Morgan Stanley,
serves as Chief Compliance Officer of the Fund and other Van Kampen funds. Each
Fund's Chief Compliance Officer and his staff are responsible for administering
the compliance policies and procedures of the Fund and other Van Kampen funds.
Each Fund reimburses Morgan Stanley for the costs and expenses of such services,
including compensation and benefits, insurance, occupancy and equipment,
information processing and communication, office services, conferences and
travel, postage and shipping. Each 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.
FUND PAYMENTS PURSUANT TO THESE AGREEMENTS
FISCAL YEAR ENDED
OCTOBER 31,
------------------------
2006 2005 2004
---- ---- ----
Pursuant to these agreements, Morgan Stanley or its
affiliates have received from the Target Fund
approximately*.......................................... $ $ $
Pursuant to these agreements, Morgan Stanley or its
affiliates have received from the Acquiring Fund
approximately*.......................................... $ $ $
* The Fund began accruing expenses under the Chief Compliance Officer Employment
Agreement on July 15, 2004.
S-15
FUND MANAGEMENT
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of December 31, 2006, Thomas Byron managed [ ] registered investment
companies with a total of approximately $[ ] billion in assets; 0 pooled
investment vehicles other than registered investment companies; and 0 other
accounts.
As of December 31, 2006, Robert Wimmel managed [ ] registered investment
companies with a total of approximately $[ ] billion in assets; 0 pooled
investment vehicles other than registered investment companies; and 0 other
accounts.
As of December 31, 2006, John Reynoldson managed [ ] registered investment
companies with a total of approximately $[ ] billion in assets; 0 pooled
investment vehicles other than registered investment companies; and [ ]
other accounts (which include separate accounts managed under certain "wrap fee
programs") with a total of approximately $[ ] 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 Funds, 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 Funds. The portfolio managers of the
Funds do not currently manage assets for other investment companies, pooled
investment vehicles or other accounts that charge a performance fee. In
addition, a conflict of interest could exist to the extent the Adviser has
proprietary investments in certain accounts, where portfolio managers have
personal investments in certain accounts or when certain accounts are investment
options in the Adviser's employee benefits and/or deferred compensation plans.
The portfolio manager may have an incentive to favor these accounts over others.
If the Adviser manages accounts that engage in short sales of securities of the
type in which the Funds invest, the Adviser could be seen as harming the
performance of the Funds for the benefit of the accounts engaging in short sales
if the short sales cause the market value of the securities to fall. 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.
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.
S-16
Discretionary compensation can include:
- Cash Bonus;
- Morgan Stanley's Long-Term Incentive Compensation Program awards -- a
mandatory program that defers a portion of discretionary year-end
compensation into restricted stock units or other awards or other
investments based on Morgan Stanley common stock that are subject to
vesting and other conditions;
- Investment Management Alignment Plan (IMAP) 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 100% of the IMAP deferral into a combination of the designated funds
they manage that are included in the IMAP fund menu;
- Voluntary Deferred Compensation Plans -- voluntary programs that permit
certain employees to elect to defer a portion of their discretionary
year-end compensation and directly or notionally invest the deferred
amount: (1) across a range of designated investment funds, including
funds advised by the Adviser or its affiliates; and/or (2) 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,
indices and/or peer groups. The Target Fund's primary benchmark is the
Lehman Brothers Florida Municipal Bond Index. The Acquiring Fund's
primary benchmark is the Lehman Brothers Municipal Bond Index. 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.
- 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
Inc., and the overall performance of the investment team(s) of which the
portfolio manager is a member.
S-17
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of each Fund's fiscal year end, none of the portfolio managers owned
equity securities of either Fund.
CODE OF ETHICS
The Funds 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 Funds, 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 Funds or other Van Kampen funds, or that such employees take unfair
advantage of their relationship with the Funds. 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 Funds 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.
The Code of Ethics for the Funds and the Adviser can be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at
1-202-942-8090. The Code of Ethics are available on the EDGAR Database on the
SEC's web site at http://www.sec.gov or you may obtain them, after paying a
duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the
SEC's Public Reference Section, Washington, D.C. 20549-0102.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Funds, 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 each Fund's
portfolio business, the policies and practices in this regard are subject to
review by each Fund's Board of Trustees.
As most transactions made by a Fund are principal transactions at net
prices, a Fund generally incurs little or no brokerage costs. The portfolio
securities in which a 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. A
Fund may also purchase certain money market instruments directly from an
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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 each 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 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 a 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 a Fund.
The Adviser also may place portfolio transactions, to the extent permitted
by law, with brokerage firms affiliated with a 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. Similarly, to the
extent permitted by law and subject to the same considerations on quality of
execution and comparable commission rates, the Adviser may direct an executing
broker to pay a portion or all of any commissions, concessions or discounts to a
firm supplying research or other services.
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 a 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 a Fund. In making such allocations among a
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of such Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the
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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 a Fund may effect securities
transactions, are affiliated persons (as defined in the 1940 Act) of a Fund or
affiliated persons of such affiliates, including Morgan Stanley or its
subsidiaries. Each 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 each Fund will be
reduced by all or a portion of the brokerage commission paid to affiliated
brokers.
Unless otherwise disclosed below, a Fund paid no commissions to affiliated
brokers during the last three fiscal years. Each Fund paid the following
commissions to brokers during the fiscal years shown:
AFFILIATED BROKERS
ALL BROKERS MORGAN STANLEY DW INC.
----------- ----------------------
COMMISSIONS PAID:
Acquiring Fund
Fiscal year ended October 31,
2006.............................. $ $0
Fiscal year ended October 31,
2005.............................. $ $0
Fiscal year ended October 31,
2004.............................. $ $0
Target Fund
Fiscal year ended October 31,
2006.............................. $ $0
Fiscal year ended October 31,
2005.............................. $ $0
Fiscal year ended October 31,
2004.............................. $ $0
FISCAL YEAR 2006 PERCENTAGES:
Acquiring Fund
Commissions with affiliate to total
commissions.................................... 0%
Value of brokerage transactions with affiliate to
total transactions............................. 0%
Target Fund
Commissions with affiliate to total
commissions.................................... 0%
Value of brokerage transactions with affiliate to
total transactions............................. 0%
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During the fiscal year ended October 31, 2006, neither Fund paid brokerage
commissions to brokers selected primarily on the basis of research services
provided to the Adviser.
OTHER INFORMATION
CUSTODY OF ASSETS
All securities owned by the Funds and all cash, including proceeds from the
sale of securities in each Fund's investment portfolio, are held by State Street
Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111, as
custodian. The custodian also provides accounting services to the Funds.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
The Funds' Proxy Voting Policy and Procedures are included as Appendix E to
this Statement of Additional Information. Information on how each 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 Funds performs an
annual audit of each Fund's financial statements. Each Fund's Board of Trustees
has engaged located at Chicago, Illinois 60606, 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, 2006, as included in Appendix C hereto, and
(ii) the audited financial statements of the Target Fund for fiscal year ended
October 31, 2006, as included in Appendix D hereto.
PRO FORMA FINANCIAL STATEMENTS
Set forth in Appendix F hereto are unaudited pro forma financial statements
of the Acquiring Fund giving effect to the Reorganization which include: (i) Pro
Forma Condensed Statements of Assets and Liabilities at October 31, 2006, (ii)
Pro Forma Condensed Statement of Operations for the one year period ended
October 31, 2006 and (iii) Pro Forma Portfolio of Investments at October 31,
2006.
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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 Trust for Investment Grade Florida Municipals, a
registered closed-end investment company, File No. 811-06538 (the "Target Fund")
and Van Kampen Trust for Investment Grade Municipals (the "Acquiring Fund"), a
registered closed-end investment company, File No. 811-06471, 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
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
October 31, 2006, and the audited financial statements
appearing therein, having been audited by [ ]
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 100,000,000
preferred shares of beneficial interest, par value $.01 per
share. The Board of Trustees of the Acquiring Fund has
designated 17,200 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
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
October 31, 2006, and the audited financial statements
appearing therein, having been audited by [ ],
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
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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 100,000,000 preferred
shares of beneficial interest, par value $.01 per share. The
Board of Trustees of the Acquiring Fund has designated 4,240
preferred shares as Auction Preferred Shares (the "Target Fund
APS"). Each outstanding Target Fund Common Share and each of
the outstanding Target Fund APS 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 APS 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 APS 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 APS. 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 APS prior to the Closing Date may be
shorter than the dividend period for such Target Fund APS
determined as set forth in the applicable Certificate of Vote
pertaining to such Target Fund APS.
(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,
2007, 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 APS, 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 APS 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 APS 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 APS by redelivering the
certificates or share deposit receipts evidencing ownership of (i) the Acquiring
Fund Common Shares to Computershare 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 APS on the basis of such holder's proportionate interest
in the aggregate liquidation preference and value of the Target Fund APS. 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
APS 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 APS, 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,
Computershare 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 in accordance with generally accepted accounting
principles.
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.
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(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
APS 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 APS, 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 APS 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
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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 APS 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, 2007, 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.
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(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 TRUST FOR INVESTMENT
GRADE FLORIDA MUNICIPALS
-----------------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
VAN KAMPEN TRUST FOR INVESTMENT
GRADE MUNICIPALS
-----------------------------------------
[Name]
[Title]
Attest: [Name]
[Title]
A-18
APPENDIX B
Federal Identification
No. 36-3797841
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 Trust
For Investment Grade Municipals (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 February 20, 1992, 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 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 5,300 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 March 10, 1992; have an Applicable
Rate for its Initial Dividend Period equal to 3.30% per annum; have an Initial
Dividend Payment Date of Monday, April 6, 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.
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 March 10, 1992; have an
Applicable Rate for its Initial Dividend Period equal to 3.30% per annum; have
an Initial Dividend Payment Date of Monday, April 13, 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 March 10, 1992; have an
Applicable Rate for its Initial Dividend Period equal to 3.40% per annum; have
an Initial Dividend Payment Date of Monday, July 6, 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 800 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 March 10, 1992; have an Applicable Rate for its Initial
Dividend Period equal to 3.40% per annum; have an Initial Dividend Payment Date
of Monday, July 6, 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).
PART I
1. Number of Shares; Ranking. (a) No fractional APS shall be
issued.
(b) 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.
(c) 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
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dividends and the distribution of assets upon dissolution, liquidation or
winding up of the affairs of the Fund.
2. 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 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.
(b) (i) Dividends shall be payable subject to
subparagraph (b) (ii) of this Section 2, on shares of:
(A) APS Series A, on Monday, April
6, 1992, and on each fourth Monday thereafter,
(B) APS Series B, on Monday, April
13, 1992, and on each fourth Monday thereafter,
(C) APS Series C, on Monday, July 6,
1992 and the first Business Day of each calendar month thereafter,
provided that in any calendar month in which an Auction Date for such
series is scheduled to occur, dividends shall be payable on the first
Business Day next succeeding such Auction Date, and
(D) APS Series D, on Monday, July 6,
1992, and the first Business Day of each calendar month thereafter,
provided that in any calendar month in which an Auction Date for such
series is scheduled to occur, dividends shall be payable on the first
Business Day next succeeding such Auction Date,
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 181 days, the day after the last day thereof, (2) with respect to a
Special Dividend Period of 181 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
fourth succeeding Monday if such series is APS Series A, each fourth succeeding
Monday if such series is APS Series B, and the first Business Day of each
calendar month thereafter, provided that in any calendar month in which an
Auction Date for such series is scheduled to occur, dividends shall be payable
on the first Business Day next succeeding such Auction Date if such series is
APS Series C, and the first Business Day of each calendar month thereafter,
provided that in any calendar month in which an Auction Date for such series is
scheduled to occur, dividends shall be payable on the first Business Day next
succeeding such Auction Date if such series is
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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.
(ii) In the case of dividends that would
otherwise be payable on a Sunday, Monday, Tuesday, Wednesday, Thursday,
Friday or Saturday as determined by subparagraph (b) (i) of this
Section 2, including clause (1), (2) or (3) of the proviso thereto, if
(i) the Sunday, 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 Sunday, Monday or Tuesday,
or (ii) the Wednesday, Thursday, Friday or Saturday 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, Friday or Saturday.
(iii) 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.
(iv) 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 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.
(v) 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.
(c) (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
B-4
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 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
B-5
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 I.
(ii) 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.
(d) Any dividend payment made on the APS shall first
be credited against the earliest accumulated but unpaid dividends due with
respect to such APS.
(e) 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.
(f) 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.
(g) The Board of Trustees shall not declare any
dividend (except a dividend payable in Common Shares), or declare any other
distribution, upon the Common
B-6
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.
3. 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.
(ii) 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.
(iii) 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, and on
the date of redemption.
(iv) 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
B-7
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 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.
(b) 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.
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(c) 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.
(d) 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 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.
(e) 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.
(f) 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
B-9
redemption shall be held in trust by the Auction Agent for the benefit of
Holders of shares so to be redeemed.
(g) 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.
(h) 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.
4. 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
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.
(b) If the Fund proposes to designate any succeeding
Subsequent Dividend Period of any series of APS as a Special Dividend Period of
more than 28 Rate Period Days 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.
B-10
(c) 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 the Fund shall deliver to the Auction Agent either:
(i) 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 (in which case the
succeeding Rate Period shall be a Minimum Dividend Period) 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; provided that, if such Special Dividend Period
consists of more than 28 Rate Period Days, such notice will 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
(ii) 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 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 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.
5. 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
B-11
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.
(b) 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:
(i) 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
(ii) 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.
(c) (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.
(ii) 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
B-12
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.
(iii) 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.
(iv) 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.
(d) (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)(42) 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
B-13
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.
(ii) 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:
B-14
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
(e) 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 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.
(f) 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.
B-15
(g) 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.
6. 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.
(b) 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.
(c) 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.
(d) 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
B-16
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.
(e) 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.
7. 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.
8. 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.
9. 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).
(b) 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
B-17
Auction Agent (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.
(c) 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 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").
(d) 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.
(e) 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.
B-18
(f) 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.
10. 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.
11. 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
B-19
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.
12. 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 by reason of the fact that such allocation is
made as a result of (i) the realization of net capital gains or other income
taxable for federal income tax purposes, (ii) the redemption of all or a portion
of the outstanding APS or (iii) the liquidation of the Fund (such allocation
being referred to herein as a "Retroactive Taxable Allocation"), the Fund will
simultaneously, if practicable, with such allocation but in no event later than
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.
13. 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:
(i) 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
B-20
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 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 or sell any anticipatory contracts pursuant to
which the Fund hedges the anticipated purchase of an asset prior to
completion of such purchase; (C) the Fund will not
B-21
enter into an option or futures 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 or
futures 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 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; (I) 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
(ii) incur any indebtedness, 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
(iii) 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
(b) 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:
(i) transactions in any reverse
repurchase agreements; or
(ii) lend portfolio securities; or
B-22
(iii) 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
(iv) 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
(v) 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
(vi) engage in short sale transactions;
or
(vii) 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
B-23
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 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.
14. 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.
15. 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:
"'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
B-24
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
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 I.
"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
B-25
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.
"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 Money Markets,
L.P., 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.
B-26
"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 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 and Receivables for Municipal Securities Sold which become due prior to the
Dividend Payment Date and interest with respect to municipal securities which is
payable to the Fund prior to the Dividend Payment Date.
"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 Trust For Investment Grade
Municipals, 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 I.
"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.
B-27
"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 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 with respect to APS Series A, APS
Series B, APS Series C and APS Series D, any Rate Period consisting of 28 Rate
Period Days.
"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:
B-28
RATING CATEGORY
RATING CATEGORY
-------------------------------------------------------------------------------------
EXPOSURE PERIOD 1+ (3),(4) Aaa(1) AA(1) A(1) BAA(1) OTHER(2) (V) MIG-1 (1),(3),(4) SP-1+(3),(4)
-------------------------- ------ ----- ---- ------ -------- ----------------------------------
7 Weeks...................... 151% 159% 168% 202% 229% 136% 148%
8 weeks or less but greater 154 164 173 205 235 137 149
than seven weeks...........
9 weeks or less but greater 158 169 179 209 242 138 150
than eight weeks...........
-----------------
(1) Moody's rating.
(2) California municipal securities not rated by Moody's but rated BBB-, BBB or
BBB+ by S&P.
(3) California municipal securities rated MIG-1 or VMIG-1 or, if not
rated by Moody's, rated 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.
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
B-29
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. For purposes of Minimum Issue Size, Maximum Underlying
Obligor and Maximum State or Territory Concentration, 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.
Where the Fund sells an asset and agrees to repurchase such asset in the future,
the Discounted Value of such asset will constitute a Moody's Eligible Asset and
the amount the Fund is required to pay upon repurchase of such asset will count
as a liability for the purposes of the APS Basic Maintenance Amount. Where the
Fund purchases an asset and agrees to sell it to a third party in the future,
cash receivable by the Fund thereby will 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; otherwise the Discounted Value of such
asset will constitute a Moody's Eligible Asset. For the purposes of calculation
of Moody's Eligible Assets, municipal securities which have been called for
redemption by the issuer thereof shall be valued at the lower of Market Value or
the call price of such municipal securities.
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 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."
B-30
"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 28-day, a three-month or a six-month 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 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 April 30,
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 I) 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.
B-31
"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 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 SP-1+ 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
B-32
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:
16. 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;
17. 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
18. 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).
"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
B-33
Payment Date which follows a scheduled Auction for such series and any period
thereafter from and including one Dividend Payment Date which follows a
scheduled Auction for such series to but excluding the next succeeding Dividend
Payment Date which follows a scheduled Auction 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; provided 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 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.
B-34
PART II
1. 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:
"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.
"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.
Prevailing Rating Percentage
----------------- ----------
"aa3"/AA- or higher..................................... 110%
"a3"/A-................................................. 125%
"baa3"/BBB-............................................. 150%
"ba3"/BB-............................................... 200%
Below "ba3"/BB-......................................... 250%
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
B-35
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.
"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:
(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 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:
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(A) the dividend rate on shares of
such series for the then-ending Rate Period, and
(B) 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
(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 of more than 28 Rate Period Days
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.
"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
B-37
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 II.
"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 II.
"Winning Bid Rate" shall have the meaning specified in paragraph (a) of
Section 4 of this Part II.
2. Orders by Existing Holders and Potential Holders. (a) Prior
to the Submission Deadline on each Auction Date:
(i) 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:
(A) 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;
(B) 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
(C) the number of Outstanding
shares, if any, of such series of APS held by such Existing Holder
which such Existing Holder
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offers to sell without regard to the Applicable Rate for such series
for the next succeeding Rate Period of such series;
and
(ii) 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."
(b) (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:
(A) 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:
(B) 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
(C) 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 II 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.
(ii) 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-39
(A) the number of Outstanding shares
of such series of APS specified in such Sell Order; or
(B) 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.
(iii) 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:
(A) 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
(B) 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.
(c) No Order for any number of shares of any series
of APS other than whole shares shall be valid.
3. 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:
(i) the name of the Bidder placing such
Order;
(ii) the aggregate number of shares of
such series of APS that are the subject of such Order;
(iii) to the extent that such Bidder is
an Existing Holder of shares of such series of APS:
(A) the number of shares, if any, of
such series of APS subject to any Hold Order placed by such Existing
Holder;
(B) 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
(C) the number of shares, if any, of
such series of APS subject to any Sell Order placed by such Existing
Holder; and
B-40
(iv) 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.
(b) 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%.
(c) 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 Outstanding shares of such series of APS held by
such Existing Holder and not subject to Orders submitted to the Auction Agent.
(d) 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:
(i) 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;
(ii) (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;
(B) 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;
(C) 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
B-41
(D) 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
(iii) 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.
(e) 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.
(f) An Order submitted by a Broker-Dealer to the
Auction Agent prior to the Submission Deadline on any Auction Date shall be
irrevocable.
4. 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:
(i) 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);
(ii) from the Submitted Orders for such
series whether:
(A) 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
(B) 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
(C) the number of Outstanding shares
of such series of APS subject to Submitted Sell Orders
B-42
(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
(iii) 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:
(A) (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
(B) (I) 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.
(b) 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:
(i) 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;
(ii) 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, which shall be a Minimum Dividend Period, thereof shall be
equal to the Maximum Rate for such series; or
(iii) 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) (I) 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
B-43
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).
5. 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:
(a) 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:
(i) 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;
(ii) 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;
(iii) 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;
(iv) 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 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
(v) 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
B-44
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
(b) 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:
(i) 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;
(ii) 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
(iii) 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.
B-45
(c) 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.
(d) 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 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.
(e) 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.
(f) 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.
6. Notification of Allocations. In normal circumstances,
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.
7. 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.
B-46
(b) 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 II 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.
(c) 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.
(d) 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.
IN WITNESS WHEREOF, the undersigned has caused this Certificate of Vote
to be executed as of March , 1992.
---------------------------
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 Trust For Investment Grade
California Municipals.
Before me,
---------------------------
Notary Public
My commission expires:
---------------------------
B-47
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING FOUR SERIES OF PREFERRED SHARES OF
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
Van Kampen Trust for Investment Grade Municipals, 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 a class 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 10,600 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 ("APS Series
D") (collectively, the APS Series A, APS Series B, APS Series
C and APS Series D are referred to as "APS").
B-48
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 March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.30% per annum, have an
Initial Dividend Payment Date of Monday, April 6, 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.
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 March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.30% per annum, have an
Initial Dividend Payment Date of Monday, April 13, 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 March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.40% per annum, have an
Initial Dividend Payment Date of Monday, July 6, 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.
B-49
APS Series D: A series of 1,600 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 March 10, 1992; have an Applicable Rate for
its Initial Dividend Period equal to 3.40% per annum, have an
Initial Dividend Payment Date of Monday, July 6, 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.
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 of 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 $25,000.
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.
Section 5 (g) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
B-50
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.
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 required to be made pursuant to Section 12 in
connection with the liquidation of the Fund.
Section 15(f) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
B-51
"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 $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 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 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.
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 APS
plus an amount equal to accumulated but unpaid dividends
thereon to the date fixed for redemption (whether or not
earned or declared).
Section 15 (yy) of Part I of the Certificate of Vote is hereby amended
to replace such section with the following:
B-52
"Optional Redemption Price" shall mean (i) $25,000 per share
of APS in the case of a 28-day, three-month or a six month
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).
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 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 $25,000 plus
accumulated but unpaid dividends plus a premium expressed as a
percentage of $25,000 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.
B-53
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
CHANGING THE TIMING OF CERTAIN REPORTS TO RATING
AGENCIES
Van Kampen Trust for Investment Grade Municipals, 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.
a. 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."
b. 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.
c. 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
B-54
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").
d. 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
e. 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.
f. 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.
-----------------------------
A. Thomas Smith III
Vice President and Secretary
State of New York )
) ss
B-55
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 Trust for Investment Grade Municipals.
Before me,
-----------------------------
Notary Public
My commission expires:
------------------------
B-56
ARTICLES OF AMENDMENT TO
THE CERTIFICATE OF VOTE OF TRUSTEES
ESTABLISHING PREFERRED SHARES OF
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
Pursuant to the provisions of the Declaration of Trust of Van Kampen
Trust for Investment Grade Municipals (the "Fund") and pursuant to the
provisions of the Certificate of Vote of Trustees Establishing Preferred Shares
of the Fund (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 title, the first paragraph and the second paragraph of the
Certificate of Vote are amended by replacing such title and paragraphs
with the following:
CERTIFICATE OF VOTE OF TRUSTEES ESTABLISHING
SEVEN SERIES OF PREFERRED SHARES
Ronald A. Nyberg, formerly Secretary, of Van Kampen Trust for
Investment Grade Municipals (formerly known as Van Kampen Merritt Trust For
Investment Grade Municipals) (the "Fund") located at One Parkview Plaza,
Oakbrook Terrace, IL 60181, previously certified that at a meeting of the
trustees of the Fund held on February 20, 1992, a vote establishing and
designating four series of preferred shares of beneficial interest and
determining the relative rights and preferences thereof was duly adopted (which
vote has subsequently been amended). I, Stefanie V. Chang Yu, Vice President and
Secretary of the Fund do hereby certify that at a meeting of the trustees of the
Fund held on February 3, 2005, the trustees voted to establish and designate
three additional series of preferred shares of beneficial interest ranking on
parity with the existing preferred shares of beneficial interest and to amend
the Fund's vote establishing and designating preferred shares of beneficial
interest and determining the relative rights and preferences, which vote, as
amended, is set forth below:
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 seven series of 17,200 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"), Auction
Preferred Shares, Series D ("APS Series D"), Auction Preferred Shares, Series E
("APS Series E"), Auction Preferred Shares, Series F ("APS Series F") and
Auction Preferred Shares, Series G ("APS Series G") (collectively, the APS
Series A, APS Series
B-57
B, APS Series C, APS Series D, APS Series E, APS Series F and APS Series G are
referred to as "APS").
(b) After the fourth paragraph under the heading "DESIGNATION," of the
Certificate of Vote, a fifth through seventh paragraph are added as
follows:
APS SERIES E: A class of 2,200 preferred shares of beneficial interest, $.01 par
value, liquidation preference $25,000 per share, is hereby designated "Auction
Preferred Shares, Series E" (hereinafter, "APS Series E"). Each share of APS
Series E shall be issued on October 7, 2005; have an Applicable Rate for its
Initial Dividend Period equal to 2.850% per annum, have an Initial Dividend
Payment Date of Monday, October 31, 2005; 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 E shall constitute a separate
series of Preferred Shares of beneficial interest of the Fund, and each share of
APS Series E shall be identical except as provided in Section 3 of Part I of
this Certificate of Vote.
APS SERIES F: A class of 2,200 preferred shares of beneficial interest, $.01 par
value, liquidation preference $25,000 per share, is hereby designated "Auction
Preferred Shares, Series F" (hereinafter, "APS Series F"). Each share of APS
Series F shall be issued on October 7, 2005; have an Applicable Rate for its
Initial Dividend Period equal to 2.650% per annum, have an Initial Dividend
Payment Date of Tuesday, October 11, 2005; 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 F shall constitute a separate
series of Preferred Shares of beneficial interest of the Fund, and each share of
APS Series F shall be identical except as provided in Section 3 of Part I of
this Certificate of Vote.
APS SERIES G: A class of 2,200 preferred shares of beneficial interest, $.01 par
value, liquidation preference $25,000 per share, is hereby designated "Auction
Preferred Shares, Series G" (hereinafter, "APS Series G"). Each share of APS
Series G shall be issued on October 7, 2005; have an Applicable Rate for its
Initial Dividend Period equal to 2.500% per annum, have an Initial Dividend
Payment Date of Monday, October 17, 2005; 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 G shall constitute a separate
series of Preferred Shares of beneficial interest of the Fund, and each share of
APS Series G shall be identical except as provided in Section 3 of Part I of
this Certificate of Vote.
(c) Section 2(b)(i) of Part I the Certificate of Vote is amended by
replacing such section with the following:
Dividends were payable and shall be payable subject to subparagraph (b)
(ii) of this Section 2, on shares of:
B-58
(A) APS Series A, on Monday, April 6, 1992, and on each
fourth Monday thereafter,
(B) APS Series B, on Monday, April 13, 1992, and on
each fourth Monday thereafter,
(C) APS Series C, on Monday, July 6, 1992 and the first
Business Day of each calendar month thereafter, provided that in any
calendar month in which an Auction Date for such series is scheduled to
occur, dividends shall be payable on the first Business Day next succeeding
such Auction Date,
(D) APS Series D, on Monday, July 6, 1992, and the
first Business Day of each calendar month thereafter, provided that in any
calendar month in which an Auction Date for such series is scheduled to
occur, dividends shall be payable on the first Business Day next succeeding
such Auction Date,
(E) APS Series E, on Monday, October 31, 2005, and on
each fourth Monday thereafter,
(F) APS Series F, on Tuesday, October 11, 2005, Monday,
November 7, 2005, and on each fourth Monday thereafter, and
(G) APS Series G, on Monday, October 17, 2005, and on
each fourth Monday 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 181 days, the day after the last day thereof, (2) with respect to a
Special Dividend Period of 181 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
fourth succeeding Monday if such series is APS Series A, each fourth succeeding
Monday if such series is APS Series B, the first Business Day of each calendar
month thereafter, provided that in any calendar month in which an Auction Date
for such series is scheduled to occur, dividends shall be payable on the first
Business Day next succeeding such Auction Date if such series is APS Series C,
the first Business Day of each calendar month thereafter, provided that in any
calendar month in which an Auction Date for such series is scheduled to occur,
dividends shall be payable on the first Business Day next succeeding such
Auction Date if such series is APS Series D, on each fourth succeeding Monday if
such series is APS Series E, on each fourth succeeding Monday if such series is
APS
B-59
Series F, and on each fourth succeeding Monday if such series is APS Series G,
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.
(d) 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, 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 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.
(e) The definition of "Minimum Dividend Period" in Section 15 of Part I of
the Certificate of Vote is amended by replacing such defined term with
the following:
"Minimum Dividend Period" shall mean with respect to APS Series A, APS
Series B, APS Series C, APS Series D, APS Series E, APS Series F and APS Series
G, any Rate Period consisting of 28 Rate Period Days.
B-60
IN WITNESS WHEREOF, the undersigned has caused this amendment to the Certificate
of Vote to be executed as of October 7, 2005.
----------------------------------------
Stefanie V. Chang Yu
Vice President and Secretary
State of New York )
) ss
County of New York )
Then personally appeared before me Stefanie V. Chang Yu, who
acknowledged the foregoing instrument to be her free act and deed and the free
act and deed in her capacity as Vice President and Secretary of Van Kampen Trust
for Investment Grade Municipals.
Before me,
----------------------------------------
Notary Public
My commission expires: _______________________
B-61
APPENDIX C
ACQUIRING FUND ANNUAL REPORT DATED OCTOBER 31, 2006
C-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
Trust for Investment Grade Municipals 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, 2006.
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).
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
C-2
Performance Summary as of 10/31/06
TRUST FOR INVESTMENT GRADE MUNICIPALS
SYMBOL: VGM
---------------------------------------------------------
AVERAGE ANNUAL BASED BASED ON
TOTAL RETURNS ON NAV MARKET PRICE
Since Inception (1/24/92) 8.14% 7.19%
10-year 7.49 6.63
5-year 7.06 7.73
1-year 8.52 9.86
---------------------------------------------------------
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 and preferred shares, 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, 2006
MARKET CONDITIONS
Against the backdrop of strong economic growth, good employment data and
inflationary pressures stemming from rising oil prices, the Federal Open Market
Committee (the "Fed") continued its tightening campaign during the first eight
months of the reporting period, raising the fed funds target rate six times to
5.25 percent at the end of June. As the months progressed however, economic
growth moderated as consumer spending and housing weakened while inflation
concerns eased, prompting investors to speculate that the Fed would take a break
from rate increases. In August the Fed did pause, ending a two-year run of 17
consecutive rate increases--the longest stretch of increases in 25 years. At its
subsequent meetings, the Fed again kept its target rate unchanged, and indicated
that any future rate increases would be driven by the weight of economic data.
As a result of the improved outlook for the fixed-income market, yields on
longer-maturity municipal bonds fell dramatically in latter months of the
reporting year, ultimately ending at the lowest level in decades and causing
this segment of the market to earn the best returns. Shorter-maturity municipal
bonds, however, posted the lowest returns as Fed rate hikes moved yields in this
portion of the curve higher. Accordingly, the slope of the municipal yield curve
flattened as the spread between short-term and long-term interest rates
narrowed.
Demand for municipal bonds continued to be strong during the period. In fact,
inflows into municipal bond funds were 55 percent higher year-to-date through
October than for the same period last year, much of which went into high-yield
funds. Because prevailing interest rates were still at relatively low levels,
investors increasingly sought out lower-quality, higher-yielding bonds. The
increased demand for high-yield bonds led this segment of the market to
considerably outperform high-grade issues.
Although municipal bond issuance remained brisk in the last quarter of 2005,
volume declined throughout the remaining months of the period. As of the end of
October, national municipal bond issuance was down 13 percent for 2006. The
reduced supply, coupled with growing demand, further fueled municipal bond
performance.
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 and preferred shares, 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, as they did during the reporting
period. On an NAV and market price basis, the trust outperformed its benchmark
index, the Lehman Brothers Municipal Bond Index.
TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2006
----------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
8.52% 9.86% 5.75%
----------------------------------------------------------
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.
Throughout the reporting period, we sought opportunities to enhance the
portfolio's yield, while still adhering to our quality-driven investment
discipline. We did so primarily by implementing two general strategies. First,
we increased the portfolio's exposure to lower-rated, higher-yielding
securities. Specifically, we added to holdings in BBB rated credits while
reducing holdings in AAA rated credits. This strategy proved beneficial to
performance as credit spreads in the high-yield segment of the market tightened,
leading high-yield bonds to considerably outperform higher-quality bonds.
Second, we emphasized the long end of the yield curve, favoring bonds with
maturities of 20 to 30 years. Given the flattening of the yield curve during the
period, attractive yields were primarily found on the very long end of the curve
and our focus here was additive to performance.
Reflecting our view that interest rates in the Treasury market would continue to
rise, we kept the portfolio's duration (a measure of interest-rate sensitivity)
shorter than that of the Lehman Brothers Municipal Bond Index for much of the
period. In the latter months, when it appeared that the Fed was done raising
rates, we increased the portfolio's duration to a more neutral stance. While
this positioning overall was beneficial, the trust could have benefited even
more had we increased the duration earlier in the reporting period. In addition,
rising interest rates made the trust's borrowing activity more expensive,
thereby tempering the benefits of leverage for much of the period. 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
C-5
proceeds are reinvested in longer-term securities, taking advantage of the
difference between short- and longer-term rates.
In keeping with our focus on high-yielding credits, we increased the trust's
holdings of tobacco revenue bonds, which are BBB rated. The litigation
environment for tobacco companies has become quite favorable, demand for the
bonds remains strong, and the industry continues to prosper. We also added to
holdings in hospital bonds, which have benefited from spread tightening in the
sector. Our decision to increase the trust's exposure to these sectors during
the period was additive to performance as they performed strongly.
The trust remained well diversified among the major sectors of the municipal
market. The largest sectors at the end of the period were hospital, general
purpose and public education.
The Trustees have approved a procedure whereby the trust may, when appropriate,
repurchase its shares in the open market or in privately negotiated transactions
at a price not above market value or NAV, whichever is lower at the time of
purchase. This may help support the market value of the trust's shares.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the trust in
the future.
CHANGES IN INVESTMENT POLICIES
The Board of Trustees of the trust recently approved the following non-
fundamental investment policy for the trust: The trust may invest up to 20% of
its assets in securities that are rated, at the time of investment, BB/Ba or B
by Standard & Poor's Ratings Service ("S&P"), Moody's Investors Services, Inc.
("Moody's") or Fitch Ratings Ltd. ("Fitch") or that are unrated, but deemed to
be of comparable quality by the Adviser. These securities are regarded as below
investment grade and are commonly referred to as junk bonds, and involve greater
risks than investments in higher-grade securities.
Securities that are in the lower-grade categories generally offer higher yields
than are offered by higher-grade securities of similar maturities, but they also
generally involve greater risks, such as greater credit risk, greater market
risk and volatility, greater liquidity concerns and potentially greater manager
risk. Rated lower-grade debt securities are regarded by S&P, Moody's and Fitch
as predominately speculative with respect to the capacity to pay interest or
repay principal or interest in accordance with their terms. Investors should
carefully consider the risks of owning shares of a fund which invests in
lower-grade securities before investing in the trust.
C-6
Lower-grade securities are more susceptible to nonpayment of interest and
principal or default than higher-grade securities. Increases in interest rates
or changes in the economy may significantly affect the ability of lower-grade
income securities to pay interest and to repay principal, to meet projected
financial goals or to obtain additional financing. In the event that an issuer
of securities held by the trust experiences difficulties in the timely payment
of principal and interest and such issuer seeks to restructure the terms of its
borrowings, the trust may incur additional expenses and may determine to invest
additional assets with respect to such issuer or the project or projects to
which the trust's securities relate. Further, the trust may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of interest or the repayment of principal on its portfolio holdings,
and the trust may be unable to obtain full recovery on such amounts.
The secondary market prices of lower-grade securities generally are less
sensitive to changes in interest rates and are more sensitive to real or
perceived general adverse economic changes or specific developments with respect
to the particular issuers than are the secondary market prices of higher-grade
securities. A significant increase in interest rates or a general economic
downturn could severely disrupt the market for lower-grade securities and
adversely affect the market value of such securities. Such events also could
lead to a higher incidence of default by issuers of lower-grade securities as
compared with higher-grade securities. In addition, changes in credit risks,
interest rates, the credit markets or periods of general economic uncertainty
can be expected to result in increased volatility in the market price of
lower-grade securities in the trust and thus in the net asset value of the
trust. Adverse publicity and investor perceptions, whether or not based on
rational analysis, may affect the value, volatility and liquidity of lower-grade
securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. To the extent that there is no established retail
market for some of the lower-grade securities in which the trust may invest,
trading in such securities may be relatively inactive. Prices of lower-grade
securities may decline rapidly in the event a significant number of holders
decide to sell. Changes in expectations regarding an individual issuer of
lower-grade securities generally could reduce market liquidity for such
securities and make their sale by the Trust more difficult, at least in the
absence of price concessions. The effects of adverse publicity and investor
perceptions may be more pronounced for securities for which no established
retail market exists as compared with the effects on securities for which such a
market does exist. An economic downturn or an increase in interest rates could
severely disrupt the market for such securities and adversely affect the value
of outstanding securities or the ability of the issuers to repay principal and
interest. Further, the trust may have more difficulty selling such securities in
a timely manner and at their stated value than would be the case for securities
for which an established retail market does exist.
C-7
The market for lower grade securities may have less available information,
further complicating evaluations and valuations of such securities and placing
more emphasis on the Adviser's experience, judgment and analysis than other
securities.
C-8
RATINGS ALLOCATION AS OF 10/31/06
AAA/Aaa 61.9%
AA/Aa 6.1
A/A 8.4
BBB/Baa 15.1
BB/Ba 0.2
B/B 0.2
Non-Rated 8.1
TOP FIVE SECTORS AS OF 10/31/06
Hospital 19.2%
General Purpose 10.2
Public Education 7.5
Airports 7.3
Wholesale Electric 6.1
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/06
California 16.0%
New York 9.8
Texas 7.0
Illinois 6.8
Florida 6.4
South Carolina 5.0
New Jersey 4.0
Washington 3.2
Michigan 3.1
North Carolina 2.9
Alabama 2.7
Arizona 2.6
Colorado 2.6
Ohio 2.3
Georgia 2.0
Nevada 1.9
Pennsylvania 1.7
Kentucky 1.6
Louisiana 1.6
Indiana 1.5
Tennessee 1.5
Alaska 1.3
Iowa 1.3
Missouri 1.3
Massachusetts 1.2
Oregon 1.2
Minnesota 0.9
Maryland 0.8
Virginia 0.7
District of Columbia 0.6
Guam 0.5
Oklahoma 0.5
Puerto Rico 0.5
Wisconsin 0.4
Connecticut 0.4
(continued on next page)
C-9
SUMMARY OF INVESTMENTS BY STATE CLASSIFICATION AS OF 10/31/06
(continued from previous page)
South Dakota 0.3
Kansas 0.3
West Virginia 0.3
Nebraska 0.2
New Hampshire 0.2
North Dakota 0.2
Wyoming 0.2
Arkansas 0.1
Delaware 0.1
Mississippi 0.1
New Mexico 0.1
Utah 0.1
-----
Total Investments 100.0%
-----
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 allocation 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-10
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. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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
(800) SEC-0330. 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.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 847-2424.
C-11
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the trust's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the trust voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 without charge 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-12
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 22, 2006, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. Finally, the Board considered materials it had received in
approving a reorganization of the Fund. The Board of Trustees considered the
contract over a period of several months and the non-management trustees held
sessions both with the investment adviser and separate from the investment
adviser in reviewing and considering the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
breakpoints in the Fund's investment advisory fee schedule. The Board of
Trustees considered comparative advisory fees of the Fund and other investment
companies and/or other products at different asset levels, and considered the
trends in the industry. The Board of Trustees evaluated other benefits the
investment adviser and its affiliates derive from their relationship with the
Fund. The Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of factors
control or dominate the review process, and, after considering all factors
C-13
together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The trustees also
discuss certain other services which are provided on a cost-reimbursement basis
by the investment adviser or its affiliates to the Van Kampen funds including
certain accounting, administrative and legal services. The Board has determined
that the nature, extent and quality of the services provided by the investment
adviser support its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, the Board spends more focused
time on the performance of the Fund and other funds in the Van Kampen complex,
paying specific attention to underperforming funds. The trustees discuss with
the investment adviser the performance goals and the actual results achieved in
managing the Fund. When considering a fund's performance, the trustees and the
investment adviser place emphasis on trends and longer-term returns (focusing on
one-year, three-year and five-year performance with special attention to
three-year performance) and, when a fund's weighted performance is under the
fund's benchmark, they discuss the causes and where necessary seek to make
specific changes to investment strategy or investment personnel. The Fund
discloses more information about its performance elsewhere in this report. The
trustees discuss with the investment adviser the level of advisory fees for this
Fund relative to comparable funds and other products advised by the adviser and
others in the marketplace. The trustees review not only the advisory fees but
other fees and expenses (whether paid to the adviser, its affiliates or others)
and the Fund's overall expense ratio. The Board has determined that the
performance, fees and expenses of the Fund support its decision to approve the
investment advisory contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of the Board. The
trustees discuss with the investment adviser its revenues and expenses,
including among other things, revenues for advisory services, portfolio
management-related expenses, revenue sharing arrangement costs and allocated
expenses both on an aggregate basis and per fund. The Board has determined that
the analysis of the
C-14
investment adviser's expenses and profitability support its decision to approve
the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
of the Fund and how that relates to the Fund's expense ratio and particularly
the Fund's advisory fee rate. In conjunction with its review of the investment
adviser's profitability, the trustees discuss with the investment adviser how
more (or less) assets can affect the efficiency or effectiveness of managing the
Fund's portfolio and whether the advisory fee level is appropriate relative to
current asset levels and/or whether the advisory fee structure reflects
economies of scale as asset levels change. The Board has determined that its
review of the actual and potential economies of scale of the Fund support its
decision to approve the investment advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
C-15
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
MUNICIPAL BONDS 173.0%
ALABAMA 4.6%
$ 3,660 Alabama St Brd Ed Rev & Impt Southn
Univ St Cmnty Rfdg (MBIA Insd)
(a)................................. 5.250% 07/01/20 $ 3,954,337
750 Birmingham Baptist Med Ctr AL
Baptist Hlth Sys Ser A.............. 5.875 11/15/24 806,047
7,700 Birmingham Baptist Med Ctr AL
Baptist Hlth Sys Ser A.............. 5.000 11/15/30 7,899,738
1,000 Jefferson Cnty, AL Ltd Oblig Sch Wt
Ser A............................... 5.000 01/01/24 1,048,700
2,250 Jefferson Cnty, AL Ltd Oblig Sch Wt
Ser A............................... 5.250 01/01/23 2,408,423
7,710 University AL at Birmingham Hosp Rev
Ser A (c)........................... 5.000 09/01/36 8,028,705
9,840 University AL at Birmingham Hosp Rev
Ser A (c)........................... 5.000 09/01/41 10,209,460
--------------
34,355,410
--------------
ALASKA 2.2%
2,000 Alaska St Hsg Fin Corp Gen Hsg Ser A
(FGIC Insd)......................... 5.000 12/01/30 2,103,740
1,250 Alaska St Hsg Fin Corp Gen Hsg Ser A
(FGIC Insd)......................... 5.250 12/01/34 1,341,350
3,650 Alaska St Intl Arpt Rev Ser B (AMBAC
Insd) (Prerefunded @ 10/01/12)...... 5.250 10/01/27 3,971,309
1,575 Matanuska-Susitna Boro, AK Ctf Partn
Pub Safety Bldg Lease (FSA Insd).... 5.750 03/01/16 1,675,296
7,300 Northern Tob Securitization Corp Tob
Settlement Rev Asset Bkd Ser A...... 5.000 06/01/46 7,398,550
--------------
16,490,245
--------------
ARIZONA 4.5%
1,000 Arizona Hlth Fac Auth Hosp Sys Rev
John C Lincoln Hlth Network
(Prerefunded @ 12/01/12)............ 6.375 12/01/37 1,153,960
4,225 Arizona Tourism & Sports Auth
Multipurpose Stad Fac Ser A (MBIA
Insd)............................... 5.375 07/01/23 4,603,053
6,075 Glendale, AZ Indl Dev Auth John C
Lincoln Hlth Rfdg Ser B............. 5.000 12/01/37 6,222,683
3,050 Glendale, AZ Indl Dev Auth Rfdg..... 5.000 12/01/35 3,126,189
3,500 Maricopa Cnty, AZ Hosp Rev Sun Hlth
Corp................................ 5.000 4/01/35 3,594,430
2,800 Phoenix, AZ Civic Impt Corp Arpt Rev
Jr Lien (FGIC Insd) (AMT)........... 5.375 07/01/29 2,827,412
11,750 University of AZ Med Ctr Corp....... 5.000 07/01/35 12,071,950
--------------
33,599,677
--------------
See Notes to Financial Statements
C-16
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
ARKANSAS 0.2%
$ 1,395 Washington Cnty, AR Hosp Rev Regl
Med Ctr Rfdg Ser B.................. 5.000% 02/01/30 $ 1,437,687
--------------
CALIFORNIA 27.7%
1,300 Anaheim, CA Pub Fin Auth Lease Rev
Pub Impt Proj Ser C (FSA Insd)...... 6.000 09/01/16 1,525,186
11,235 Anaheim, CA Pub Fin Auth Rev Eec Sys
Dist Fac Ser A (FSA Insd)........... 5.000 10/01/31 11,845,622
1,000 California Cnty, CA Tob Agy Tob Sec
Asset Bkd Sonoma Cnty Corp Rfdg..... 5.250 6/01/45 1,036,650
1,500 California Cnty, CA Tob Agy Tob Sec
Asset Bkd Merced Cnty Rfdg Ser A.... 5.125 06/01/38 1,541,880
1,660 California Cnty, CA Tob Agy Tob Sec
Sonoma Cnty Corp Rfdg............... 5.000 06/01/26 1,698,894
7,800 California Ed Fac Auth Rev
Pepperdine Univ Rfdg Ser A (FGIC
Insd)............................... 5.000 09/01/33 8,154,354
1,200 California Hlth Fac Fin Auth Rev
Kaiser Permanente Ser A............. 5.250 04/01/39 1,279,812
10,380 California Hlth Fac Fin Auth Rev
Cedars Sinai Med Ctr Rfdg (c)....... 5.000 11/15/34 10,818,209
1,500 California Pollutn Ctl Fin Auth
Solid Waste Disp Rev Waste Mgmt Inc
Proj Ser B (AMT).................... 5.000 07/01/27 1,547,490
11,000 California St....................... 5.000 02/01/33 11,512,930
7,345 California St (AMBAC Insd).......... 5.125 10/01/27 7,504,607
1,350 California Statewide Cmnty Dev Auth
Rev Daughters of Charity Hlth Ser
A................................... 5.000 07/01/39 1,387,179
9,015 California Statewide Cmnty Dev Auth
Rev Daughters of Charity Hlth Ser
A................................... 5.250 07/01/30 9,528,404
3,000 California Statewide Cmnty Dev Auth
Rev Hlth Fac Adventist Hlth Ser A... 5.000 03/01/30 3,116,850
3,750 California Statewide Cmnty Dev Auth
Rev Hlth Fac Adventist Hlth Ser A... 5.000 03/01/35 3,888,900
2,300 California Statewide Cmnty Dev Auth
Rev Kaiser Permanente Ser B......... 5.000 03/01/41 2,392,943
4,000 California Statewide Cmnty Dev Auth
Rev Kaiser Permanente Ser B......... 5.250 03/01/45 4,254,880
3,360 California Statewide Cmnty Dev Auth
Rev Sutter Hlth Ser A............... 5.000 11/15/43 3,521,482
1,000 California St Dept Wtr Res Ctr Vly
Proj Rev Wtr Sys Ser X (FGIC
Insd)............................... 5.000 12/01/29 1,047,710
6,500 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd) (Prerefunded @
5/01/12)............................ 5.375 05/01/18 7,167,225
2,000 California St Dept Wtr Res Pwr Ser A
(Prerefunded @ 5/01/12)............. 6.000 05/01/15 2,266,320
See Notes to Financial Statements
C-17
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
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 $ 1,086,860
5,000 California St Rfdg.................. 5.000 08/01/28 5,299,450
5,000 California St Univ Rev & Co
Systemwide Ser A (AMBAC Insd)....... 5.000 11/01/33 5,216,950
2,000 El Dorado, CA Irr Dist Ctf Ser A
(FGIC Insd)......................... 5.000 03/01/21 2,113,680
3,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser B (MBIA
Insd)............................... 5.000 03/01/33 3,155,550
2,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser A (MBIA
Insd)............................... 5.000 09/01/33 2,109,260
2,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Cap Apprec Rfdg (MBIA
Insd)............................... * 01/15/17 1,212,600
10,750 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Sr Lien Ser A (e)....... * 01/01/23 5,386,717
3,000 Fremont, CA Uni Sch Dist Ser A (FGIC
Insd)............................... 5.000 08/01/25 3,191,550
5,000 Golden St, CA Tob Corp CA Tob
Settlement Rev Enhanced Ser A....... 5.000 6/01/45 5,171,850
22,000 Golden St Tob Sec Corp CA Tob
Settlement Rev Ser A (FGIC Insd)
(c)................................. 5.000 06/01/38 23,216,050
4,000 Los Angeles, CA Dept Wtr & Pwr Ser A
(FGIC Insd)......................... 5.125 07/01/40 4,185,640
2,000 Los Angeles, CA Wtr & Pwr Rev Pwr
Sys Ser B (FSA Insd)................ 5.000 07/01/28 2,102,180
1,500 Metropolitan Wtr Dist Southn CA
Wtrwks Rev Auth Ser B1 (FGIC
Insd)............................... 5.000 10/01/33 1,576,395
3,500 Palm Springs, CA Fin Auth Lease Rev
Convention Ctr Proj Ser A (MBIA
Insd)............................... 5.500 11/01/35 3,893,365
3,000 Port Oakland, CA Ser M (FGIC
Insd)............................... 5.250 11/01/18 3,255,720
2,000 Salinas, CA Uni High Sch Dist Ser A
(MBIA Insd) (Prerefunded @
6/01/12)............................ 5.000 06/01/27 2,170,020
3,000 San Francisco, CA City & Cnty Pub
Util Com Wtr Rev Ser A (MBIA
Insd)............................... 5.000 11/01/32 3,165,180
3,000 San Francisco, CA City & Cnty Second
Rfdg Ser Issue 29 B (FGIC Insd)..... 5.125 05/01/20 3,203,010
1,000 Santa Clara Cnty, CA Brd Ed Ctf
Partn Rfdg (MBIA Insd).............. 5.000 04/01/25 1,047,710
3,000 Temecula, CA Redev Agy Tax Temecula
Redev Proj No 1 (MBIA Insd)......... 5.250 08/01/36 3,129,480
4,700 Tobacco Sec Auth Northn CA Tob
Settlement Rev Asset Bkd Ser A1..... 5.375 06/01/38 4,930,206
3,550 Tobacco Sec Auth Northn CA Tob
Settlement Rev Bd Ser A1............ 5.500 06/01/45 3,754,977
See Notes to Financial Statements
C-18
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
$ 3,800 Tobacco Sec Auth Southn CA Tob
Settlement Ser A.................... 5.000% 06/01/37 $ 3,877,938
9,650 Tobacco Sec Auth Southn CA Tob
Settlement Ser A.................... 5.125 06/01/46 9,893,277
1,600 Turlock, CA Hlth Fac Rev Ctf Partn
Emanuel Med Ctr Inc................. 5.375 10/15/34 1,686,480
--------------
206,069,622
--------------
COLORADO 4.5%
2,000 Aurora, CO Ctf Partn (AMBAC Insd)
(Prerefunded @ 12/01/10)............ 5.500 12/01/30 2,143,440
3,405 Colorado Ed & Cultural Fac Auth Rev
Impt Charter Sch Rfdg (XLCA Insd)... 5.250 12/01/23 3,661,907
4,650 Colorado Ed & Cultural Fac Auth Rev
Student Hsg Univ CO Fndtn Proj
(AMBAC Insd)........................ 5.000 07/01/32 4,839,162
5,500 Colorado Hlth Fac Auth Rev Adventist
Hlth/Sunbelt Ser D (g).............. 5.250 11/15/27 5,892,150
2,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A (e).......... 5.500 03/01/32 2,172,680
3,000 Colorado Hlth Fac Auth Rev Covenant
Retirement Cmntys Inc............... 5.000 12/01/35 3,062,670
1,125 Colorado Hlth Fac Auth Rev Hosp
Portercare Adventist Hlth
(Prerefunded @ 11/15/11)............ 6.500 11/15/31 1,280,992
16 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser B1 (AMT)................. 7.650 11/01/26 16,280
2,650 Colorado Springs, CO Util Rev Sys
Sub Lien Impt Ser B................. 5.000 11/15/30 2,764,162
3,000 Colorado Springs, CO Util Rev Sys
Sub Lien Impt Rfdg Ser A............ 5.000 11/15/29 3,112,740
1,000 El Paso Cnty, CO Ctf Partn Detention
Fac Proj Ser B (AMBAC Insd)......... 5.375 12/01/18 1,087,340
1,805 Lakewood, CO Ctf Partn (AMBAC Insd)
(Prerefunded @ 12/01/10) (a)........ 5.300 12/01/16 1,924,383
1,500 University of CO Hosp Auth Rev Ser
A................................... 5.250 11/15/39 1,576,110
--------------
33,534,016
--------------
CONNECTICUT 0.7%
3,580 Connecticut St Spl Oblig Pkg Rev
Bradley Intl Arpt Ser A (ACA Insd)
(AMT)............................... 6.600 07/01/24 3,919,456
1,000 Hartford, CT Pkg Sys Rev Ser A
(Prerefunded @ 7/01/10)............. 6.500 07/01/25 1,097,100
--------------
5,016,556
--------------
See Notes to Financial Statements
C-19
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
DELAWARE 0.1%
$ 1,000 Mashantucket Western Pequot Tribe
Sub Spl Rev Bd Ser A (f)............ 5.500% 09/01/36 $ 1,044,720
--------------
DISTRICT OF COLUMBIA 1.0%
2,775 District of Columbia Hosp Rev
Medlantic Hlthcare Rfdg Ser A (MBIA
Insd) (e)........................... 5.250 08/15/12 2,833,969
2,000 District of Columbia Rev Friendship
Pub Charter Sch Inc (ACA Insd)...... 5.750 06/01/18 2,196,060
5 District of Columbia Ser E (FSA
Insd) (a)........................... 6.000 06/01/13 5,009
2,000 Metropolitan Washington DC Arpt Auth
Sys Ser A (FGIC Insd) (AMT)......... 5.250 10/01/32 2,102,520
--------------
7,137,558
--------------
FLORIDA 11.2%
3,500 Brevard Cnty, FL Hlth Fac Auth
Hlthcare Fac Rev First Inc Proj..... 5.000 04/01/34 3,646,930
3,180 Dade Cnty, FL Spl Oblig Cap Apprec
Ser B (AMBAC Insd) (Prerefunded @
10/01/08)........................... * 10/01/26 985,514
570 Escambia Cnty, FL Hlth Fac Auth Hlth
Fac Rev FL Hlthcare Fac Ln (AMBAC
Insd)............................... 5.950 07/01/20 595,650
1,000 Florida St Brd Ed Lottery Rev Ser A
(FGIC Insd)......................... 6.000 07/01/14 1,088,130
2,500 Florida St Brd of Ed Cap Outlay Pub
Ed Ser C (FGIC Insd) (Prerefunded @
6/01/10)............................ 5.750 06/01/29 2,706,200
7,295 Florida St Dept Trans Tpk Rev Ser
A................................... 5.000 07/01/29 7,739,411
5,000 Halifax Hosp Med Ctr FL Hosp Rev
Impt Rfdg Ser A..................... 5.000 06/01/38 5,141,700
1,000 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Ser D
(Prerefunded @ 11/15/13)............ 5.375 11/15/35 1,102,950
1,000 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Rfdg Ser C...... 5.000 11/15/31 1,043,190
3,520 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Sys Ser D....... 5.000 11/15/35 3,656,611
1,900 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Sys Ser C....... 5.250 11/15/36 2,029,086
11,205 Hillsborough Cnty, FL Indl Dev Auth
Hosp Rev Tampa Gen Hosp Proj (c).... 5.000 10/01/36 11,644,236
1,745 Hillsborough Cnty, FL Port Dist Rev
Tampa Port Auth Proj Ser A (MBIA
Insd) (AMT)......................... 5.375 06/01/27 1,859,786
See Notes to Financial Statements
C-20
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 5,105 Lakeland, FL Hosp Sys Rev Lakeland
Regl Hlth Sys Rfdg (g).............. 5.000% 11/15/05 $ 5,308,945
1,000 Marion Cnty, FL Sch Brd Ctf Partn
(FSA Insd).......................... 5.250 06/01/18 1,082,810
1,500 Miami Beach, FL Stormwtr Rev (FGIC
Insd)............................... 5.250 09/01/25 1,589,805
2,000 Miami-Dade Cnty, FL Aviation Ser A
(FSA Insd) (AMT).................... 5.125 10/01/35 2,078,860
2,000 Miami-Dade Cnty, FL Aviation Miami
Intl Arpt (FGIC Insd) (AMT)......... 5.375 10/01/27 2,121,800
1,720 Miami-Dade Cnty, FL Aviation Rev
Miami Intl Arpt (FGIC Insd) (AMT)... 5.375 10/01/32 1,819,485
2,905 Miami-Dade Cnty, FL Pub Fac Rev
Jackson Hlth Sys Ser A (MBIA
Insd)............................... 5.000 06/01/31 3,069,859
2,000 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd) (Prerefunded @
10/01/09)........................... 5.500 10/01/31 2,109,080
4,000 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd) (Prerefunded @
10/01/09)........................... 5.625 10/01/14 4,231,920
1,210 Saint Lucie Cnty, FL Sch Brd Ctf Ser
A (FSA Insd) (a).................... 5.500 07/01/14 1,314,592
5,860 Saint Lucie Cnty, FL Sch Brd Ctf
Partn (FSA Insd).................... 5.000 07/01/29 6,190,738
1,000 Tallahassee, FL Lease Rev FL St Univ
Proj Ser A (MBIA Insd) (a).......... 5.500 08/01/17 1,074,600
1,115 Tallahassee, FL Lease Rev FL St Univ
Proj Ser A (MBIA Insd) (a).......... 5.500 08/01/19 1,197,365
1,250 Tampa, FL Hosp Rev Cap Impt H Lee
Moffitt Ser A....................... 5.750 07/01/19 1,307,413
2,880 Tampa, FL Occupational License Rfdg
Ser A (FGIC Insd)................... 5.375 10/01/15 3,138,941
1,000 Tampa-Hillsborough Cnty, FL Expwy
Auth Rev (AMBAC Insd)............... 5.000 07/01/25 1,072,420
1,000 Village Ctr Cmnty Dev Dist FL
Recreational Rev Ser A (MBIA
Insd)............................... 5.125 11/01/36 1,071,440
--------------
83,019,467
--------------
GEORGIA 3.5%
2,000 Atlanta, GA Arpt Passenger Fac
Charge Rev Gen Sub Lien Ser C (FSA
Insd)............................... 5.000 01/01/33 2,096,480
2,872 Fulton Cnty, GA Lease Rev (Acquired
12/23/94, Cost $2,872,000) (b)...... 7.250 06/15/10 2,940,989
1,500 George L Smith II GA World Congress
Cent Auth Rev Domed Stadium Proj
Rfdg (MBIA Insd) (AMT).............. 5.500 07/01/20 1,589,175
See Notes to Financial Statements
C-21
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
GEORGIA (CONTINUED)
$ 85 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (Prerefunded @
1/01/14)............................ 6.500% 01/01/17 $ 100,121
5,575 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd)......................... 6.500 01/01/17 6,632,354
240 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (e)..................... 6.500 01/01/17 294,778
2,635 Georgia Muni Elec Auth Pwr Rev Ser A
(MBIA Insd)......................... 6.500 01/01/20 3,308,664
3,000 Georgia Muni Elec Auth Pwr Rev Rfdg
Ser B (FGIC Insd)................... 6.250 01/01/17 3,602,220
2,000 Municipal Elec Auth GA Combustion
Turbine Proj Ser A (MBIA Insd)...... 5.250 11/01/22 2,153,180
800 Royston, GA Hosp Auth Hosp Rev Ctf
Hlthcare Sys Inc.................... 6.700 07/01/16 837,480
2,500 Royston, GA Hosp Auth Hosp Rev Ctf
Hlthcare Sys Inc Rfdg............... 6.500 07/01/27 2,587,925
--------------
26,143,366
--------------
ILLINOIS 11.8%
2,000 Bedford Park, IL Rfdg Ser A (FSA
Insd)............................... 5.250 12/15/20 2,190,700
2,000 Chicago, IL Brd of Ed (FGIC Insd)
(Prerefunded @ 12/01/10)............ 5.500 12/01/31 2,146,580
4,000 Chicago, IL Brd of Ed Chicago Sch
Reform Ser A (AMBAC Insd)........... 5.250 12/01/27 4,138,520
1,500 Chicago, IL Lakefront Millennium Pk
Fac (MBIA Insd)..................... 5.125 01/01/28 1,566,930
3,000 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien C-2 Rfdg (AMT) (XLCA
Insd)............................... 5.250 01/01/34 3,156,990
1,500 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien Rfdg (AMT) Ser C-2
(FSA Insd).......................... 5.250 01/01/30 1,580,385
4,400 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien (MBIA Insd) (c)..... 5.250 01/01/24 4,787,486
11,500 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien (MBIA Insd) (c)..... 5.250 01/01/25 12,512,747
5,000 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien Ser A (FGIC Insd)
(c)................................. 5.250 01/01/23 5,453,350
1,000 Chicago, IL O'Hare Intl Arpt Rev
Second Lien Passenger Fac Ser B
(AMBAC Insd)........................ 5.500 01/01/16 1,071,430
2,000 Chicago, IL O'Hare Intl Arpt Rev
Second Lien Passenger Fac Ser B
(AMBAC Insd)........................ 5.500 01/01/17 2,148,860
3,500 Chicago, IL Proj Rfdg Ser A (MBIA
Insd) (d)........................... 5.000 01/01/31 3,631,110
See Notes to Financial Statements
C-22
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$ 375 Chicago, IL Proj Rfdg Ser C (FGIC
Insd)............................... 5.750% 01/01/14 $ 404,794
375 Chicago, IL Proj Rfdg Ser C (FGIC
Insd)............................... 5.750 01/01/15 404,524
4,895 Chicago, IL Pub Bldg Comm Bldg Rev
Cap Apprec Ser A (MBIA Insd) (e).... * 01/01/07 4,866,266
1,000 Chicago, IL Rfdg Ser B (AMBAC
Insd)............................... 5.125 01/01/15 1,083,970
1,000 Cook Cnty, IL Ser A (FGIC Insd)
(Prerefunded @ 5/15/11)............. 5.500 11/15/31 1,081,280
3,230 Cook Cnty, IL Rfdg Ser A (MBIA
Insd)............................... 5.625 11/15/16 3,324,510
3,500 Du Page Cnty, IL Fst Presv Dist..... * 11/01/10 3,017,840
2,310 Illinois Dev Fin Auth Rev Adventist
Hlth Ser A (MBIA Insd).............. 5.500 11/15/13 2,551,718
2,500 Illinois Dev Fin Auth Rev Adventist
Hlth Ser A (MBIA Insd).............. 5.500 11/15/15 2,791,700
1,475 Illinois Dev Fin Auth Rev Loc Govt
Pgm Geneva Cmnty 304 Ser B (FSA
Insd) (a)........................... 5.750 01/01/15 1,618,119
1,145 Illinois Dev Fin Auth Rev Loc Govt
Pgm Geneva Cmnty 304 Ser B (FSA
Insd) (a)........................... 5.750 01/01/17 1,254,691
1,330 Illinois Fin Auth Solid Waste Rev
Disp Waste Mgmt Inc Proj (AMT)...... 5.050 08/01/29 1,355,336
1,325 Illinois Fin Auth Student Hsg Rev
MJH Ed Assistance IV-S Ser A........ 5.125 06/01/35 1,366,486
1,250 Illinois Hlth Fac Auth Rev
Evangelical Hosp Ser C (FSA Insd)... 6.750 04/15/17 1,493,575
700 Illinois Hlth Fac Auth Rev Highland
Park Hosp Proj Ser A (MBIA Insd)
(Prerefunded @ 10/01/07)............ 5.750 10/01/17 727,335
2,275 Illinois Hlth Fac Auth Rev South
Suburban Hosp (e)................... 7.000 02/15/18 2,733,572
4,750 Illinois Hsg Dev Auth Rev Homeowner
Mtg Sub Ser C2 (AMT)................ 5.150 08/01/37 4,928,362
1,000 Illinois St (FGIC Insd)............. 5.250 12/01/20 1,018,430
1,900 Kendall, Kane & Will Cntys, IL Cmnty
Unit Sch Dist No 308 Ser B (FGIC
Insd)............................... 5.250 10/01/21 2,048,352
250 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expn Proj Ser A (FGIC Insd)......... 5.375 12/15/18 264,193
1,250 Sangamon Cnty, IL Ctf Partn......... 10.000 12/01/06 1,256,288
See Notes to Financial Statements
C-23
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
ILLINOIS (CONTINUED)
$ 1,000 Schaumburg, IL Ser B (FGIC Insd).... 5.000% 12/01/41 $ 1,046,990
3,020 University IL Univ Rev Auxiliary Fac
Sys (MBIA Insd)..................... 4.500 04/01/36 3,012,571
--------------
88,035,990
--------------
INDIANA 2.6%
2,560 East Washington, IN Multi Sch Bldg
Corp First Mtg (FGIC Insd)
(Prerefunded @ 7/15/12)............. 5.375 07/15/28 2,794,419
1,660 Indiana Hlth & Ed Fac Fin Auth Hosp
Rev Clarian Hlth Oblig Ser A........ 5.000 02/15/36 1,717,868
3,500 Indiana Hlth Fac Fin Auth Hosp Rev
Cmnty Proj Ser A (AMBAC Insd)....... 5.000 05/01/35 3,676,715
4,000 Indiana Hlth Fac Fin Auth Rev
Deaconess Hosp Ser A (AMBAC Insd)... 5.375 03/01/34 4,305,000
1,280 North Adams, IN Cmnty Sch Renovation
Bldg Corp Cap Apprec First Mtg (FSA
Insd) (a)........................... * 01/15/19 766,105
1,500 Petersburg, IN Pollutn Ctl Rev IN
Pwr & Lt (AMT)...................... 5.950 12/01/29 1,602,930
1,605 Richland Beanblossom, IN Sch First
Mtg (FGIC Insd) (Prerefunded @
7/15/11) (a)........................ 5.500 07/15/12 1,739,804
2,530 Vigo Cnty, IN Sch Bldg Corp First
Mtg Impt & Rfdg (FSA Insd).......... 5.250 07/10/24 2,691,085
--------------
19,293,926
--------------
IOWA 2.2%
1,685 Des Moines, IA Pub Pkg Sys Ser A
(FGIC Insd) (a)..................... 5.750 06/01/15 1,801,029
1,785 Des Moines, IA Pub Pkg Sys Ser A
(FGIC Insd) (a)..................... 5.750 06/01/16 1,909,165
2,750 Tobacco Settlement Auth IA Tob
Settlement Rev Asset Bkd Ser C...... 5.375 06/01/38 2,890,662
6,700 Tobacco Settlement Auth IA Tob
Settlement Rev Asset Bkd Ser C...... 5.500 06/01/42 7,062,604
2,750 Tobacco Settlement Auth IA Tob
Settlement Rev Asset Bkd Ser C...... 5.625 06/01/46 2,922,865
--------------
16,586,325
--------------
KANSAS 0.6%
3,810 Kansas St Dev Fin Auth Rev KS Proj
Ser N (AMBAC Insd) (a).............. 5.250 10/01/22 4,085,539
--------------
See Notes to Financial Statements
C-24
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
KENTUCKY 2.8%
$ 1,000 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/Northn KY Intl Arpt Rfdg
Ser A (MBIA Insd) (AMT)............. 6.200% 03/01/08 $ 1,032,260
3,690 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/Northn KY Intl Arpt Rfdg
Ser A (MBIA Insd) (AMT) (a)......... 6.250 03/01/09 3,879,740
12,390 Louisville & Jefferson Cnty, KY
Metto Govt Hlth Sys Rev (c)......... 5.250 10/01/36 12,999,505
2,450 Louisville & Jefferson Cnty, KY Swr
Ser A (MBIA Insd) (a)............... 5.500 05/15/16 2,677,287
--------------
20,588,792
--------------
LOUISIANA 2.7%
4,395 Ernest N Morial New Orleans, LA
Exhib Hall Auth Spl Tax Sub Ser A
(AMBAC Insd)........................ 5.250 07/15/22 4,676,500
3,000 Lafayette, LA Util Rev (MBIA
Insd)............................... 5.250 11/01/21 3,273,900
2,470 Louisiana Hsg Fin Agy Rev Azalea
Estates Rfdg Ser A (GNMA
Collateralized) (AMT)............... 5.375 10/20/39 2,586,370
2,580 Louisiana Loc Govt Environmental Rev
Southeastn LA Student Hsg Ser A
(MBIA Insd)......................... 5.250 08/01/21 2,792,024
6,600 Louisiana St Gas & Fuels Tax Rev Ser
A (FGIC Insd) (c) (g)............... 5.000 05/01/41 6,986,265
--------------
20,315,059
--------------
MARYLAND 1.4%
470 Baltimore, MD Convention Ctr Hotel
Rev Ser A (XLCA Insd) (c)........... 5.250 09/01/24 516,128
2,530 Baltimore, MD Convention Ctr Hotel
Rev Ser A (XLCA Insd) (c)........... 5.250 09/01/25 2,778,307
2,500 Maryland St Hlth & Higher Ed Fac
Auth Rev MD Inst College of Art..... 5.000 06/01/40 2,552,975
2,250 Maryland St Trans Auth Arpt
Baltimore/WA Intl Arpt Ser B (AMBAC
Insd) (AMT)......................... 5.125 03/01/24 2,368,507
2,350 Northeast, MD Waste Disp Auth Rfdg
(AMBAC Insd) (AMT).................. 5.500 04/01/16 2,543,264
--------------
10,759,181
--------------
MASSACHUSETTS 2.1%
500 Massachusetts St Hlth & Ed Fac Auth
Rev Hlthcare Sys Covenant Hlth...... 6.000 07/01/31 544,560
1,000 Massachusetts St Hlth & Ed Fac Auth
Rev Partners Hlthcare Sys Ser C..... 5.750 07/01/32 1,088,090
5,835 Massachusetts St Hlth & Ed Fac Auth
Rev Univ MA Mem Issue Ser D......... 5.000 07/01/33 5,960,161
See Notes to Financial Statements
C-25
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
MASSACHUSETTS (CONTINUED)
$ 2,805 Massachusetts St Port Auth Rev Ser A
(MBIA Insd)......................... 5.000% 07/01/22 $ 2,981,070
4,500 Massachusetts St Wtr Res Auth Gen
Ser A (c)........................... 5.000 08/01/41 4,757,602
--------------
15,331,483
--------------
MICHIGAN 5.4%
3,015 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1................ * 07/01/17 1,837,642
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a)............ * 07/01/18 1,766,590
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a)............ * 07/01/19 1,679,543
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a)............ * 07/01/22 1,435,666
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a)............ * 07/01/23 1,366,004
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a)............ * 07/01/24 1,301,740
2,965 Detroit, MI Wtr Supply Sys Ser C
(MBIA Insd) (a)..................... 5.250 07/01/20 3,220,494
3,500 Grand Rapids, MI Downtown Dev Cap
Apprec (MBIA Insd).................. * 06/01/15 2,506,490
2,765 Grand Rapids, MI Downtown Dev Cap
Apprec (MBIA Insd).................. * 06/01/16 1,891,011
2,000 Grand Rapids, MI Wtr Supply Sys Rfdg
(FGIC Insd)......................... 5.750 01/01/13 2,162,480
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Ctr............ 5.750 05/15/18 1,267,686
2,000 Kent Hosp Fin Auth MI Rev Metro Hosp
Proj Ser A.......................... 6.000 07/01/35 2,213,200
4,000 Michigan St Bldg Auth Rev Fac Pgm
Rfdg Ser III (FSA Insd) (Prerefunded
@ 10/15/12)......................... 5.000 10/15/26 4,292,160
2,850 Michigan St Hosp Fin Auth Rev
Ascension Hlth Cr Ser A (MBIA Insd)
(Prerefunded @ 11/15/09)............ 5.750 11/15/18 3,052,550
2,500 Michigan St Strategic Fd Detroit
Edison Co Proj Ser A (XLCA Insd)
(AMT)............................... 5.500 06/01/30 2,698,850
2,500 Michigan St Strategic Fd Detroit
Edison Co Proj Rfdg Ser C (XLCA
Insd) (AMT)......................... 5.450 12/15/32 2,661,625
2,500 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Rfdg (AMBAC Insd)
(h)................................. 4.850 09/01/30 2,608,625
See Notes to Financial Statements
C-26
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
MICHIGAN (CONTINUED)
$ 1,000 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Rfdg Ser B
(AMT)............................... 5.650% 09/01/29 $ 1,060,030
1,355 Zeeland, MI Pub Sch Bldg & Site
(MBIA Insd) (a)..................... 5.250 05/01/21 1,476,638
--------------
40,499,024
--------------
MINNESOTA 1.6%
1,175 Maple Grove, MN Hlthcare Fac Rev
North Mem Hlthcare.................. 5.000 09/01/35 1,220,402
5,000 Minneapolis & Saint Paul, MN Metro
Arpt Comm Arpt Rev Ser A (FGIC
Insd)............................... 5.125 01/01/31 5,177,100
2,750 Minnesota Agric & Econ Dev Brd Rev
Hlthcare Sys A (MBIA Insd)
(Prerefunded @ 11/15/07)............ 5.750 11/15/26 2,865,170
50 Minnesota Agric & Econ Dev Brd Rev
Hlthcare Sys A (MBIA Insd).......... 5.750 11/15/26 51,982
1,100 Saint Paul, MN Hsg & Redev Auth Hosp
Rev Hlth East Proj.................. 6.000 11/15/30 1,228,766
1,250 Saint Paul, MN Hsg & Redev Auth Hosp
Rev Hlth East Proj.................. 6.000 11/15/35 1,389,625
--------------
11,933,045
--------------
MISSISSIPPI 0.2%
1,500 Mississippi Hosp Equip & Fac Auth
Rev MS Baptist Med Ctr Rfdg (MBIA
Insd)............................... 6.000 05/01/13 1,510,080
--------------
MISSOURI 2.3%
1,500 Cape Girardeau Cnty, MO Indl Dev
Auth Hlthcare Fac Rev Southeast MO
Hosp Assoc.......................... 5.625 06/01/27 1,571,505
1,250 Cole Cnty, MO Indl Dev Auth Sr
Living Fac Rev Lutheran Sr Svc
Heisinger Proj...................... 5.500 02/01/35 1,324,437
1,625 Jefferson Cnty, MO Reorg Sch Dist No
R-6 (FGIC Insd)..................... 5.625 03/01/20 1,723,475
1,500 Kansas City, MO Met Cmnty Leasehold
Jr College Impt & Rfdg (FGIC
Insd)............................... 5.500 07/01/17 1,619,010
3,275 Missouri Jt Muni Elec Util Cmnty Pwr
Proj Rev Plum Point Proj (MBIA
Insd)............................... 5.000 01/01/26 3,496,881
1,250 Saint Charles, MO Ctf Partn Ser B... 5.500 05/01/18 1,325,913
6,000 Springfield, MO Pub Util Rev........ 4.500 08/01/36 6,001,980
--------------
17,063,201
--------------
NEBRASKA 0.4%
2,615 Omaha Pub Pwr Dist NE Elec Rev Sys
Ser A............................... 5.000 02/01/34 2,738,585
--------------
See Notes to Financial Statements
C-27
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
NEVADA 3.3%
$ 8,000 Clark Cnty, NV Arpt Rev Sub Lien Ser
A-2 (FGIC Insd)..................... 5.000% 07/01/36 $ 8,364,640
5,165 Clark Cnty, NV Bd Bk (MBIA Insd).... 5.000 06/01/32 5,388,851
2,400 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj (FGIC Insd)
(AMT)............................... 4.750 09/01/36 2,432,448
3,000 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj Ser A (AMBAC
Insd) (AMT)......................... 5.250 07/01/34 3,173,250
3,500 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj Ser D1 (FGIC
Insd) (AMT)......................... 5.250 03/01/38 3,720,850
1,500 Reno, NV Sr Lien Retrac Reno Trans
Proj (AMBAC Insd) (Prerefunded @
6/01/12)............................ 5.125 06/01/32 1,612,995
--------------
24,693,034
--------------
NEW HAMPSHIRE 0.3%
1,000 New Hampshire Hlth & Ed Fac Auth Rev
Derryfield Sch...................... 7.000 07/01/30 1,090,770
1,000 New Hampshire St Bus Fin Auth Wtr
Fac Rev Pennichuck Wtrwks Inc (AMBAC
Insd) (AMT)......................... 6.300 05/01/22 1,032,410
--------------
2,123,180
--------------
NEW JERSEY 6.9%
1,000 Bergen Cnty, NJ Impt Auth Sch Dist
Rev Wyckoff Twp Brd Ed Proj......... 5.000 04/01/32 1,063,630
1,200 New Jersey Econ Dev Auth Cig Tax.... 5.750 06/15/29 1,306,800
1,500 New Jersey Econ Dev Auth Cig Tax.... 5.750 06/15/34 1,623,390
3,000 New Jersey Econ Dev Auth Rev Motor
Vehicle Sur Rev Ser A (MBIA Insd)... 5.000 07/01/23 3,180,990
25,000 New Jersey Econ Dev Auth St Contract
Econ Recovery (MBIA Insd)........... 5.900 03/15/21 30,137,500
3,000 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)
(Prerefunded @ 9/01/12)............. 5.250 09/01/19 3,263,970
1,835 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)
(Prerefunded @ 9/01/12)............. 5.250 09/01/21 1,996,462
6,000 New Jersey St Tpk Auth Tpk Rev Ser
C-1 (AMBAC Insd).................... 5.000 01/01/35 6,198,120
2,095 New Jersey St Trans Tr Fd Auth Trans
Sys Ser A........................... 5.750 06/15/17 2,422,616
--------------
51,193,478
--------------
See Notes to Financial Statements
C-28
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
NEW MEXICO 0.2%
$ 1,250 Jicarilla, NM Apache Nation Rev Ser
A (Acquired 10/23/03, Cost
$1,275,475) (b)..................... 5.500% 09/01/23 $ 1,355,388
--------------
NEW YORK 17.0%
2,980 Erie Cnty, NY Tob Asset Sec Corp Ser
A................................... 5.000 06/01/38 3,043,474
2,700 Long Island Pwr Auth NY Elec Sys Rev
Gen Ser B........................... 5.000 12/01/35 2,848,149
3,000 Metropolitan Trans Auth NY Commuter
Fac Rev Ser A (MBIA Insd)
(Prerefunded @ 1/01/08)............. 5.625 07/01/27 3,116,190
2,500 Metropolitan Trans Auth NY Rev Rfdg
Ser A (FGIC Insd)................... 5.250 11/15/31 2,684,175
3,000 Metropolitan Trans Auth NY Rev Rfdg
Ser A (AMBAC Insd).................. 5.500 11/15/18 3,307,710
1,000 Nassau Cnty, NY Tob Settlement Corp
Ser A-3............................. 5.000 06/01/35 1,024,830
2,000 Nassau Cnty, NY Tob Settlement Corp
Ser A-3............................. 5.125 06/01/46 2,065,680
690 New York City Ser H................. 5.750 03/15/13 748,967
1,700 New York City Ser I................. 6.000 04/15/12 1,733,609
445 New York City Ser C (a)............. 7.000 08/15/08 446,170
1,775 New York City Tob Tr IV Settlement
Pass Thru Ser A..................... 5.000 06/01/42 1,809,044
16,930 New York City Trans Auth Trans Fac
Livingston Plaza Proj Rfdg Ser 1993
(FSA Insd) (e)...................... 5.400 01/01/18 18,975,483
5,305 New York City Trans Future Tax
Second Ser C (AMBAC Insd)........... 5.250 08/01/20 5,742,769
4,545 New York City Trans Future Tax
Second Ser D (MBIA Insd)............ 5.250 02/01/21 4,928,007
2,000 New York City Trans Future Tax
Second Ser C (AMBAC Insd)........... 5.250 08/01/22 2,155,900
6,000 New York City Trans Future Tax
Second Rfdg Ser A (i)............... 5.500/14.000 11/01/26 6,487,200
2,500 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Pgm Ser A (FSA
Insd)............................... 5.500 05/15/25 2,575,625
9,635 New York St Dorm Auth Rev City Univ
Sys Ser C........................... 7.500 07/01/10 10,363,791
3,000 New York St Dorm Auth Rev Hosp (MBIA
Insd)............................... 5.000 08/01/33 3,168,360
2,000 New York St Dorm Auth Rev Sch Dist
Fin Pgm Ser D (MBIA Insd)........... 5.500 10/01/17 2,210,360
See Notes to Financial Statements
C-29
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
NEW YORK (CONTINUED)
$ 3,000 New York St Dorm Auth Rev St Univ Ed
Fac (FGIC Insd) (Prerefunded @
5/15/10)............................ 5.750% 05/15/24 $ 3,251,400
2,000 New York St Dorm Auth Rev St Univ Ed
Fac 1989 Res (MBIA Insd)............ 6.000 05/15/16 2,175,740
1,500 New York St Environmental Fac
Revolving Fd Ser C.................. 5.000 07/15/21 1,594,635
2,840 New York St Loc Govt Assistance Corp
Rfdg Ser E.......................... 6.000 04/01/14 3,222,349
1,500 New York St Urban Dev Corp Rev
Correctional Fac.................... 5.500 01/01/13 1,626,405
2,680 Port Auth NY & NJ Cons 119th Ser
(FGIC Insd) (AMT)................... 5.500 09/15/17 2,710,472
12,080 Port Auth NY & NJ (c) (g)........... 5.000 10/01/35 12,851,792
3,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd) (AMT)......................... 5.750 12/01/22 3,123,420
3,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd) (AMT)......................... 5.750 12/01/25 3,065,730
6,000 Tsasc, Inc NY Ser 1................. 5.000 06/01/34 6,148,980
5,000 Tsasc, Inc NY Ser 1................. 5.125 06/01/42 5,164,200
1,700 Westchester, NY Tob Asset Sec
Corp................................ 5.125 06/01/38 1,753,516
--------------
126,124,132
--------------
NORTH CAROLINA 5.0%
2,000 Charlotte, NC Ctf Partn Convention
Fac Proj Rfdg Ser A................. 5.500 08/01/19 2,199,700
4,000 North Carolina Eastern Muni Pwr Agy
Pwr Sys Rev Ser D................... 6.750 01/01/26 4,353,520
25,000 North Carolina Muni Pwr Agy No 1
Catawba Elec Rev Rfdg (MBIA Insd)... 6.000 01/01/12 27,760,750
2,300 North Carolina Muni Pwr Agy Ser A
(MBIA Insd)......................... 5.250 01/01/19 2,479,722
--------------
36,793,692
--------------
NORTH DAKOTA 0.3%
770 North Dakota St Hsg Fin Agy Rev Hsg
Fin Pgm Home Mtg Fin Ser B (MBIA
Insd) (AMT)......................... 5.500 07/01/29 780,534
1,500 Ward Cnty, ND Hlthcare Fac Rev
Trinity Obligated Group (g)......... 5.125 07/01/29 1,570,350
--------------
2,350,884
--------------
See Notes to Financial Statements
C-30
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
OHIO 4.0%
$ 1,000 Cleveland, OH Muni Sch Dist (FSA
Insd)............................... 5.250% 12/01/23 $ 1,090,600
3,000 Columbus, OH City Sch Dist Sch Fac
Constr & Impt (FSA Insd)
(Prerefunded @ 12/01/14)............ 5.250 12/01/22 3,328,410
2,000 Cuyahoga Cnty, OH Hosp Fac Rev
Canton Inc Proj..................... 7.500 01/01/30 2,223,640
1,000 Delaware Cnty, OH Cap Fac
(Prerefunded @ 12/01/10)............ 6.000 12/01/25 1,100,790
1,000 Hamilton, OH One Renaissance Ctr Ser
A (AMBAC Insd)...................... 5.500 11/01/16 1,092,680
1,000 Lorain Cnty, OH Hosp Rev Catholic
Hlthcare Ser S...................... 5.375 10/01/30 1,059,610
2,000 Lorain, OH City Sch Dist Classroom
Fac Impt (MBIA Insd)................ 5.250 12/01/20 2,185,140
13,460 Ohio St Air Quality Dev Auth Rev
(FGIC Insd) (c)..................... 4.800 09/01/36 13,652,108
4,000 Olentangy Loc Sch Dist OH Rfdg Ser A
(FSA Insd) (g)...................... 4.500 12/01/32 4,017,600
--------------
29,750,578
--------------
OKLAHOMA 0.8%
1,505 Alva, OK Hosp Auth Hosp Rev Sales
Tax (Radian Insd)................... 5.250 06/01/25 1,616,159
1,500 Jenks, OK Aquarium Auth Rev First
Mtg (MBIA Insd) (Prerefunded @
7/01/10)............................ 6.100 07/01/30 1,643,250
1,575 Oklahoma City, OK Arpt Tr Jr Lien
27th Ser B (FSA Insd) (AMT)......... 5.750 07/01/16 1,672,729
1,000 Oklahoma City, OK Pub Ppty Auth
Hotel Tax Rev (FGIC Insd)........... 5.250 10/01/29 1,087,080
--------------
6,019,218
--------------
OREGON 2.1%
5,350 Oregon Hlth Sciences Univ Insd Ser A
(MBIA Insd)......................... 5.250 07/01/22 5,763,448
5,060 Oregon St Dept Admin Rfdg Ser C
(MBIA Insd)......................... 5.250 11/01/17 5,430,190
745 Oregon St Vets Welfare Ser 76A...... 6.050 10/01/28 752,234
1,135 Portland, OR Swr Sys Rev Second Lien
Rfdg Ser A (FSA Insd)............... 5.250 06/01/19 1,231,747
1,985 Portland, OR Urban Renewal & Redev
Downtown Wtrfront Ser A (AMBAC
Insd)............................... 5.750 06/15/16 2,141,855
--------------
15,319,474
--------------
See Notes to Financial Statements
C-31
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
PENNSYLVANIA 2.9%
$ 575 Allegheny Cnty, PA Rfdg Ser C-53
(FGIC Insd)......................... 5.500% 11/01/14 $ 618,482
230 Allegheny Cnty, PA San Auth Swr Rev
(MBIA Insd)......................... 5.500 12/01/30 247,257
3,035 Falls Twp, PA Hosp Auth Hosp Rev DE
Vly Med Rfdg (FHA Gtd).............. 7.000 08/01/22 3,055,729
1,000 Greensburg Salem, PA Sch Dist Rfdg
(FGIC Insd)......................... 5.375 09/15/15 1,089,290
60 Penn Hills, PA (FGIC Insd)
(Prerefunded @ 12/01/07)............ 5.900 12/01/17 61,502
1,600 Pennsylvania Hsg Fin Agy Single
Family Mtg Rev Ser 94-A (AMT)....... 5.100 10/01/31 1,652,592
1,000 Pennsylvania St Higher Ed Fac Auth
College & Univ Rev Bryn Mawr College
(MBIA Insd)......................... 5.625 12/01/27 1,030,840
2,600 Philadelphia, PA Auth Indl Dev Lease
Rev Ser B (FSA Insd)................ 5.500 10/01/16 2,831,478
1,000 Philadelphia, PA Auth Indl Dev
Philadelphia Arpt Sys Proj Ser A
(FGIC Insd) (AMT)................... 5.125 07/01/19 1,051,310
2,400 Philadelphia, PA Gas Wks Rev 1998
Gen Ordinance Ser 4 (FSA Insd)...... 5.250 08/01/22 2,573,592
2,220 Pittsburgh, PA Ser A (AMBAC Insd)
(Prerefunded @ 3/01/12)............. 5.500 09/01/16 2,426,504
2,350 Pittsburgh, PA Ser A (AMBAC Insd)... 5.500 09/01/16 2,550,549
2,000 Ridley Park, PA Hosp Auth Rev Taylor
Hosp Ser A (e)...................... 6.000 12/01/13 2,153,280
--------------
21,342,405
--------------
SOUTH CAROLINA 8.6%
2,275 Beaufort Cnty, SC Tax Increment New
Riv Redev Proj Area (MBIA Insd)
(a)................................. 5.500 06/01/19 2,496,812
2,375 Berkeley Cnty, SC Sch Dist Ctf Partn
Berkeley Sch Fac Grp Inc (MBIA Insd)
(e)................................. 5.250 02/01/16 2,582,385
3,375 Charleston Ed Excellence Fin Corp SC
Rev (c)............................. 5.250 12/01/25 3,627,670
10,125 Charleston Ed Excellence Fin Corp SC
Rev (c)............................. 5.250 12/01/26 10,883,008
6,510 Charleston Ed Excellence Fin Corp SC
Rev (AGC Insd) (c).................. 5.250 12/01/28 3,779,478
3,490 Charleston Ed Excellence Fin Corp SC
Rev (AGC Insd) (c).................. 5.250 12/01/30 7,049,972
5,000 Kershaw Cnty, SC Pub Sch Fndt
Kershaw Cnty Sch Dist Proj (CIFG
Insd)............................... 5.000 12/01/25 5,319,550
See Notes to Financial Statements
C-32
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
SOUTH CAROLINA (CONTINUED)
$ 2,080 Laurens Cnty, SC Sch Dist No 55
Installment Pur Rev................. 5.250% 12/01/30 $ 2,202,346
2,300 Medical Univ SC Hosp Auth Fac Rev
Mtg Rfdg Ser A (MBIA Insd).......... 5.250 08/15/25 2,472,316
1,840 Myrtle Beach, SC Hospitality Fee Rev
Ser A (FGIC Insd) (a)............... 5.375 06/01/21 2,021,700
1,935 Myrtle Beach, SC Hospitality Fee Rev
Ser A (FGIC Insd) (a)............... 5.375 06/01/22 2,126,081
1,000 Newberry Invtg in Newberry Cnty Sch
Dist Proj........................... 5.000 12/01/30 1,029,390
4,500 South Carolina Jobs Econ Dev Auth
Indl Rev Elec & Gas Co Proj Ser A
(AMBAC Insd)........................ 5.200 11/01/27 4,797,405
3,750 South Carolina Jobs Econ Dev Auth
Indl Rev Elec & Gas Co Proj Ser B
(AMBAC Insd) (AMT).................. 5.450 11/01/32 3,990,825
9,290 South Carolina Trans Infrastructure
Bk Rev Ser A (AMBAC Insd)........... 5.000 10/01/33 9,757,380
--------------
64,136,318
--------------
SOUTH DAKOTA 0.6%
2,250 Deadwood, SD Ctf Partn (ACA Insd)... 6.375 11/01/20 2,415,128
1,000 South Dakota St Hlth & Ed Fac Auth
Rev Childrens Care Hosp Rfdg........ 6.125 11/01/29 1,056,620
980 South Dakota St Hlth & Ed Fac Auth
Vocational Ed Pgm Ser A (AMBAC
Insd)............................... 5.400 08/01/13 1,009,096
--------------
4,480,844
--------------
TENNESSEE 2.6%
4,345 Chattanooga, TN Hlth Ed & Hsg Fac
Brd Rev CDFI Phase I LLC Proj Rfdg
Ser A............................... 5.125 10/01/35 4,414,737
6,000 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Mtn St Hlth Ser
A................................... 5.500 07/01/36 6,441,420
3,500 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Mtn St Hlth Rfdg
Ser A (MBIA Insd)................... 7.500 07/01/25 4,249,245
410 Montgomery Cnty, TN Pub Impt Rfdg
(FGIC Insd) (a)..................... 5.500 05/01/16 447,917
2,000 Sullivan Cnty, TN Hlth Ed & Hsg Fac
Brd Hosp Rev Wellmont Hlth Sys Proj
Ser C (g)........................... 5.250 09/01/36 2,103,400
1,500 Tennessee Hsg Dev Agy Homeownership
Prog 2006 (AMT)..................... 5.150 01/01/37 1,557,060
--------------
19,213,779
--------------
See Notes to Financial Statements
C-33
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
TEXAS 12.2%
$ 1,370 Alliance Arpt Auth Inc TX Spl Fac
Rev FedEx Corp Proj Rfdg (AMT)...... 4.850% 04/01/21 $ 1,392,536
2,685 Beaumont, TX Wtrwks & Swr Sys (FGIC
Insd) (Prerefunded @ 9/01/10) (a)
(d)................................. 6.250 09/01/15 2,939,001
300 Brazos Cnty, TX Hlth Fac Dev Oblig
Grp................................. 5.375 01/01/32 317,511
4,000 Dallas-Fort Worth, TX Intl Arpt Rev
Impt Jt Rfdg Ser A (FGIC Insd)
(AMT)............................... 5.500 11/01/31 4,272,280
4,000 Dallas-Fort Worth, TX Intl Arpt Rev
Jt Ser A (FGIC Insd) (AMT).......... 5.750 11/01/30 4,213,040
7,250 Harris Cnty-Houston, TX Sports Auth
Spl Rev Jr Lien Rfdg Ser B (MBIA
Insd)............................... 5.250 11/15/40 7,690,292
1,000 Harris Cnty, TX Hlth Fac Dev Mem
Hermann Hlthcare Ser A (Prerefunded
@ 6/01/11).......................... 6.375 06/01/29 1,123,390
4,820 Harris Cnty, TX Toll Rd (AMBAC Insd)
(Prerefunded @ 8/15/09)............. * 08/15/18 2,343,966
1,000 Harris Cnty, TX Toll Rd (AMBAC Insd)
(Prerefunded @ 8/15/09)............. * 08/15/21 395,600
4,000 Harris Cnty, TX Toll Rd Sub Lien
Rfdg................................ 5.000 08/01/33 4,070,800
1,000 Houston, TX Arpt Sys Rev Sub Lien
Ser A (FSA Insd) (AMT).............. 5.625 07/01/30 1,056,070
5,105 Houston, TX Hotel Occupancy Tax &
Spl Rev Convention & Entmt Ser B
(AMBAC Insd)........................ 5.750 09/01/15 5,559,294
225 Houston, TX Pub Impt & Rfdg (FSA
Insd)............................... 5.750 03/01/15 241,497
6,000 Houston, TX Util Sys Rev First Lien
Rfdg Ser A (FSA Insd)............... 5.250 05/15/21 6,520,500
6,000 Houston, TX Util Sys Rev First Lien
Rfdg Ser A (FGIC Insd).............. 5.250 05/15/23 6,520,500
2,750 Lower CO Riv Auth TX Transmission
Proj Corp (FGIC Insd)............... 5.000 05/15/33 2,837,148
1,500 Mesquite, TX Hlth Fac Dev Retirement
Fac Christian Care Ctr.............. 5.625 02/15/35 1,584,615
1,500 Mesquite, TX Hlth Fac Dev Retirement
Fac Christian Care Ctr (Prerefunded
@ 2/15/10).......................... 7.500 02/15/18 1,684,935
1,500 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj........ 7.250 01/01/31 1,553,430
1,100 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj........ 7.200 01/01/21 1,142,570
1,500 North Central, TX Hlth Fac Dev Corp
Rev Hosp Baylor Hlthcare Sys Proj
Ser A............................... 5.125 05/15/29 1,541,475
See Notes to Financial Statements
C-34
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
TEXAS (CONTINUED)
$ 5,750 North Central, TX Hlth Fac Dev Corp
Rev Hosp Childrens Med Ctr Dallas
(AMBAC Insd)........................ 5.250% 08/15/32 $ 6,098,910
2,805 Tarrant Regl Wtr Dist TX Wtr Rev
Impt Rfdg (FSA Insd)................ 5.250 03/01/19 3,029,428
253 Texas Muni Pwr Agy Rev (AMBAC Insd)
(e)................................. * 09/01/07 245,648
3,272 Texas Muni Pwr Agy Rev (AMBAC
Insd)............................... * 09/01/07 3,178,486
1,610 Texas St Pub Ppty Fin Corp Rev
Mental Hlth & Retardation Rfdg (FSA
Insd)............................... 5.500 09/01/13 1,618,823
3,500 Texas St Trans Commn Mobility Fd Ser
A (FGIC Insd)....................... 4.500 04/01/35 3,480,435
2,750 Texas St Vets Housing Assistance Pgm
Vet Ser B (FHA/VA Gtd) (AMT)........ 6.100 06/01/31 2,900,975
1,000 Texas Tech Univ Rev Fin Sys Ser 7
(MBIA Insd) (Prerefunded @
2/15/12)............................ 5.000 08/15/25 1,067,570
1,500 Texas Wtr Dev Brd Rev St Revolving
Fd Sr Lien Ser B.................... 5.250 07/15/17 1,570,275
2,500 University of TX Univ Rev Fin Sys
Ser B............................... 5.250 08/15/20 2,715,750
3,000 University of TX Univ Rev Fin Sys
Ser A............................... 5.250 08/15/20 3,258,900
2,300 University of TX Univ Rev Fin Sys
Ser C (Prerefunded @ 8/15/11)....... 5.375 08/15/19 2,473,259
--------------
90,638,909
--------------
UTAH 0.1%
1,000 Salt Lake Cnty, UT College Rev
Westminster College Proj............ 5.750 10/01/27 1,028,050
50 Utah St Hsg Fin Agy Single Family
Mtg, Class II Ser B-2 (FHA/VA Gtd)
(AMT)............................... 6.250 07/01/14 51,051
15 Utah St Hsg Fin Agy Single Family
Mtg Mezzanine Issue H1 (AMBAC
Insd)............................... 6.000 07/01/12 15,278
--------------
1,094,379
--------------
VIRGINIA 1.2%
1,320 Fairfax Cnty, VA Ctf Partn.......... 5.300 04/15/23 1,418,868
800 Tobacco Settlement Fin Corp VA...... 5.500 06/01/26 851,488
5,920 Tobacco Settlement Fin Corp VA...... 5.625 06/01/37 6,322,264
--------------
8,592,620
--------------
WASHINGTON 5.5%
2,500 Energy Northwest WA Elec Rev Proj No
3 Rfdg Ser A (FSA Insd)............. 5.500 07/01/18 2,713,875
5,360 Energy Northwest WA Elec Rev Proj No
3 Rfdg Ser B (FSA Insd)............. 6.000 07/01/16 6,002,128
2,500 Goat Hill Ppty WA Lease Rev Govt
Office Bldg Proj (MBIA Insd)........ 5.000 12/01/33 2,617,475
See Notes to Financial Statements
C-35
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
WASHINGTON (CONTINUED)
$ 4,400 King Cnty, WA Rfdg Ser B (MBIA
Insd)............................... 5.250% 01/01/34 $ 4,514,532
7,720 Klickitat Cnty, WA Pub Util Dist No
001 Elec Rev Rfdg Ser B (FGIC Insd)
(a)................................. 5.000 12/01/25 8,272,366
1,000 Port Seattle, WA Rev Ser B (MBIA
Insd) (AMT)......................... 5.625 02/01/24 1,057,250
1,435 Radford Ct Ppty WA Student Hsg Rev
(MBIA Insd) (a)..................... 6.000 06/01/15 1,559,357
1,585 Radford Ct Ppty WA Student Hsg Rev
(MBIA Insd) (a)..................... 6.000 06/01/16 1,720,692
1,000 Seattle, WA Muni Lt & Pwr Rev....... 5.625 12/01/18 1,070,150
1,250 Skagit Cnty, WA Pub Hosp Dist No 001
Skagit Vly Hosp..................... 5.500 12/01/30 1,318,937
2,100 Spokane, WA Pub Fac Dist Hotel (MBIA
Insd)............................... 5.750 12/01/21 2,342,487
3,000 Spokane, WA Pub Fac Dist Hotel Motel
& Sales Use Tax (MBIA Insd)......... 5.250 09/01/33 3,203,460
1,000 Spokane, WA Pub Fac Dist Hotel Motel
& Sales Use Tax (MBIA Insd)......... 5.750 12/01/20 1,119,740
1,650 Tacoma, WA Elec Sys Rev Rfdg Ser B
(FSA Insd).......................... 5.500 01/01/12 1,793,682
1,350 Tacoma, WA Elec Sys Rev Rfdg Ser A
(FSA Insd).......................... 5.750 01/01/15 1,469,111
--------------
40,775,242
--------------
WEST VIRGINIA 0.5%
3,750 West Virginia Univ Rev Impt Univ
Proj Ser C (FGIC Insd).............. 5.000 10/01/34 3,961,800
--------------
WISCONSIN 0.7%
2,345 Appleton, WI Wtrwks Rev Rfdg (FGIC
Insd)............................... 5.375 01/01/19 2,526,339
510 Badger Tob Asset Sec Corp WI........ 6.375 06/01/32 557,384
2,000 Southeast WI Professional Baseball
Pk Dist Sales Tax Rev Rfdg Ser A
(MBIA Insd)......................... 5.500 12/15/20 2,331,820
--------------
5,415,543
--------------
WYOMING 0.3%
2,000 Sweetwater Cnty, WY Solid Waste Disp
Rev FMC Corp Proj Rfdg (AMT)........ 5.600 12/01/35 2,127,180
--------------
GUAM 0.8%
5,800 Guam Pwr Auth Rev Ser A (AMBAC
Insd)............................... 5.250 10/01/34 6,085,186
--------------
See Notes to Financial Statements
C-36
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------
PUERTO RICO 0.8%
$ 1,110 Puerto Rico Comwlth Aqueduct & Swr
Auth Rev Rfdg (Comwth Gtd).......... 5.000% 07/01/15 $ 1,127,494
1,000 Puerto Rico Indl Tourist Ed Med &
Environmental Ctl Fac Fin Auth
Higher Ed Rev....................... 5.375 02/01/19 1,031,270
3,500 Puerto Rico Pub Bldg Auth Rev Govt
Fac Ser I (Comwth Gtd).............. 5.250 07/01/33 3,746,855
--------------
5,905,619
--------------
TOTAL INVESTMENTS 173.0%
(Cost $1,211,446,175)....................................................... 1,286,081,436
LIABILITY FOR FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES
HELD (15.3%)
(Cost ($113,880,000))
(113,880) Notes with interest rates ranging from 3.580% to 3.660% at
October 31, 2006 and contractual maturities of collateral ranging
from 2023 to 2041 (see Note 1) (j)............................... (113,880,000)
TOTAL NET INVESTMENTS 157.7%
(Cost $1,097,566,175)....................................................... 1,172,201,436
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2%................................... 1,753,796
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (57.9%)................... (430,588,239)
--------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%................................ $ 743,366,993
==============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) The Trust holds 100% of the outstanding bond issuance.
(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 1.1% of net
assets applicable to common shares.
(c) Underlying security related to Inverse Floaters entered into by the Trust.
See Note 1.
(d) All or a portion of this security has been physically segregated in
connection with open futures or swap contracts.
(e) Escrowed to Maturity
(f) 144A-Private Placement securities 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.
(g) Security purchased on a when-issued or delayed delivery basis.
See Notes to Financial Statements
C-37
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
(h) Variable Rate Coupon
(i) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(j) Floating rate notes. The interest rates shown reflect the rates in effect at
October 31, 2006.
ACA--American Capital Access
AGC--AGC Insured Custody Certificates
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
CIFG--CDC IXIS Financial Guaranty
COMWLTH--Commonwealth of Puerto Rico
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
RADIAN--Radian Asset Assurance
XLCA--XL Capital Assurance Inc.
SWAP AGREEMENTS OUTSTANDING AS OF OCTOBER 31, 2006:
INTEREST RATE SWAP
PAY/
RECEIVE NOTIONAL UNREALIZED
FLOATING FIXED EXPIRATION AMOUNT APPRECIATION/
COUNTERPARTY FLOATING RATE INDEX RATE RATE DATE (000) DEPRECIATION
JP Morgan Chase Bank, USD-BMA Municipal
N.A. Swap Index Receive 4.096% 12/15/26 $30,300 $(890,506)
=========
FUTURES CONTRACTS OUTSTANDING AS OF OCTOBER 31, 2006:
UNREALIZED
APPRECIATION/
SHORT CONTRACTS CONTRACTS DEPRECIATION
U.S. Treasury Notes 10-Year Futures, December 2006
(Current Notional Value of $108,219 per contract)......... 860 $ (919,979)
U.S. Treasury Bonds Futures, December 2006
(Current Notional Value of $112,656 per contract)......... 261 (580,151)
----- -----------
1,121 $(1,500,130)
===== ===========
See Notes to Financial Statements
C-38
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2006
ASSETS:
Total Investments (Cost $1,211,446,175)..................... $1,286,081,436
Receivables:
Investments Sold.......................................... 31,381,371
Interest.................................................. 17,851,486
Other....................................................... 21,593
--------------
Total Assets............................................ 1,335,335,886
--------------
LIABILITIES:
Payables:
Floating Rate Note Obligations............................ 113,880,000
Investments Purchased..................................... 43,863,647
Variation Margin on Futures............................... 622,933
Investment Advisory Fee................................... 544,761
Custodian Bank............................................ 330,697
Income Distributions--Common Shares....................... 124,645
Other Affiliates.......................................... 40,558
Swap Contracts.............................................. 890,506
Trustees' Deferred Compensation and Retirement Plans........ 874,656
Accrued Expenses............................................ 208,251
--------------
Total Liabilities....................................... 161,380,654
Preferred Shares (including accrued distributions).......... 430,588,239
--------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 743,366,993
==============
NET ASSET VALUE PER COMMON SHARE ($743,366,993 divided by
43,799,086 shares outstanding)............................ $ 16.97
==============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 43,799,086 shares issued and
outstanding).............................................. $ 437,991
Paid in Surplus............................................. 664,623,879
Net Unrealized Appreciation................................. 72,244,625
Accumulated Net Realized Gain............................... 3,729,905
Accumulated Undistributed Net Investment Income............. 2,330,593
--------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $ 743,366,993
==============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 17,200 issued with liquidation preference of
$25,000 per share)........................................ $ 430,000,000
==============
NET ASSETS INCLUDING PREFERRED SHARES....................... $1,173,366,993
==============
See Notes to Financial Statements
C-39
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2006
INVESTMENT INCOME:
Interest.................................................... $ 58,026,222
------------
EXPENSES:
Investment Advisory Fee..................................... 6,375,966
Preferred Share Maintenance................................. 1,121,272
Accounting and Administrative Expenses...................... 197,928
Trustees' Fees and Related Expenses......................... 167,179
Professional Fees........................................... 152,623
Reports to Shareholders..................................... 89,275
Transfer Agent Fees......................................... 87,938
Custody..................................................... 82,365
Registration Fees........................................... 39,289
Interest and Residual Trust Expense......................... 824,182
Other....................................................... 193,625
------------
Total Expenses.......................................... 9,331,642
------------
NET INVESTMENT INCOME....................................... $ 48,694,580
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 3,921,276
Futures................................................... 4,336,256
Swap Contracts............................................ (1,088,837)
------------
Net Realized Gain........................................... 7,168,695
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 58,996,836
------------
End of the Period:
Investments............................................. 74,635,261
Futures................................................. (1,500,130)
Swap Contracts.......................................... (890,506)
------------
72,244,625
------------
Net Unrealized Appreciation During the Period............... 13,247,789
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 20,416,484
============
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(15,290,485)
============
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 53,820,579
============
See Notes to Financial Statements
C-40
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 48,694,580 $ 31,438,535
Net Realized Gain....................................... 7,168,695 11,321,515
Net Unrealized Appreciation/Depreciation During the
Period................................................ 13,247,789 (28,276,265)
Distributions to Preferred Shareholders:
Net Investment Income................................. (12,658,380) (6,244,112)
Net Realized Gain..................................... (2,632,105) -0-
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 53,820,579 8,239,673
Distributions to Common Shareholders:
Net Investment Income................................. (35,827,315) (26,316,570)
Net Realized Gain..................................... (10,581,860) -0-
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ 7,411,404 (18,076,897)
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Acquired Through Merger..... -0- 285,697,964
------------ ------------
TOTAL INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES................................................ 7,411,404 267,621,067
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 735,955,589 468,334,522
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $2,330,593 and $2,036,202,
respectively.)........................................ $743,366,993 $735,955,589
============ ============
See Notes to Financial Statements
C-41
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED OCTOBER 31
--------------------------------------------------
2006 2005 2004 2003 2002
--------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD... $ 16.80 $ 17.34 $ 17.15 $ 17.46 $ 17.51
------- ------- ------- ------- -------
Net Investment Income.................... 1.11(a) 1.09 1.09 1.10 1.18
Net Realized and Unrealized Gain/Loss.... 0.47 (0.48) 0.31 0.09 0.18
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income.................. (0.29) (0.22) (0.10) (0.08) (0.10)
Net Realized Gain...................... (0.06) 0.00 (0.01) (0.03) (0.07)
------- ------- ------- ------- -------
Total From Investment Operations........... 1.23 0.39 1.29 1.08 1.19
Distributions Paid to Common Shareholders:
Net Investment Income.................... (0.82) (0.93) (1.00) (1.07) (1.03)
Net Realized Gain........................ (0.24) 0.00 (0.10) (0.32) (0.21)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE PERIOD......... $ 16.97 $ 16.80 $ 17.34 $ 17.15 $ 17.46
======= ======= ======= ======= =======
Common Share Market Price at End of the
Period................................... $ 14.94 $ 14.61 $ 15.34 $ 15.58 $ 15.80
Total Return (b)........................... 9.86% 1.31% 5.76% 7.60% 14.56%
Net Assets Applicable to Common Shares at
End of the Period (In millions).......... $ 743.4 $ 736.0 $ 468.3 $ 463.3 $ 471.6
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (c).......... 1.28% 1.17% 1.27% 1.28% 1.41%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(c)...................................... 6.68% 6.51% 6.43% 6.40% 6.89%
Portfolio Turnover......................... 25% 25% 18% 23% 33%
SUPPLEMENTAL RATIOS:
Ratio of Expenses (Excluding Interest and
Residual Trust Expense) to Average Net
Assets Applicable to Common Shares (c)... 1.17% 1.17% 1.27% 1.28% 1.41%
Ratio of Expenses (Excluding Interest and
Residual Trust Expense) to Average Net
Assets Including Preferred Shares (c).... 0.73% 0.74% 0.80% 0.82% 0.89%
Ratio of Expenses to Average Net Assets
Including Preferred Shares (c)........... 0.81% 0.74% 0.80% 0.82% 0.89%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(d)...................................... 4.94% 5.22% 5.82% 5.92% 6.30%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......... 17,200 17,200 10,600 10,600 10,600
Asset Coverage Per Preferred Share (e)..... $68,253 $67,812 $69,204 $68,721 $69,511
Involuntary Liquidating Preference Per
Preferred Share.......................... $25,000 $25,000 $25,000 $25,000 $25,000
Average Market Value Per Preferred Share... $25,000 $25,000 $25,000 $25,000 $25,000
(a) Based on average shares outstanding.
(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.
See Notes to Financial Statements
C-42
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Trust for Investment Grade Municipals (the "Trust") is registered as
a diversified, closed-end management investment company under the Investment
Company Act of 1940 (the "1940 Act"), as amended. The Trust's investment
objective is to seek to provide a high level of current income exempt from
federal income taxes, consistent with preservation of capital. The Trust will
invest substantially all of its assets in municipal securities rated investment
grade at the time of investment. The Trust commenced investment operations on
January 24, 1992.
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. Interest rate swaps are valued using market
quotations from brokers. Short-term securities with remaining maturities of 60
days of 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, 2006, the Trust had $43,863,647 of 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 Subchapter M 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.
C-43
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
At October 31, 2006, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $1,095,174,331
==============
Gross tax unrealized appreciation........................... $ 77,027,727
Gross tax unrealized depreciation........................... (622)
--------------
Net tax unrealized appreciation on investments.............. $ 77,027,105
==============
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 and a portion of future gains, which are
included as ordinary income for tax purposes.
The tax character of distributions paid during the years ended October 31,
2006 and 2005 was as follows:
2006 2005
Distributions paid from:
Ordinary income........................................... $ 105,360 $ 96,040
Tax exempt income......................................... 48,205,641 32,252,093
Long-term capital gain.................................... 13,213,965 -0-
----------- -----------
$61,524,966 $32,348,133
=========== ===========
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 for the 2006 fiscal year have been
identified and appropriately reclasssified on the Statement of Assets and
Liabilities. Permanent book to tax differences relating to merger costs and
excise taxes which were not deductible for tax purposes totaling $54,608 and
$95,688, respectively, were reclassified from accumulated undistributed net
investment income to paid in surplus. Additionally, a permanent difference
relating to book to tax accretion differences totaling $64,790 was reclassified
from accumulated undistributed net investment income to accumulated net realized
gain.
As of October 31, 2006, the components of distributable earnings on a tax
basis was as follows:
Undistributed ordinary income............................... $ 207,646
Undistributed tax exempt income............................. 2,453,164
Undistributed long-term capital gain........................ 1,092,071
Net realized gains or losses may differ for financial reporting and tax
purposes as a result of the deferral of losses relating to wash sale
transactions, gains or losses recognized on securities for tax purposes but not
for book and gains or losses recognized for tax purposes on open futures
transactions on October 31, 2006.
C-44
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
F. FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD The Trust enters
into transactions in which it transfers to dealer trusts fixed rate bonds in
exchange for cash and residual interests in the dealer trusts' assets and cash
flows, which are in the form of inverse floating rate investments. The dealer
trusts fund the purchases of the fixed rate bonds by issuing floating rate notes
to third parties and allowing the Trust to retain residual interests in the
bonds. The Trust enters into shortfall agreements with the dealer trusts, which
commit the Trust to pay the dealer trusts, in certain circumstances, the
difference between the liquidation value of the fixed rate bonds held by the
dealer trusts and the liquidation value of the floating rate notes held by third
parties, as well as any shortfalls in interest cash flows. The residual
interests held by the Trust (inverse floating rate investments) include the
right of the Trust (1) to cause the holders of the floating rate notes to tender
their notes at par at the next interest rate reset date, and (2) to transfer the
municipal bond from the dealer trusts to the Trust, thereby collapsing the
dealer trusts. The Trust accounts for the transfer of bonds to the dealer trusts
as secured borrowings, with the securities transferred remaining in the Trust's
investment assets, and the related floating rate notes reflected as Trust
liabilities under the caption "Floating Rate Note Obligations" on the Statement
of Assets and Liabilities. The Trust records the interest income from the fixed
rate bonds under the caption "Interest" and records the expenses related to
floating rate note obligations and any administrative expenses of the dealer
trusts under the caption "Interest and Residual Trust Expenses" in the Trust's
Statement of Operations. The notes issued by the dealer trusts have interest
rates that reset weekly and the floating rate note holders have the option to
tender their notes to the dealer trusts for redemption at par at each reset
date. At October 31, 2006, Trust investments with a value of $166,552,078 are
held by the dealer trusts and serve as collateral for the $113,880,000 in
floating rate notes outstanding at that date. Contractual maturities of the
floating rate notes and interest rates in effect at October 31, 2006 are
presented on the Portfolio of Investments.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Asset
Management (the "Adviser") will provide investment advice and facilities to the
Trust for an annual fee payable monthly of .55% of the average daily net assets
including preferred shares of the Trust. Effective December 1, 2006, the Adviser
has agreed to waive investment advisory fees equal to .10% of the average daily
net assets including preferred shares of the Trust. This waiver is voluntary and
can be discontinued at any time.
For the year ended October 31, 2006, the Trust recognized expenses of
approximately $75,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer (CCO) Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Trust. The costs of
these services are allocated to each trust. For the year ended October 31, 2006,
the Trust recognized expenses of approximately $110,300 representing Van Kampen
Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by Van
Kampen. Services provided pursuant to the Legal Services agreement are reported
as part of
C-45
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
"Professional Fees" on the Statement of Operations. Services provided pursuant
to the Accounting Services and CCO Employment agreement are reported as part of
"Accounting and Administrative Expenses" on 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. CAPITAL TRANSACTIONS
For the years ended October 31, 2006 and 2005, transactions in common shares
were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
Beginning Shares........................................ 43,799,086 27,013,149
Shares Issued Through Merger............................ 0 16,785,937
---------- ----------
Ending Shares........................................... 43,799,086 43,799,086
========== ==========
On October 7, 2005, the Trust acquired all of the assets and liabilities of
the Van Kampen Municipal Income Trust (ticker symbol VMT) through a tax free
reorganization approved by VMT shareholders on September 23, 2005. The Trust
issued 16,785,937 common shares with a net asset value of $285,697,964 and 6,600
Auction Preferred Shares (APS) with a liquidation value of $165,000,000, in
exchange for VMT net assets. The shares of VMT were converted into Trust shares
at a ratio of 0.585182 to 1 and 1 to 20, for common shares and APS,
respectively. Net unrealized appreciation on VMT as of October 7, 2005 was
$20,734,270. The Trust assumed VMT's book to tax accretion differences, which
resulted in a $404,784 increase to accumulated undistributed net investment
income and a corresponding decrease to net unrealized appreciation. Combined net
assets applicable to common shares on the day of the reorganization were
$745,337,328 and combined net assets including preferred shares were
$1,175,337,328. Included in these net assets was a Trustees deferred
compensation balance of $255,898 and Trustees retirement plan balance of $74,816
which are included in accumulated undistributed net investment income. Also,
included in these net assets were losses recognized for tax purposes for open
futures transactions at October 7, 2005 of $561,213 which is included in
accumulated net realized gain.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $421,663,089 and $300,901,418,
respectively.
5. 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.
C-46
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
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 unrealized
appreciation/depreciation. Upon disposition, a realized gain of 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.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
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.
These contracts are generally used to manage the Trust's effective maturity and
duration. 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 futures commission merchant pursuant to the 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, 2006 were
as follows:
CONTRACTS
Outstanding at October 31, 2005............................. 2,572
Futures Opened.............................................. 7,573
Futures Closed.............................................. (9,024)
------
Outstanding at October 31, 2006............................. 1,121
======
B. INVERSE FLOATING RATE INVESTMENTS The Trust may invest a portion of its
assets in inverse floating rate instruments, either through outright purchases
of inverse floating rate securities or through the transfer of bonds to a dealer
trust in exchange for cash and residual interests in the dealer trust. These
investments are typically used by the Trust in seeking to enhance the yield of
the portfolio. These instruments typically involve greater risks than a fixed
rate municipal bond. In particular, these instruments are acquired through
leverage or may have leverage embedded in them and therefore involve many of the
risks associated with leverage. Leverage is a speculative technique that may
expose the Trust to greater risk and increased costs. Leverage may cause the
Trust's net asset value to be more volatile than if it had not been leveraged
because leverage tends to magnify the effect of any increases or decreases in
C-47
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
the value of the Trust's portfolio securities. The use of leverage may also
cause the Trust to liquidate portfolio positions when it may not be advantageous
to do so in order to satisfy its obligations with respect to inverse floating
rate instruments.
C. INTEREST RATE SWAPS The Trust may enter into forward interest rate swap
transactions intended to help the Trust manage its overall interest rate
sensitivity, either shorter or longer, generally to more closely align the
Trust's interest rate sensitivity with that of the broader municipal market.
Forward interest rate swap transactions involve the Trust's agreement with a
counterparty to pay, in the future, a fixed or variable rate payment in exchange
for the counterparty paying the Trust a variable or fixed rate payment, the
accruals for which would begin at a specified date in the future (the "effective
date"). The amount of the payment obligation is based on the notional amount of
the forward swap contract and the termination date of the swap (which is akin to
a bond's maturity). The value of the Trust's swap commitment would increase or
decrease based primarily on the extent to which long-term interest rates for
bonds having a maturity of the swap's termination date increases or decreases.
The Trust may terminate a swap contract prior to the effective date, at which
point a realized gain or loss is recognized. When a forward swap is terminated,
it ordinarily does not involve the delivery of securities or other underlying
assets or principal, but rather is settled in cash on a net basis. The Trust
intends, but is not obligated, to terminate its forward swaps before the
effective date. Accordingly, the risk of loss with respect to the swap
counterparty on such transactions is limited to the credit risk associated with
a counterparty failing to honor its commitment to pay any realized gain to the
Trust upon termination. To reduce such credit risk, all counterparties are
required to pledge collateral daily (based on the daily valuation of each swap)
on behalf of the Trust with a value approximately equal to the amount of any
unrealized gain. Reciprocally, when the Trust has an unrealized loss on a swap
contract, the Trust has instructed the custodian to pledge cash or liquid
securities as collateral with a value approximately equal to the amount of the
unrealized loss. Collateral pledges are monitored and subsequently adjusted if
and when the swap valuations fluctuate. Restricted cash, if any, for segregating
purposes is shown on the Statement of Assets and Liabilities.
6. PREFERRED SHARES
The Trust has outstanding 17,200 APS in seven series. Series A, B, and C contain
3,000 shares each, Series D contains 1,600 shares and Series E, F and G contain
2,200 shares each. Dividends are cumulative and the dividend rates are generally
reset every 28 days through an auction process. The average rate in effect on
October 31, 2006 was 3.562%. During the year ended October 31, 2006, the rates
ranged from 2.599% to 5.750%.
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 on 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.
C-48
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
7. 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.
8. ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for the fiscal years beginning after December 15, 2006. The impact to
the Trust's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Trust's financial statement disclosures.
C-49
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Van Kampen Trust for Investment Grade Municipals
We have audited the accompanying statement of assets and liabilities of Van
Kampen Trust for Investment Grade Municipals (the "Trust"), including the
portfolio of investments, as of October 31, 2006, 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.
We conducted our audits in accordance with the 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.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Trust for Investment Grade Municipals as of October 31, 2006, the results
of its operations for the year then ended, the changes in its 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, in conformity with accounting
principles generally accepted in the United States of America.
Chicago, Illinois
January 11, 2007
C-50
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan offers you a prompt and simple way to
reinvest your dividends and capital gains distributions into additional shares
of your trust. Under the plan, the money you earn from dividends and capital
gains distributions will be reinvested automatically in more shares of your
trust, allowing you to potentially increase your investment over time.
PLAN BENEFITS
- ADD TO YOUR ACCOUNT
You may increase your shares in your trust easily and automatically with
the dividend reinvestment plan.
- LOW TRANSACTION COSTS
Shareholders who participate in the plan are able to buy shares at below-
market prices when the trust is trading at a premium to its net asset
value. In addition, transaction costs are low because when new shares are
issued by the trust, there is no brokerage fee, and when shares are bought
in blocks on the open market, the brokerage commission is shared among all
participants.
- CONVENIENCE
You will receive a detailed account statement from Computershare Trust
Company, N.A., which administers the plan, whenever shares are reinvested
for you. The statement shows your total distributions, date of investment,
shares acquired, and price per share, as well as the total number of
shares in your reinvestment account.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for
you in safekeeping, which provides added protection against loss, theft,
or inadvertent destruction of certificates. However, you may request that
a certificate representing your reinvested shares be issued to you.
HOW DOES THE PLAN WORK?
If you choose to participate in the plan, your dividends and capital gains
distributions will be promptly reinvested for you, automatically increasing your
shares. If your trust is trading at a share price that is equal to its net asset
value (NAV), you'll pay that amount for your reinvested shares. However, if your
trust is trading above or below its NAV, the price is determined by one of two
ways:
1. PREMIUM If your trust is trading at a premium -- a market price that
is higher than its NAV -- you'll pay either the NAV or 95 percent of the
market price, whichever is greater. When your trust trades at a premium,
you'll pay less for your reinvested shares than an ordinary investor
purchasing shares on the stock exchange. Keep in mind, a portion of your
price reduction may be taxable because you are receiving shares at less
than market price.
C-51
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
DIVIDEND REINVESTMENT PLAN continued
2. DISCOUNT If your trust is trading at a discount -- a market price that
is lower than its NAV -- you'll pay the market price for your reinvested
shares.
HOW TO PARTICIPATE IN THE PLAN
If you own shares in your own name, you can participate directly in the
plan. If your shares are held in "street name" -- in the name of your brokerage
firm, bank, or other financial institution -- you must instruct that entity to
participate on your behalf. If they are unable to participate on your behalf,
you may request that they reregister your shares in your own name so that you
may enroll in the plan.
If you choose to participate in the plan, whenever your trust declares a
dividend or capital gains distribution, it will be invested in additional shares
of your trust that are purchased on the open market.
HOW TO ENROLL
To enroll in the Dividend Reinvestment Plan please visit vankampen.com or
call (800) 341-2929 or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Please include your trust name and account number and ensure that all
shareholders listed on the account sign these written instructions. Your
participation in the plan will begin with the next dividend or capital gains
distribution payable after Computershare Trust Company, N.A. receives your
authorization, as long as they receive it before the "record date," which is
generally ten business days before the dividend is paid. If your authorization
arrives after such record date, your participation in the plan will begin with
the following dividend or distribution.
COSTS OF THE PLAN
There is no direct charge to you for reinvesting dividends and capital gains
distributions because the plan's fees are paid by your trust. If your trust is
trading at or above its NAV, your new shares are issued directly by the trust
and there are no brokerage charges or commissions. However, if your trust is
trading at a discount, the shares are purchased on the open market, and you will
pay your portion of any brokerage commissions. These brokerage commissions are
typically less than the standard brokerage charges for individual transactions
because shares are purchased for all participants in
C-52
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
DIVIDEND REINVESTMENT PLAN continued
blocks, resulting in lower commissions for each individual participant. Any
brokerage commissions or service fees are averaged into the purchase price.
TAX IMPLICATIONS
The automatic reinvestment of dividends and capital gains distributions does
not relieve you of any income tax that may be due on dividends or distributions.
You will receive tax information annually to help you prepare your federal and
state income tax returns.
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Dividend Reinvestment Plan please visit vankampen.com
or call (800) 341-2929 or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have two choices for receiving your shares:
- CERTIFICATE
We will issue a certificate for the full shares and send you a check for any
fractional shares without a charge.
- CHECK
We will sell all full and fractional shares and send the proceeds to your
address of record after deducting brokerage commissions and a $2.50 service fee.
The Trust and Computershare Trust Company, N.A. may amend or terminate the
plan. Participants will receive written notice at least 30 days before the
effective date of any amendment. In the case of termination, participants will
receive written notice at least 30 days before the record date for the payment
of any dividend or capital gains distribution by your trust.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 800-341-2929 OR VISIT VANKAMPEN.COM.
C-53
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
DENNIS SHEA
Vice President
J. DAVID GERMANY
Vice President
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
JAMES W. GARRETT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, N.A.
c/o Computershare Investor Services
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
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ending
October 31, 2006. The Trust designated 99.8% of the income distributions as a
tax-exempt income distribution. The Trust designated and paid $13,213,965 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-54
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2006,
where shareholders voted on the election of trustees.
With regard to the election of the following trustees by the common shareholders
of the Trust:
# OF SHARES
-------------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Linda Hutton Heagy....................................... 38,210,266 1,043,508
Wayne W. Whalen.......................................... 38,224,090 1,029,684
With regard to the election of the following trustee by the preferred
shareholders of the Trust:
# OF SHARES
----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Rod Dammeyer................................................ 15,100 55
The other trustees of the Trust whose terms did not expire in 2006 are David C.
Arch, Jerry D. Choate, R. Craig Kennedy, Howard J Kerr, Jack E. Nelson, Hugo F.
Sonnenschein and Suzanne H. Woolsey.
C-55
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
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,
the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange
Corp. and Investor Services. The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Annual
Report. Trustees of the Trust generally serve three year terms or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
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 (61) Trustee Trustee Chairman and Chief 71 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.
Jerry D. Choate (68) Trustee Trustee Prior to January 1999, 71 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.
C-56
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
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 (66) Trustee Trustee President of CAC, L.L.C., 71 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 Quidel
San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle,
to February 2001, Vice Inc., Ventana Medical
Chairman and Director of Systems, Inc., and GATX
Anixter International, Corporation, and Trustee
Inc., a global of The Scripps Research
distributor of wire, Institute. Prior to
cable and communications January 2005, Trustee of
connectivity products. the University of Chicago
Prior to July 2000, Hospitals and Health
Managing Partner of Systems. Prior to April
Equity Group Corporate 2004, Director of
Investment (EGI), a TheraSense, Inc. Prior to
company that makes January 2004, Director of
private investments in TeleTech Holdings Inc.
other companies. 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).
C-57
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
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 (58) Trustee Trustee Managing Partner of 71 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 Trustee/Director/Managing
14 Huron Trace since 1992 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
C-58
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
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 (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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. (65) Trustee Trustee Chief Communications 71 Trustee/Director/Managing
815 Cumberstone Road since 2003 Officer of the National General Partner of funds
Harwood, MD 20776 Academy of in the Fund Complex.
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.
C-59
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE:*
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
Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 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 Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) 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.
C-60
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
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
Ronald E. Robison (67) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Van Kampen Advisors
Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution 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 of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.
Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global
Equity of the same entities since February 2006. Vice
President of Morgan Stanley Institutional and Retail Funds
since February 2006. Vice President of funds in the Fund
Complex since March 2006. Previously, Managing Director and
Director of Global Equity Research at Morgan Stanley from
April 2000 to February 2006.
J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer -
London, GBR E14 4QA Global Fixed Income of the same entities since December
2005. Managing Director and Director of Morgan Stanley
Investment Management Ltd. Director of Morgan Stanley
Investment Management (ACD) Limited since December 2003.
Vice President of Morgan Stanley Institutional and Retail
Funds since February 2006. Vice President of funds in the
Fund Complex since March 2006.
C-61
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
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
Amy R. Doberman (44) 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 Advisors 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 since 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.
Stefanie V. Chang (40) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
John L. Sullivan (51) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 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 Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
James W. Garrett (38) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley
New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund
Complex from January 2005 to August 2005 and since September
2006.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Trust's Chief Executive Officer has certified to the New
York Stock Exchange that, as of June 29, 2006, he was not aware of any violation
by the Trust of NYSE corporate governance listing standards.
The certifications by the Trust's principal executive officer and principal
financial officer required by Rule 30a-2 under the 1940 Act were filed with the
Trust's report to the SEC on Form N-CSR and are available on the Securities and
Exchange Commission's web site at http://www.sec.gov.
C-62
Van Kampen Trust for Investment Grade Municipals
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.
(continued on next page)
C-63
Van Kampen Trust for Investment Grade Municipals
An Important Notice Concerning Our U.S. Privacy Policy continued
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, 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
(continued on back)
C-64
Van Kampen Trust for Investment Grade Municipals
An Important Notice Concerning Our U.S. Privacy Policy continued
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
Copyright (C)2006 Van Kampen Funds Inc.
All rights reserved. Member NASD/SIPC.
VGMANR 12/06
(VAN KAMPEN INVESTMENTS LOGO) RN06-03466P-Y10/06
C-65
APPENDIX D
TARGET FUND ANNUAL REPORT DATED OCTOBER 31, 2006
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
Trust for Investment Grade Florida Municipals 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, 2006.
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).
---------------------------------------------------------------------------------------
NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
---------------------------------------------------------------------------------------
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
---------------------------------------------------------------------------------------
D-2
Performance Summary as of 10/31/06
TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
SYMBOL: VTF
------------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (3/27/92) 7.79% 6.64%
10-year 6.87 5.86
5-year 6.72 6.99
1-year 7.00 8.03
------------------------------------------------------------
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 and preferred shares, 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 Florida Municipal Bond Index is a broad-based statistical
composite of Florida 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, 2006
MARKET CONDITIONS
Against the backdrop of strong economic growth, good employment data and
inflationary pressures stemming from rising oil prices, the Federal Open Market
Committee (the "Fed") continued its tightening campaign during the first eight
months of the reporting period, raising the fed funds target rate six times to
5.25 percent at the end of June. As the months progressed however, economic
growth moderated as consumer spending and housing weakened while inflation
concerns eased, prompting investors to speculate that the Fed would take a break
from rate increases. In August the Fed did pause, ending a two-year run of 17
consecutive rate increases--the longest stretch of increases in 25 years. At its
subsequent meetings, the Fed again kept its target rate unchanged, and indicated
that any future rate increases would be driven by the weight of economic data.
As a result of the improved outlook for the fixed-income market, yields on
longer-maturity municipal bonds fell dramatically in latter months of the
reporting year, ultimately ending at the lowest level in decades and causing
this segment of the market to earn the best returns. Shorter-maturity municipal
bonds, however, posted the lowest returns as Fed rate hikes moved yields in this
portion of the curve higher. Accordingly, the slope of the municipal yield curve
flattened as the spread between short-term and long-term interest rates
narrowed.
Demand for municipal bonds continued to be strong during the period. In fact,
inflows into municipal bond funds were 55 percent higher year-to-date through
October than for the same period last year, much of which went into high-yield
funds. Because prevailing interest rates were still at relatively low levels,
investors increasingly sought out lower-quality, higher-yielding bonds. The
increased demand for high-yield bonds led this segment of the market to
considerably outperform high-grade issues.
Although municipal bond issuance remained brisk in the last quarter of 2005,
volume declined throughout the remaining months of the period. As of the end of
October, national municipal bond issuance was down 13 percent for 2006. The
reduced supply, coupled with growing demand, further fueled municipal bond
performance.
Florida continued to enjoy strong economic growth, which has led to growth in
revenues. Job creation in the state remained the highest in the country,
unemployment was low, and population growth was more than twice the rate of the
national average. In addition, Florida maintains one of the strongest funded
pension ratios in the country. Together, these factors, along with the state's
history of prudent fiscal management and positive financial performance, create
a very favorable outlook for the state.
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 and preferred shares, 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, as they did during the reporting
period. On both an NAV basis and a market price basis, the trust outperformed
its benchmark index, the Lehman Brothers Florida Municipal Bond Index.
TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED OCTOBER 31, 2006
-------------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS FLORIDA
NAV MARKET PRICE MUNICIPAL BOND INDEX
7.00% 8.03% 5.71%
-------------------------------------------------------------
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.
Throughout the reporting period, we sought opportunities to enhance the
portfolio's yield, while still adhering to our quality-driven investment
discipline. We did so primarily by implementing two general strategies. First,
we increased the portfolio's exposure to lower-rated, higher-yielding
securities. Specifically, we added to holdings in BBB rated credits while
reducing holdings in AAA rated credits. This strategy proved beneficial to
performance as credit spreads in the high-yield segment of the market tightened,
leading high-yield bonds to considerably outperform higher-quality bonds.
Second, we emphasized the long end of the yield curve, favoring bonds with
maturities of 20 to 30 years. Given the flattening of the yield curve during the
period, attractive yields were primarily found on the very long end of the curve
and our focus here was additive to performance.
Reflecting our view that interest rates in the Treasury market would continue to
rise, we kept the portfolio's duration (a measure of interest-rate sensitivity)
shorter than that of the Lehman Brothers Florida Municipal Bond Index for much
of the period. In the latter months, when it appeared that the Fed was done
raising rates, we increased the portfolio's duration to a more neutral stance.
While this positioning overall was beneficial, the trust could have benefited
even more had we increased the duration earlier in the reporting period. In
addition, rising interest rates made the trust's borrowing activity more
expensive, thereby tempering the benefits of leverage for much of the period.
The trust uses leverage to enhance its dividend to common shareholders. The
trust borrows money at short-term rates through the issuance of
D-5
preferred shares. The proceeds are reinvested in longer-term securities, taking
advantage of the difference between short-and longer-term rates.
In keeping with our focus on high-yielding credits, we added Puerto Rico tobacco
revenue bonds to the portfolio, which are BBB rated. The litigation environment
for tobacco companies has become quite favorable, demand for the bonds remains
strong, and the industry continues to prosper. We also added to holdings in
hospital bonds, which have benefited from spread tightening in the sector. Our
decision to increase the trust's exposure to these sectors during the period was
additive to performance as they performed strongly.
The trust remained well represented among the major sectors of the Florida
municipal market. The largest sectors at the end of the period were hospitals,
public education, and water & sewer.
The Trustees have approved a procedure whereby the trust may, when appropriate,
repurchase its shares in the open market or in privately negotiated transactions
at a price not above market value or NAV, whichever is lower at the time of
purchase. This may help support the market value of the trust's shares.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the trust in
the future.
CHANGES IN INVESTMENT POLICIES
The Board of Trustees of the trust recently approved the following non-
fundamental investment policy for the trust: The trust may invest up to 20% of
its assets in securities that are rated, at the time of investment, BB/Ba or B
by Standard & Poor's Ratings Service ("S&P"), Moody's Investors Services, Inc.
("Moody's") or Fitch Ratings Ltd. ("Fitch") or that are unrated, but deemed to
be of comparable quality by the Adviser. These securities are regarded as below
investment grade and are commonly referred to as junk bonds, and involve greater
risks than investments in higher-grade securities.
Securities that are in the lower-grade categories generally offer higher yields
than are offered by higher-grade securities of similar maturities, but they also
generally involve greater risks, such as greater credit risk, greater market
risk and volatility, greater liquidity concerns and potentially greater manager
risk. Rated lower-grade debt securities are regarded by S&P, Moody's and Fitch
as predominately speculative with respect to the capacity to pay interest or
repay principal or interest in accordance with their terms. Investors should
carefully consider the risks of owning shares of a fund which invests in
lower-grade securities before investing in the trust.
Lower-grade securities are more susceptible to nonpayment of interest and
principal or default than higher-grade securities. Increases in interest rates
or changes in the economy may significantly affect the ability of lower-grade
income securities to pay interest and to repay principal, to meet projected
D-6
financial goals or to obtain additional financing. In the event that an issuer
of securities held by the trust experiences difficulties in the timely payment
of principal and interest and such issuer seeks to restructure the terms of its
borrowings, the trust may incur additional expenses and may determine to invest
additional assets with respect to such issuer or the project or projects to
which the trust's securities relate. Further, the trust may incur additional
expenses to the extent that it is required to seek recovery upon a default in
the payment of interest or the repayment of principal on its portfolio holdings,
and the trust may be unable to obtain full recovery on such amounts.
The secondary market prices of lower-grade securities generally are less
sensitive to changes in interest rates and are more sensitive to real or
perceived general adverse economic changes or specific developments with respect
to the particular issuers than are the secondary market prices of higher-grade
securities. A significant increase in interest rates or a general economic
downturn could severely disrupt the market for lower-grade securities and
adversely affect the market value of such securities. Such events also could
lead to a higher incidence of default by issuers of lower-grade securities as
compared with higher-grade securities. In addition, changes in credit risks,
interest rates, the credit markets or periods of general economic uncertainty
can be expected to result in increased volatility in the market price of
lower-grade securities in the trust and thus in the net asset value of the
trust. Adverse publicity and investor perceptions, whether or not based on
rational analysis, may affect the value, volatility and liquidity of lower-grade
securities.
The markets for lower-grade securities may be less liquid than the markets for
higher-grade securities. To the extent that there is no established retail
market for some of the lower-grade securities in which the trust may invest,
trading in such securities may be relatively inactive. Prices of lower-grade
securities may decline rapidly in the event a significant number of holders
decide to sell. Changes in expectations regarding an individual issuer of
lower-grade securities generally could reduce market liquidity for such
securities and make their sale by the Trust more difficult, at least in the
absence of price concessions. The effects of adverse publicity and investor
perceptions may be more pronounced for securities for which no established
retail market exists as compared with the effects on securities for which such a
market does exist. An economic downturn or an increase in interest rates could
severely disrupt the market for such securities and adversely affect the value
of outstanding securities or the ability of the issuers to repay principal and
interest. Further, the trust may have more difficulty selling such securities in
a timely manner and at their stated value than would be the case for securities
for which an established retail market does exist.
The market for lower grade securities may have less available information,
further complicating evaluations and valuations of such securities and placing
more emphasis on the Adviser's experience, judgment and analysis than other
securities.
D-7
RATINGS ALLOCATION AS OF 10/31/2006
AAA/Aaa 62.0%
AA/Aa 8.8
A/A 13.2
BBB/Baa 6.9
Non-Rated 9.1
TOP FIVE SECTORS AS OF 10/31/2006
Hospital 23.0%
Public Education 18.0
Water & Sewer 10.6
Public Transportation 5.3
Airports 5.1
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 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-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. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. 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
(800) SEC-0330. 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.
You may obtain copies of a trust's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 847-2424.
D-9
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the trust's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 847-2424 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
You may obtain information regarding how the trust voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 without charge 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-10
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
On May 25, 2005, the Board of Trustees, and the independent trustees voting
separately, determined that the terms of the investment advisory agreement are
fair and reasonable and approved the continuance of the investment advisory
contract as being in the best interests of the Fund and its shareholders. In
making its determination, the Board of Trustees considered materials that were
specifically prepared by the investment adviser at the request of the Board and
Fund counsel, and by an independent provider of investment company data
contracted to assist the Board, relating to the contract review process. The
Board also considered information received periodically about the portfolio,
performance, the investment strategy, portfolio management team and fees and
expenses of the Fund. Finally, the Board considered materials it had received in
approving changes to the Fund's investment policies and a reorganization of the
Fund. The Board of Trustees considered the contract over a period of several
months and the non-management trustees held sessions both with the investment
adviser and separate from the investment adviser in reviewing and considering
the contract.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
breakpoints in the Fund's investment advisory fee schedule. The Board of
Trustees considered comparative advisory fees of the Fund and other investment
companies and/or other products at different asset levels, and considered the
trends in the industry. The Board of Trustees evaluated other benefits the
investment adviser and its affiliates derive from their relationship with the
Fund. The Board of Trustees reviewed information about the foregoing factors and
considered changes, if any, in such information since its previous approval. The
Board of Trustees discussed the financial strength of the investment adviser and
its affiliated companies and the capability of the personnel of the investment
adviser, and specifically the strength and background of its portfolio
management personnel. The Board of Trustees reviewed the statutory and
regulatory requirements for approval and disclosure of investment advisory
agreements. The Board of Trustees, including the independent trustees, evaluated
all of the foregoing and does not believe any single factor or group of
D-11
factors control or dominate the review process, and, after considering all
factors together, has determined, in the exercise of its business judgment, that
approval of the investment advisory agreement is in the best interests of the
Fund and its shareholders. The following summary provides more detail on certain
matters considered but does not detail all matters considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The trustees also
discuss certain other services which are provided on a cost-reimbursement basis
by the investment adviser or its affiliates to the Van Kampen funds including
certain accounting, administrative and legal services. The Board has determined
that the nature, extent and quality of the services provided by the investment
adviser support its decision to approve the investment advisory contract.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, the Board spends more focused
time on the performance of the Fund and other funds in the Van Kampen complex,
paying specific attention to underperforming funds. The trustees discuss with
the investment adviser the performance goals and the actual results achieved in
managing the Fund. When considering a fund's performance, the trustees and the
investment adviser place emphasis on trends and longer-term returns (focusing on
one-year, three-year and five-year performance with special attention to
three-year performance) and, when a fund's weighted performance is under the
fund's benchmark, they discuss the causes and where necessary seek to make
specific changes to investment strategy or investment personnel. The Fund
discloses more information about its performance elsewhere in this report. The
trustees discuss with the investment adviser the level of advisory fees for this
Fund relative to comparable funds and other products advised by the adviser and
others in the marketplace. The trustees review not only the advisory fees but
other fees and expenses (whether paid to the adviser, its affiliates or others)
and the Fund's overall expense ratio. The Board has determined that the
performance, fees and expenses of the Fund support its decision to approve the
investment advisory contract.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of the Board. The
trustees discuss with the investment adviser its revenues and expenses,
including among other things, revenues for advisory services, portfolio
management-related expenses, revenue sharing arrangement costs and allocated
expenses both on an
D-12
aggregate basis and per fund. The Board has determined that the analysis of the
investment adviser's expenses and profitability support its decision to approve
the investment advisory contract.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
of the Fund and how that relates to the Fund's expense ratio and particularly
the Fund's advisory fee rate. In conjunction with its review of the investment
adviser's profitability, the trustees discuss with the investment adviser how
more (or less) assets can affect the efficiency or effectiveness of managing the
Fund's portfolio and whether the advisory fee level is appropriate relative to
current asset levels and/or whether the advisory fee structure reflects
economies of scale as asset levels change. The Board has determined that its
review of the actual and potential economies of scale of the Fund support its
decision to approve the investment advisory contract.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory contract.
D-13
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
MUNICIPAL BONDS 174.7%
FLORIDA 166.1%
$ 4,500 Brevard Cnty, FL Hlth Fac Hlth First Inc
Proj........................................... 5.000% 04/01/34 $ 4,688,910
12,960 Brevard Cnty, FL Hlth Fac Auth Hlthcare Fac Rev
Hlth First Inc Proj (e)........................ 5.000 04/01/34 13,503,996
1,000 Broward Cnty, FL Hsg Fin Auth Multi-Family Hsg
Rev Pembroke Pk Apts Proj (AMT)................ 5.650 10/01/28 1,018,300
1,000 Broward Cnty, FL Sch Brd Ctf Partn Ser A (FSA
Insd).......................................... 5.000 07/01/22 1,053,150
1,500 Capital Tr Agy FL Rev Fort Lauderdale Proj
(AMT).......................................... 5.750 01/01/32 1,576,605
5,250 Coral Gables, FL Hlth Fac Auth Hosp Rev Baptist
Hlth South FL (FSA Insd)....................... 5.000 08/15/29 5,538,750
750 Dade Cnty, FL Ed Fac Auth Rev Exchanged From
Univ of Miami Ser B (MBIA Insd)................ 5.750 04/01/20 766,245
500 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd).... 5.250 10/01/26 511,240
2,640 Daytona Beach, FL Util Sys Rev Rfdg Ser D (FSA
Insd).......................................... 5.250 11/15/16 2,856,638
1,500 Deltona, FL Trans Cap Impt Rev (MBIA Insd)..... 5.125 10/01/26 1,621,020
1,125 Deltona, FL Util Sys Rev (MBIA Insd)........... 5.250 10/01/22 1,221,232
105 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd).......................................... 5.950 07/01/20 109,725
1,000 Escambia Cnty, FL Util Auth Util Sys Rev (FGIC
Insd).......................................... 5.250 01/01/29 1,038,410
5,930 Flagler Cnty, FL Cap Impt Rev (MBIA Insd)...... 5.000 10/01/30 6,295,466
1,250 Florida Agric & Mechanical Univ Rev Student Apt
Fac (MBIA Insd)................................ 6.500 07/01/23 1,254,387
385 Florida Hsg Fin Agy Homeownership Mtg, Class B
(AMT).......................................... 8.595 11/01/18 406,352
2,750 Florida Hsg Fin Agy Hsg Willow Lake Apts Ser
J-1 (AMBAC Insd) (AMT)......................... 5.350 07/01/27 2,807,915
3,000 Florida Hsg Fin Corp Rev Homeowner Mtg Ser 1
(GNMA Collateralized) (AMT).................... 4.850 07/01/37 3,033,900
2,000 Florida Hsg Fin Corp Rev Homeowner Mtg Ser 2
(GNMA Collateralized) (AMT).................... 4.950 07/01/37 2,046,800
550 Florida Hsg Fin Corp Rev Homeowner Mtg Ser 4
(FSA Insd) (AMT)............................... 6.250 07/01/22 562,941
1,000 Florida Hsg Fin Corp Rev Hsg Wentworth II Apts
Ser A (AMBAC Insd) (AMT)....................... 5.375 11/01/29 1,029,950
2,000 Florida Ports Fin Comm Rev St Trans Tr Fd (MBIA
Insd) (AMT).................................... 5.375 06/01/27 2,036,500
8,475 Florida Ports Fin Comm Rev St Trans Tr Fd
Intermodal Pgm (FGIC Insd) (AMT)............... 5.500 10/01/29 8,915,530
2,000 Florida St Brd of Ed Cap Outlay Pub Ed Ser C
(FGIC Insd) (Prerefunded @ 06/01/10)........... 5.750 06/01/29 2,164,960
1,600 Florida St Brd of Ed Cap Outlay Pub Ed Rfdg Ser
C.............................................. 5.000 06/01/16 1,646,752
See Notes to Financial Statements
D-14
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 12,775 Florida St Brd of Ed Cap Outlay Pub Ed Rfdg Ser
D.............................................. 5.750% 06/01/22 $ 13,773,111
2,000 Florida St Brd of Ed Lottery Rev Ser A (FGIC
Insd).......................................... 5.250 07/01/17 2,126,660
5,000 Florida St Brd of Ed Lottery Rev Ser A (FGIC
Insd).......................................... 5.500 07/01/17 5,366,300
15,000 Florida St Brd of Ed Pub Ed Cap Outlay Ser D
(e)............................................ 4.750 06/01/35 15,495,300
4,500 Florida St Brd of Ed Pub Ed Ser A.............. 5.000 06/01/32 4,718,475
1,000 Florida St Brd of Ed Rev FL St Univ Hsg Fac Ser
A (MBIA Insd).................................. 5.000 05/01/29 1,039,670
4,735 Florida St Brd of Regt Hsg Rev Univ FL (FGIC
Insd).......................................... 5.500 07/01/28 5,092,066
1,000 Florida St Correctional Privatization Commn Ctf
Partn (MBIA Insd).............................. 5.375 08/01/14 1,082,330
2,360 Florida St Correctional Privatization Commn Ctf
Partn (MBIA Insd) (b).......................... 5.375 08/01/15 2,549,366
3,000 Florida St Dept Trans.......................... 5.000 07/01/32 3,147,030
6,000 Florida St Dept Trans Right of Way Ser A....... 5.250 07/01/21 6,575,760
5,000 Florida St Dept Trans Tpk Rev Ser A............ 5.000 07/01/30 5,308,300
1,500 Florida St Div Bd Fin Dept Gen Svc Rev Dept
Envrnmtl Preservtn 2000 Ser A (AMBAC Insd)..... 5.000 07/01/11 1,528,380
2,000 Florida St Div Bd Fin Dept Gen Svc Rev Dept
Envrnmtl Preservtn 2000 Ser A (FGIC Insd)...... 5.250 07/01/12 2,101,800
1,475 Florida St Tpk Auth Tpk Rev Dept Trans Ser B... 5.000 07/01/30 1,525,401
1,635 Fort Myers, FL Util Rev Rfdg Ser A (FGIC
Insd).......................................... 5.500 10/01/24 1,731,236
3,500 Gainesville, FL Util Sys Rev Ser A (FSA
Insd).......................................... 5.000 10/01/35 3,715,705
460 Gainesville, FL Util Sys Rev (c)............... 8.125 10/01/14 519,524
500 Gulf Breeze, FL Rev Loc Govt (FGIC Insd)....... 5.650 12/01/20 533,415
730 Gulf Breeze, FL Rev Loc Govt (FGIC Insd)....... 5.750 12/01/20 784,013
1,000 Gulf Breeze, FL Rev Loc Govt (FGIC Insd)....... 5.800 12/01/20 1,090,470
5,500 Halifax Hosp Med Ctr FL Hosp Rev Impt Rfdg Ser
A.............................................. 5.250 06/01/26 5,837,370
2,000 Highlands Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Ser D (Prerefunded @
11/15/13)...................................... 5.375 11/15/35 2,205,900
2,000 Highlands Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys Ser C....................... 5.250 11/15/36 2,135,880
3,000 Highlands Cnty, FL Hlth Fac Auth Rev Hosp
Adventist/Sunbelt Ser A (Prerefunded @
11/15/11)...................................... 6.000 11/15/31 3,348,960
750 Hillsborough Cnty, FL Assmt Rev Capacity Assmt
Spl (FSA Insd)................................. 5.000 03/01/15 790,755
750 Hillsborough Cnty, FL Assmt Rev Capacity Assmt
Spl (FSA Insd)................................. 5.000 09/01/15 790,755
14,160 Hillsborough Cnty, FL Indl Dev Auth Hosp Rev
Tampa Gen Hosp Proj (e)........................ 5.250 10/01/41 15,010,804
See Notes to Financial Statements
D-15
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 2,500 Hillsborough Cnty, FL Ind Dev Tampa Gen Hosp
Proj........................................... 5.000% 10/01/36 $ 2,598,000
1,000 Hillsborough Cnty, FL Indl Dev Tampa Gen Hosp
Proj Ser B..................................... 5.250 10/01/28 1,055,970
1,000 Hillsborough Cnty, FL Indl Dev Tampa Gen Hosp
Proj Ser B..................................... 5.250 10/01/34 1,051,030
1,000 Hillsborough Cnty, FL Port Dist Rev Tampa Port
Auth Proj Ser A (MBIA Insd) (AMT).............. 5.375 06/01/27 1,065,780
1,380 Hollywood, FL Cmnty Redev Agy Beach Cra........ 5.625 03/01/24 1,478,642
2,000 Hollywood, FL Wtr & Swr Rev Impt & Rfdg (FSA
Insd).......................................... 5.000 10/01/21 2,144,080
1,500 Jacksonville, FL Econ Dev Commn Indl Dev Rev
Metro Pkg Solutions Proj (ACA Insd) (AMT)...... 5.500 10/01/30 1,611,960
2,500 Jea, FL Elec Sys Rev Ser Three A (FSA Insd).... 5.000 10/01/41 2,628,175
2,250 Jea, FL Wtr & Swr Sys Rev Ser A (MBIA Insd).... 5.375 10/01/30 2,264,063
7,000 Lakeland, FL Elec & Wtr Rev (b) (c)............ * 10/01/13 5,428,430
2,230 Lakeland, FL Elec & Wtr Rev (c)................ 5.750 10/01/19 2,445,864
2,000 Lakeland, FL Hosp Sys Rev Lakeland Regl Hlth
Sys (Prerefunded @ 11/15/12)................... 5.500 11/15/32 2,213,240
1,000 Lee Cnty, FL Arpt Rev Ser A (FSA Insd) (AMT)... 5.750 10/01/22 1,076,850
1,250 Lee Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Multi-Cnty Pgm Ser A (GNMA Collateralized)
(AMT).......................................... 5.000 03/01/39 1,277,525
1,000 Leesburg, FL Hosp Rev Leesburg Regl Med Ctr
Proj........................................... 5.500 07/01/32 1,048,190
3,200 Leesburg, FL Util Rev (FGIC Insd).............. 5.000 10/01/34 3,378,944
1,600 Manatee Cnty, FL Pub Util Rev Impt & Rfdg (MBIA
Insd).......................................... 5.125 10/01/21 1,728,336
650 Marion Cnty, FL Hosp Dist Rev Hlth Sys Munroe
Reg Impt & Rfdg................................ 5.500 10/01/29 675,883
2,135 Marion Cnty, FL Sch Brd Ctf (FSA Insd)......... 5.250 06/01/19 2,311,799
1,460 Miami Beach, FL Stormwtr Rev (FGIC Insd) (b)... 5.750 09/01/14 1,580,669
1,045 Miami Beach, FL Stormwtr Rev (FGIC Insd)....... 5.750 09/01/15 1,130,711
2,000 Miami-Dade Cnty, FL Aviation Ser A (FSA Insd)
(AMT).......................................... 5.000 10/01/33 2,065,000
4,000 Miami-Dade Cnty, FL Aviation Rev Miami Intl
Arpt Ser A (CIFG Insd) (AMT)................... 5.000 10/01/38 4,169,280
3,000 Miami-Dade Cnty, FL Aviation Rev Miami Intl
Arpt (FGIC Insd) (AMT)......................... 5.375 10/01/32 3,173,520
870 Miami-Dade Cnty, FL Aviation Rev Miami Intl
Arpt Ser B (FGIC Insd)......................... 5.450 10/01/15 926,646
3,000 Miami-Dade Cnty, FL Aviation Rev Miami Intl
Arpt Ser B (FGIC Insd)......................... 5.750 10/01/29 3,240,210
2,000 Miami-Dade Cnty, FL Ed Fac Auth Rev Ser A
(AMBAC Insd)................................... 5.750 04/01/29 2,150,040
See Notes to Financial Statements
D-16
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 2,000 Miami-Dade Cnty, FL Pub Fac Rev Jackson Hlth
Sys Ser A (MBIA Insd).......................... 5.000% 06/01/31 $ 2,113,500
5,000 Miami-Dade Cnty, FL Sch Brd Ctf Partn Ser A
(AMBAC Insd)................................... 5.000 11/01/25 5,338,650
3,860 North Broward, FL Hosp Dist Rev (Prerefunded @
01/15/11)...................................... 6.000 01/15/31 4,250,748
390 North Broward, FL Hosp Dist Rev Impt........... 6.000 01/15/31 418,646
1,000 Orange Cnty, FL Cap Rev Impt & Rfdg (AMBAC
Insd).......................................... * 10/01/12 801,270
1,000 Orange Cnty, FL Cap Rev Impt & Rfdg (AMBAC
Insd).......................................... * 10/01/13 770,770
20 Orange Cnty, FL Hlth Fac Auth Hosp Hlthcare Ser
E (Prerefunded @ 10/01/09)..................... 6.000 10/01/26 21,483
980 Orange Cnty, FL Hlth Fac Auth Hosp Hlthcare Ser
E.............................................. 6.000 10/01/26 1,040,535
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp Orlando
Regl Hlthcare Ser B............................ 5.125 11/15/39 1,054,370
1,000 Orange Cnty, FL Hsg Fin Auth Multi-Family Rev
Mtg Hands Inc Proj Ser A (Acquired 06/19/95,
Cost $1,000,000) (d)........................... 7.000 10/01/25 1,075,170
1,000 Orange Cnty, FL Sales Tax Rev Rfdg Ser A (FGIC
Insd).......................................... 5.125 01/01/20 1,072,460
1,500 Orlando & Orange Cnty Expwy Auth FL Expwy Rev
Jr Lien (FGIC Insd)............................ 5.000 07/01/28 1,537,920
1,000 Osceola Cnty, FL Sch Brd Ctf Ser A (AMBAC
Insd).......................................... 5.125 06/01/22 1,069,110
2,000 Osceola Cnty, FL Sch Brd Ctf Ser A (AMBAC
Insd).......................................... 5.250 06/01/27 2,133,220
3,715 Palm Bay, FL Util Rev Sys Impt Ser A (FGIC
Insd).......................................... 5.000 10/01/25 3,972,524
1,000 Palm Beach Cnty, FL Sch Brd Ctf Partn Ser A
(FSA Insd)..................................... 5.000 08/01/31 1,063,810
1,000 Palm Beach Cnty, FL Sch Brd Ctf Partn Ser A
(FGIC Insd) (Prerefunded @ 08/01/10)........... 5.875 08/01/21 1,087,820
1,000 Palm Coast, FL Util Sys Rev (MBIA Insd)........ 5.250 10/01/21 1,088,070
5,000 Pasco Cnty, FL Wtr & Swr Rev Rfdg (FSA Insd)... 5.000 10/01/36 5,322,300
1,000 Pembroke Pines, FL Cons Util Sys Rev (FGIC
Insd) (c)...................................... 6.250 09/01/11 1,079,060
1,500 Pensacola, FL Arpt Rev Rfdg Ser A (MBIA Insd)
(AMT).......................................... 6.000 10/01/12 1,583,715
1,565 Pensacola, FL Arpt Rev Rfdg Ser A (MBIA Insd)
(AMT).......................................... 6.125 10/01/18 1,660,262
500 Polk Cnty, FL Sch Brd Ctf Partn Master Lease
Ser A (FSA Insd)............................... 5.500 01/01/25 537,520
1,000 Port Saint Lucie, FL Util Rev (MBIA Insd)...... 5.000 09/01/23 1,064,140
See Notes to Financial Statements
D-17
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 1,000 Port Saint Lucie, FL Util Rev Impt & Rfdg Ser A
(MBIA Insd).................................... 5.125% 09/01/27 $ 1,020,160
3,000 Port Saint Lucie, FL Util Rev Sys Rfdg Ser A
(MBIA Insd).................................... 5.000 09/01/27 3,207,780
1,000 Saint Johns Cnty, FL Indl Dev Auth Hlthcare
Glenmoor Proj Ser A............................ 5.250 01/01/26 1,015,190
1,500 Saint Johns Cnty, FL Indl Dev Auth Hlthcare
Glenmoor Proj Ser A............................ 5.375 01/01/40 1,531,995
2,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A (FSA
Insd).......................................... 5.000 07/01/21 2,106,300
1,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A (FSA
Insd).......................................... 5.000 07/01/23 1,053,150
1,420 Sebring, FL Wtr & Wastewtr Rev Rfdg (FGIC
Insd).......................................... 5.250 01/01/19 1,534,196
5,500 South FL Wtr Mgmt Dist Ctf (a)................. 5.000 10/01/31 5,855,960
9,500 South FL Wtr Mgmt Dist Ctf (a)................. 5.000 10/01/36 10,099,070
1,000 South Lake Cnty Hosp Dist FL South Lake Hosp
Inc............................................ 6.375 10/01/28 1,116,320
1,500 South Miami, FL Hlth Fac Auth Hosp Rev Baptist
Hlth (AMBAC Insd).............................. 5.250 11/15/33 1,588,650
1,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem
Hlthcare Proj.................................. 6.375 12/01/30 1,077,290
2,500 Tampa Bay Wtr FL A Regl Wtr Supply Auth Util
Sys Rev Impt & Rfdg (FGIC Insd)................ 4.500 10/01/36 2,502,900
1,750 Tampa, FL Hosp Rev Cap Impt H Lee Moffitt Ser
A.............................................. 5.750 07/01/19 1,830,378
1,800 Tampa, FL Hosp Rev Cap Impt H Lee Moffitt Ser
A.............................................. 5.750 07/01/29 1,877,346
5,150 Tampa-Hillsborough Cnty, FL Expwy Auth Rev
(AMBAC Insd)................................... 5.000 07/01/25 5,522,963
2,500 Village Ctr Cmnty Dev Dist FL Recreational Rev
Ser A (MBIA Insd).............................. 5.125 11/01/36 2,678,600
1,000 Village Ctr Cmnty Dev Dist FL Recreational Rev
Ser A (MBIA Insd).............................. 5.200 11/01/25 1,065,940
2,000 Village Ctr Cmnty Dev Dist FL Util Rev (MBIA
Insd).......................................... 5.250 10/01/23 2,169,940
1,000 Village Ctr Cmnty Dev Dist FL Util Rev (FGIC
Insd) (c)...................................... 6.000 11/01/18 1,181,280
1,000 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry
Riddle Aero Ser A.............................. 5.750 10/15/29 1,043,680
3,250 Volusia Cnty, FL Ed Fac Auth Rev Ed Fac Embry
Riddle Rfdg (Radian Insd)...................... 5.000 10/15/35 3,396,640
See Notes to Financial Statements
D-18
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------
FLORIDA (CONTINUED)
$ 3,000 West Orange Hlthcare Dist FL Ser A............. 5.800% 02/01/31 $ 3,187,560
820 West Palm Beach, FL Cmnty Redev Agy
Northwood--Cmnty Redev......................... 5.000 03/01/35 848,700
-------------
333,218,308
-------------
PUERTO RICO 6.7%
2,980 Childrens Tr Fd PR Tob Settlement Rev.......... 5.500 05/15/39 3,125,335
2,855 Childrens Tr Fd PR Tob Settlement Rev.......... 5.625 05/15/43 3,008,713
2,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Rfdg Ser W..................................... 5.500 07/01/15 2,220,100
4,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Rfdg Ser Y (FSA Insd).......................... 6.250 07/01/21 5,024,200
-------------
13,378,348
-------------
U.S. VIRGIN ISLANDS 1.9%
1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpts
Taxes Ln Nt Ser A (ACA Insd) (Prerefunded @
10/01/10)...................................... 6.125 10/01/29 1,101,100
1,500 Virgin Islands Pub Fin Auth Rev Gross Rcpt
Taxes Ln Nt Ser A.............................. 6.375 10/01/19 1,651,935
1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpt
Taxes Ln Nt Ser A (Prerefunded @ 10/01/10)
(g)............................................ 6.500 10/01/24 1,111,970
-------------
3,865,005
-------------
TOTAL INVESTMENTS 174.7%
(Cost $330,700,022)........................................................ 350,461,661
LIABILITY FOR FLOATING RATE NOTE OBLIGATIONS RELATED TO
SECURITIES HELD (15.7%)
(Cost ($31,590,000))
(31,590) Notes with interest rates of 3.600% at October 31, 2006 and
contractual maturities of collateral ranging from 2034 to 2041
(see Note 1) (f)................................................. (31,590,000)
-------------
TOTAL NET INVESTMENTS 159.0%
(Cost $299,110,022)........................................................ 318,871,661
LIABILITIES IN EXCESS OF OTHER ASSETS (6.0%)................................ (12,069,399)
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (53.0%).................. (106,240,186)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 200,562,076
=============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) Security purchased on a when-issued or delayed delivery basis.
See Notes to Financial Statements
D-19
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
PORTFOLIO OF INVESTMENTS -- OCTOBER 31, 2006 continued
(b) The Trust owns 100% of the outstanding bond issuance.
(c) Escrowed to Maturity
(d) 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 15% of net
assets applicable to common shares.
(e) Underlying security related to Inverse Floaters entered into by the Trust.
See Note 1.
(f) Floating rate notes. The Interest rates shown reflect the rates in effect at
October 31, 2006.
(g) All or a portion of this security has been physically segregated in
connection with open futures contracts.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
CIFG--CDC IXIS Financial Guaranty
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
SWAP AGREEMENTS OUTSTANDING AS OF OCTOBER 31, 2006:
INTEREST RATE SWAP
PAY/
RECEIVE NOTIONAL UNREALIZED
FLOATING FIXED EXPIRATION AMOUNT APPRECIATION/
COUNTERPARTY FLOATING RATE INDEX RATE RATE DATE (000) DEPRECIATION
JP Morgan Chase Bank, USD-BMA Municipal
N.A. Swap Index Receive 4.096% 12/15/26 $6,300 $(185,155)
---------
FUTURES CONTRACTS OUTSTANDING AS OF OCTOBER 31, 2006:
UNREALIZED
APPRECIATION/
SHORT CONTRACTS CONTRACTS DEPRECIATION
U.S. Treasury Notes 10-Year Futures, December 2006 (Current
Notional Value of $108,219 per contract).................. 259 $(189,905)
U.S. Treasury Bonds Futures, December 2006 (Current Notional
Value of $112,656 per contract)........................... 185 (376,062)
--- ---------
444 $(565,967)
=== =========
See Notes to Financial Statements
D-20
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
October 31, 2006
ASSETS:
Total Investments (Cost $330,700,022)....................... $350,461,661
Receivables:
Interest.................................................. 4,095,483
Investments Sold.......................................... 2,137,644
Other....................................................... 9,101
------------
Total Assets............................................ 356,703,889
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 15,656,003
Floating Rate Note Obligations............................ 31,590,000
Custodian Bank............................................ 1,179,249
Variation Margin on Futures............................... 260,156
Investment Advisory Fee................................... 142,332
Income Distributions--Common Shares....................... 18,300
Other Affiliates.......................................... 11,995
Trustees' Deferred Compensation and Retirement Plans........ 729,914
Swap Contracts.............................................. 185,155
Accrued Expenses............................................ 128,523
------------
Total Liabilities....................................... 49,901,627
Preferred Shares (including accrued distributions).......... 106,240,186
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $200,562,076
============
NET ASSET VALUE PER COMMON SHARE ($200,562,076 divided by
11,711,732 shares outstanding)............................ $ 17.12
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 11,711,732 shares issued and
outstanding).............................................. $ 117,117
Paid in Surplus............................................. 181,662,111
Net Unrealized Appreciation................................. 19,010,517
Accumulated Undistributed Net Investment Income............. 248,836
Accumulated Net Realized Loss............................... (476,505)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... 200,562,076
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 4,240 issued with liquidation preference of
$25,000 per share)........................................ $106,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $306,562,076
============
See Notes to Financial Statements
D-21
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended October 31, 2006
INVESTMENT INCOME:
Interest.................................................... $15,023,248
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,669,548
Preferred Share Maintenance................................. 306,033
Trustees' Fees and Related Expenses......................... 103,563
Professional Fees........................................... 89,715
Accounting and Administrative Expenses...................... 65,095
Reports to Shareholders..................................... 43,009
Transfer Agent Fees......................................... 27,994
Custody..................................................... 25,515
Registration Fees........................................... 19,872
Interest and Residual Trust Expense......................... 104,412
Other....................................................... 57,844
-----------
Total Expenses.......................................... 2,512,600
Less Credits Earned on Cash Balances.................... 159
-----------
Net Expenses............................................ 2,512,441
-----------
NET INVESTMENT INCOME....................................... $12,510,807
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 964,826
Futures................................................... 166,631
Swap Contracts............................................ (257,419)
-----------
Net Realized Gain........................................... 874,038
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 16,680,494
-----------
End of the Period:
Investments............................................. 19,761,639
Futures................................................. (565,967)
Swap Contracts.......................................... (185,155)
-----------
19,010,517
-----------
Net Unrealized Appreciation During the Period............... 2,330,023
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 3,204,061
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(3,718,689)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $11,996,179
===========
See Notes to Financial Statements
D-22
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
-----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................................... $ 12,510,807 $ 5,676,723
Net Realized Gain......................................... 874,038 302,840
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 2,330,023 (2,632,771)
Distributions to Preferred Shareholders:
Net Investment Income................................... (3,599,697) (1,299,436)
Net Realized Gain....................................... (118,992) -0-
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations.............................................. 11,996,179 2,047,356
Distributions to Common Shareholders:
Net Investment Income................................... (9,036,383) (4,583,910)
Net Realized Gain....................................... (424,354) -0-
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
INVESTMENT ACTIVITIES................................... 2,535,442 (2,536,554)
FROM CAPITAL TRANSACTIONS:
Proceeds from Common Shares Acquired Through Merger....... -0- 103,906,391
------------ ------------
TOTAL INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES.................................................. 2,535,442 101,369,837
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................... 198,026,634 96,656,797
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $60,408 and $152,317,
respectively)........................................... $200,562,076 $198,026,634
============ ============
See Notes to Financial Statements
D-23
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED OCTOBER 31
-----------------------------------------------
2006 2005 2004 2003 2002
-----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD... $ 16.91 $ 17.37 $ 17.16 $ 17.79 $ 17.69
------- ------- ------- ------- -------
Net Investment Income.................... 1.07(a) 1.01 1.05 1.10 1.20
Net Realized and Unrealized Gain/Loss.... .27 (.42) .57 .04 .12
Common Share Equivalent of Distributions
Paid to Preferred Shareholders:
Net Investment Income.................. (.31) (.23) (.11) (.04) (.14)
Net Realized Gain...................... (.01) -0- (.01) (.07) (.02)
------- ------- ------- ------- -------
Total From Investment Operations........... 1.02 .36 1.50 1.03 1.16
Distributions Paid to Common Shareholders:
Net Investment Income.................. (.77) (.82) (1.03) (1.10) (.97)
Net Realized Gain...................... (.04) -0- (.26) (.56) (.09)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............. $ 17.12 $ 16.91 $ 17.37 $ 17.16 $ 17.79
======= ======= ======= ======= =======
Common Share Market Price at End of the
Period................................... $ 14.85 $ 14.52 $ 15.64 $ 16.32 $ 15.80
Total Return (b)........................... 8.03% -1.97% 3.71% 14.37% 11.63%
Net Assets Applicable to Common Shares at
End of the Period (In millions).......... $ 200.6 $ 198.0 $ 96.7 $ 95.4 $ 98.9
Ratio of Expenses to Average Net Assets
Applicable to Common Shares (c).......... 1.27% 1.54% 1.44% 1.43% 1.52%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(c)...................................... 6.33% 5.85% 6.16% 6.33% 6.84%
Portfolio Turnover......................... 39% 15% 14% 25% 33%
SUPPLEMENTAL RATIOS:
Ratio of Expenses (Excluding Interest and
Residual Trust Expenses) to Average Net
Assets Applicable to Common Shares (c)... 1.22% 1.54% 1.44% 1.43% 1.52%
Ratio of Expenses (Excluding Interest and
Residual Trust Expenses) to Average Net
Assets Including Preferred Shares (c).... .79% .97% .90% .91% .96%
Ratio of Expenses to Average Net Assets
Including Preferred Shares (c)........... .83% .97% .90% .91% .96%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common Shares
(d)...................................... 4.51% 4.51% 5.51% 6.11% 6.05%
SENIOR SECURITIES:
Total Preferred Shares Outstanding......... 4,240 4,240 2,240 2,240 2,240
Asset Coverage Per Preferred Share (e)..... $72,359 $71,725 $68,169 $67,613 $69,188
Involuntary Liquidating Preference Per
Preferred Share.......................... $25,000 $25,000 $25,000 $25,000 $25,000
Average Market Value Per Preferred Share... $25,000 $25,000 $25,000 $25,000 $25,000
(a)Based on average shares outstanding.
(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.
See Notes to Financial Statements
D-24
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Trust for Investment Grade Florida Municipals (the "Trust") is
registered as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940 (the "1940 Act"), as amended. The Trust's
investment objective is to seek to provide a high level of current income exempt
from federal income taxes and Florida state intangible taxes, consistent with
preservation of capital. The Trust will invest in a portfolio consisting
substantially of Florida 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 March 27, 1992.
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. Interest rate swaps are valued using market
quotations from brokers. 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, 2006, the Trust had $15,656,003 of 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 Subchapter M 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 these losses against any future realized capital
gains. At October 31, 2006, the Trust had an
D-25
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
accumulated capital loss carryforward for tax purposes of $248,081, which will
expire on October 31, 2014.
At October 31, 2006, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $298,699,638
============
Gross tax unrealized appreciation........................... $ 20,184,485
Gross tax unrealized depreciation........................... (12,462)
------------
Net tax unrealized appreciation on investments.............. 20,172,023
============
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 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,
2006 and 2005 was as follows:
2006 2005
Distributions paid from:
Ordinary income........................................... -0- $ 21,317
Tax exempt income......................................... $12,472,921 5,819,298
Long-term capital gain.................................... 543,346 -0-
----------- ----------
$13,016,267 $5,840,615
=========== ==========
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 for the 2006 fiscal year have been
identified and appropriately reclassified on the Statement of Assets and
Liabilities. Permanent book and tax differences of $36,123 and $2,654 relating
to merger costs which are not deductible for tax purposes and excise tax,
respectively, were reclassified from accumulated undistributed net investment
income to paid in surplus. Additionally, a permanent book and tax difference of
$5,413 relating to book to tax accretion differences was reclassified from
accumulated undistributed net investment income to accumulated net realized
loss.
As of October 31, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income............................... -0-
Undistributed tax exempt income............................. $735,456
Undistributed long-term capital gain........................ -0-
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of gains recognized on securities for tax
purposes but not for book purposes and gains and losses recognized for tax
purposes on open futures transactions on October 31, 2006.
D-26
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
F. EXPENSE REDUCTION During the year ended October 31, 2006, the Trust's custody
fee was reduced by $159 as a result of credits earned on cash balances.
G. FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD The Trust enters
into transactions in which it transfers to dealer trusts fixed rate bonds in
exchange for cash and residual interests in the dealer trusts' assets and cash
flows, which are in the form of inverse floating rate securities. The dealer
trusts fund the purchases of the fixed rate bonds by issuing floating rate notes
to third parties. The Trust enters into shortfall agreements with the dealer
trusts, which commit the Trust to pay the dealer trusts, in certain
circumstances, the difference between the liquidation value of the fixed rate
bonds held by the dealer trusts and the liquidation value of the floating rate
notes held by third parties, as well as any shortfalls in interest cash flows.
The residual interests held by the Trust (inverse floating rate investments)
include the right of the Trust (1) to cause the holders of the floating rate
notes to tender their notes at par at the next interest rate reset date, and (2)
to transfer the municipal bond from the dealer trusts to the Trust, thereby
collapsing the dealer trusts. The Trust accounts for the transfer of bonds to
the dealer trusts as secured borrowings, with the securities transferred
remaining in the Trust's investments assets, and the related floating rate notes
reflected as Trust liabilities under the caption "Floating Rate Note
Obligations" on the Statement of Assets and Liabilities. The Trust records the
interest income from the fixed rate bonds under the caption "Interest" and
records the expenses related to floating rate note obligations and any
administrative expenses of the dealer trusts under the caption "Interest and
Residual Trust Expenses" in the Trust's Statement of Operations. The notes
issued by the dealer trusts have interest rates that reset weekly and the
floating rate note holders have the option to tender their notes to the dealer
trusts for redemption at par at each reset date. At October 31, 2006, Trust
investments with a value of $44,010,100 are held by the dealer trusts and serve
as collateral for the $31,590,000 in floating rate notes outstanding at that
date. Contractual maturities of the floating rate notes and interest rates in
effect at October 31, 2006 are presented on the Portfolio of Investments.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Asset
Management (the "Adviser") will provide investment advice and facilities to the
Trust for an annual fee payable monthly of .55% of the average daily net assets
including preferred shares of the Trust. Effective December 1, 2006, the Adviser
has agreed to waive investment advisory fees equal to .10% of the average daily
net assets including preferred shares of the Trust. This waiver is voluntary and
can be discontinued at any time.
For the year ended October 31, 2006, the Trust recognized expenses of
approximately $17,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a Trustee of the Trust is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Trust.
Under separate Legal Services, Accounting Services and Chief Compliance
Officer (CCO) Employment agreements, the Adviser provides accounting and legal
services and the CCO provides compliance services to the Trust. The costs of
these services are allocated to each trust. For the year ended October 31, 2006,
the Trust recognized expenses of approximately $50,200 representing Van Kampen
Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of
providing accounting and legal services to the Trust, as well as, the salary,
benefits and related costs of the CCO and related support staff paid by
D-27
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
Van Kampen. Services provided pursuant to the Legal Services agreement are
reported as part of "Professional Fees" on the Statement of Operations. Services
provided pursuant to the Accounting Services and CCO Employment agreement are
reported as part of "Accounting and Administrative Expenses" on 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. CAPITAL TRANSACTIONS
For the years ended October 31, 2006 and 2005, transactions in common shares
were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, 2006 OCTOBER 31, 2005
Beginning Shares........................................ 11,711,732 5,563,438
Shares Issued Through Merger............................ -0- 6,148,294
---------- ----------
Ending Shares........................................... 11,711,732 11,711,732
========== ==========
On October 28, 2005, the Trust acquired all of the assets and liabilities of
the Van Kampen Florida Quality Municipal Trust (ticker symbol VFM) through a tax
free reorganization approved by VFM shareholders on October 21, 2005. The Trust
issued 6,148,294 common shares with a net asset value of $103,906,391 and 2,000
Auction Preferred Shares (APS) with a liquidation value of $50,000,000 in
exchange for VFM net assets. The shares of VFM were converted into Trust shares
at a ratio of 0.943077 to 1 and 1 to 1, for common shares and APS, respectively.
Included in these net assets was a deferred compensation balance of $180,185 and
a deferred pension balance of $72,512. Net unrealized appreciation of VFM as of
October 28, 2005 was $7,666,315. The Trust assumed VFM's book to tax accretion
differences, which resulted in a $116,833 increase to accumulated undistributed
net investment income and a corresponding decrease to net unrealized
appreciation. Combined net assets applicable to common shares on the day of
reorganization were $197,913,241 and combined net assets including preferred
shares were $303,913,241. The Trust incurred merger expenses of $244,440, which
represent costs related to preparation, printing and distribution of the Proxy
Statement/Prospectus, Reorganization Agreement and registration statements as
well as legal, audit and filing fees.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $161,923,547 and $119,752,433,
respectively.
5. 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.
D-28
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
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 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.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
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.
These contracts are generally used to manage the Trust's effective maturity and
duration. 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 futures commission merchant pursuant to the 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, 2006 were
as follow:
CONTRACTS
Outstanding as of October 31, 2005.......................... 218
Futures Opened.............................................. 1,934
Futures Closed.............................................. (1,708)
------
Outstanding as of October 31, 2006.......................... 444
======
B. INTEREST RATE SWAPS The Trust may enter into forward interest rate swap
transactions intended to help the Trust manage its overall interest rate
sensitivity, either shorter or longer, generally to more closely align the
Trust's interest rate sensitivity with that of the broader municipal market.
Forward interest rate swap transactions involve the Trust's agreement with a
counterparty to pay, in the future, a fixed or variable rate payment in exchange
for the counterparty paying the Trust a variable or fixed rate payment, the
accruals for which would begin at a specified date in the future (the "effective
date"). The amount of the payment obligation is based on the notional amount of
the forward swap contract and the termination date of the swap (which is akin to
a bond's maturity). The value of the Trust's swap commitment would increase or
decrease based primarily on the extent to which long-term interest rates for
bonds having a maturity of the swap's termination date increases or
D-29
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
decreases. The Trust may terminate a swap contract prior to the effective date,
at which point a realized gain or loss is recognized. When a forward swap is
terminated, it ordinarily does not involve the delivery of securities or other
underlying assets or principal, but rather is settled in cash on a net basis.
The Trust intends, but is not obligated, to terminate its forward swaps before
the effective date. Accordingly, the risk of loss with respect to the swap
counterparty on such transactions is limited to the credit risk associated with
a counterparty failing to honor its commitment to pay any realized gain to the
Trust upon termination. To reduce such credit risk, all counterparties are
required to pledge collateral daily (based on the daily valuation of each swap)
on behalf of the Trust with a value approximately equal to the amount of any
unrealized gain. Reciprocally, when the Trust has an unrealized loss on a swap
contract, the Trust has instructed the custodian to pledge cash or liquid
securities as collateral with a value approximately equal to the amount of the
unrealized loss. Collateral pledges are monitored and subsequently adjusted if
and when the swap valuations fluctuate. Restricted cash, if any, for segregating
purposes is shown on the Statement of Assets and Liabilities.
C. INVERSE FLOATING RATE INVESTMENTS The Trust may invest a portion of its
assets in inverse floating rate instruments, either through outright purchases
of inverse floating rate securities or through the transfer of bonds to a dealer
trust in exchange for cash and residual interests in the dealer trust. These
investments are typically used by the Trust in seeking to enhance the yield of
the portfolio. These instruments typically involve greater risks than a fixed
rate municipal bond. In particular, these instruments are acquired through
leverage or may have leverage embedded in them and therefore involve many of the
risks associated with leverage. Leverage is a speculative technique that may
expose the Trust to greater risk and increased costs. Leverage may cause the
Trust's net asset value to be more volatile than if it had not been leveraged
because leverage tends to magnify the effect of any increases or decreases in
the value of the Trust's portfolio securities. The use of leverage may also
cause the Trust to liquidate portfolio positions when it may not be advantageous
to do so in order to satisfy its obligations with respect to inverse floating
rate instruments.
6. PREFERRED SHARES
The Trust has outstanding 4,240 APS in two series. Series A contains 2,240
shares while Series B contains 2,000 shares. Dividends are cumulative and the
dividend rate is reset every 28 days through an auction process. The average
rate in effect on October 31, 2006 was 3.550%. During the year ended October 31,
2006, the rates ranged from 2.650% to 5.125%.
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 on 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.
7. 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.
D-30
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2006 continued
8. ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes -- an
interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
for income taxes by prescribing the minimum recognition threshold a tax position
must meet before being recognized in the financial statements. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The impact to the
Trust's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Trust's financial statement disclosures.
D-31
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of
Van Kampen Trust for Investment Grade Florida Municipals
We have audited the accompanying statement of assets and liabilities of Van
Kampen Trust for Investment Grade Florida Municipals (the "Trust"), including
the portfolio of investments, as of October 31, 2006, 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.
We conducted our audits in accordance with the 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.
The Trust is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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 Trust for Investment Grade Florida Municipals as of October 31, 2006, the
results of its operations for the year then ended, the changes in its 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, in conformity with
accounting principles generally accepted in the United States of America.
Chicago, Illinois
January 11, 2007
D-32
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan offers you a prompt and simple way to
reinvest your dividends and capital gains distributions into additional shares
of your trust. Under the plan, the money you earn from dividends and capital
gains distributions will be reinvested automatically in more shares of your
trust, allowing you to potentially increase your investment over time.
PLAN BENEFITS
- ADD TO YOUR ACCOUNT
You may increase your shares in your trust easily and automatically with
the dividend reinvestment plan.
- LOW TRANSACTION COSTS
Shareholders who participate in the plan are able to buy shares at below-
market prices when the trust is trading at a premium to its net asset
value. In addition, transaction costs are low because when new shares are
issued by the trust, there is no brokerage fee, and when shares are bought
in blocks on the open market, the brokerage commission is shared among all
participants.
- CONVENIENCE
You will receive a detailed account statement from Computershare Trust
Company, N.A., which administers the plan, whenever shares are reinvested
for you. The statement shows your total distributions, date of investment,
shares acquired, and price per share, as well as the total number of
shares in your reinvestment account.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for
you in safekeeping, which provides added protection against loss, theft,
or inadvertent destruction of certificates. However, you may request that
a certificate representing your reinvested shares be issued to you.
HOW DOES THE PLAN WORK?
If you choose to participate in the plan, your dividends and capital gains
distributions will be promptly reinvested for you, automatically increasing your
shares. If your trust is trading at a share price that is equal to its net asset
value (NAV), you'll pay that amount for your reinvested shares. However, if your
trust is trading above or below its NAV, the price is determined by one of two
ways:
1. PREMIUM If your trust is trading at a premium -- a market price that
is higher than its NAV -- you'll pay either the NAV or 95 percent of the
market price, whichever is greater. When your trust trades at a premium,
you'll pay less for your reinvested shares than an ordinary investor
purchasing shares on the stock exchange. Keep in mind, a portion of your
price reduction may be taxable because you are receiving shares at less
than market price.
D-33
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
DIVIDEND REINVESTMENT PLAN continued
2. DISCOUNT If your trust is trading at a discount -- a market price that
is lower than its NAV -- you'll pay the market price for your reinvested
shares.
HOW TO PARTICIPATE IN THE PLAN
If you own shares in your own name, you can participate directly in the
plan. If your shares are held in "street name" -- in the name of your brokerage
firm, bank, or other financial institution -- you must instruct that entity to
participate on your behalf. If they are unable to participate on your behalf,
you may request that they reregister your shares in your own name so that you
may enroll in the plan.
If you choose to participate in the plan, whenever your trust declares a
dividend or capital gains distribution, it will be invested in additional shares
of your trust that are purchased on the open market.
HOW TO ENROLL
To enroll in the Dividend Reinvestment Plan please visit vankampen.com or
call (800) 341-2929 or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Please include your trust name and account number and ensure that all
shareholders listed on the account sign these written instructions. Your
participation in the plan will begin with the next dividend or capital gains
distribution payable after Computershare Trust Company, N.A. receives your
authorization, as long as they receive it before the "record date," which is
generally ten business days before the dividend is paid. If your authorization
arrives after such record date, your participation in the plan will begin with
the following dividend or distribution.
COSTS OF THE PLAN
There is no direct charge to you for reinvesting dividends and capital gains
distributions because the plan's fees are paid by your trust. If your trust is
trading at or above its NAV, your new shares are issued directly by the trust
and there are no brokerage charges or commissions. However, if your trust is
trading at a discount, the shares are purchased on the open market, and you will
pay your portion of any brokerage commissions. These brokerage commissions are
typically less than the standard brokerage charges for individual transactions
because shares are purchased for all participants in
D-34
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
DIVIDEND REINVESTMENT PLAN continued
blocks, resulting in lower commissions for each individual participant. Any
brokerage commissions or service fees are averaged into the purchase price.
TAX IMPLICATIONS
The automatic reinvestment of dividends and capital gains distributions does
not relieve you of any income tax that may be due on dividends or distributions.
You will receive tax information annually to help you prepare your federal and
state income tax returns.
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Dividend Reinvestment Plan please visit vankampen.com
or call (800) 341-2929 or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have two choices for receiving your shares:
- CERTIFICATE
We will issue a certificate for the full shares and send you a check for any
fractional shares without a charge.
- CHECK
We will sell all full and fractional shares and send the proceeds to your
address of record after deducting brokerage commissions and a $2.50 service fee.
The Trust and Computershare Trust Company, N.A. may amend or terminate the
plan. Participants will receive written notice at least 30 days before the
effective date of any amendment. In the case of termination, participants will
receive written notice at least 30 days before the record date for the payment
of any dividend or capital gains distribution by your trust.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 800-341-2929 OR VISIT VANKAMPEN.COM.
D-35
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*- Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
DENNIS SHEA
Vice President
J. DAVID GERMANY
Vice President
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
JAMES W. GARRETT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, N.A.
c/o Computershare Investor Services
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
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, 2006. The Trust designated 100% of the income distributions as a
tax-exempt income distribution. The Trust designated and paid $543,346 as a
long-term capital 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-36
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 23, 2006,
where shareholders voted on the election of trustees.
With regard to the election of the following trustees by common shareholders of
the Trust:
# OF SHARES
------------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Linda Hutton Heagy........................................ 10,403,404 522,355
Wayne W. Whalen........................................... 10,408,252 517,507
With regard to the election of the following trustee by preferred shareholders
of the Trust:
# OF SHARES
----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Rod Dammeyer................................................ 3,223 -0-
The other trustees of the Trust whose terms did not expire in 2006 are David C.
Arch, Jerry D. Choate, R. Craig Kennedy, Howard J Kerr, Jack E. Nelson, Hugo F.
Sonnenschein and Suzanne H. Woolsey.
D-37
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
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,
the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange
Corp. and Investor Services. The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Annual
Report. Trustees of the Trust generally serve three year terms or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES:
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 (61) Trustee Trustee Chairman and Chief 71 Trustee/Director/Managing
Blistex Inc. since 1992 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.
Jerry D. Choate (68) Trustee Trustee Prior to January 1999, 71 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.
D-38
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
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 (66) Trustee Trustee President of CAC, L.L.C., 71 Trustee/Director/Managing
CAC, L.L.C. since 1992 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Quidel
San Diego, CA 92122-6223 advisory services. Prior Corporation, Stericycle,
to February 2001, Vice Inc., Ventana Medical
Chairman and Director of Systems, Inc., and GATX
Anixter International, Corporation, and Trustee
Inc., a global of The Scripps Research
distributor of wire, Institute. Prior to
cable and communications January 2005, Trustee of
connectivity products. the University of Chicago
Prior to July 2000, Hospitals and Health
Managing Partner of Systems. Prior to April
Equity Group Corporate 2004, Director of
Investment (EGI), a TheraSense, Inc. Prior to
company that makes January 2004, Director of
private investments in TeleTech Holdings Inc.
other companies. 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).
D-39
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
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 (58) Trustee Trustee Managing Partner of 71 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
1990, Executive Vice
President of The Exchange
National Bank.
R. Craig Kennedy (54) Trustee Trustee Director and President of 71 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 (71) Trustee Trustee Prior to 1998, President 71 Trustee/Director/Managing
14 Huron Trace since 1992 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation.
D-40
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
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 (70) Trustee Trustee President of Nelson 71 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 (66) Trustee Trustee President Emeritus and 71 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. (65) Trustee Trustee Chief Communications 71 Trustee/Director/Managing
815 Cumberstone Road since 2003 Officer of the National General Partner of funds
Harwood, MD 20776 Academy of in the Fund Complex.
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.
D-41
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE:*
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
Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 71 Trustee/Director/Managing
333 West Wacker Drive since 1992 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) 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.
D-42
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
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
Ronald E. Robison (67) President and Officer President of funds in the Fund Complex since September 2005
1221 Avenue of the Americas Principal Executive since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10020 Officer since May 2003. Managing Director of Van Kampen Advisors
Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution 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 of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.
Dennis Shea (53) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
1221 Avenue of the Americas since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10020 and Van Kampen Advisors Inc. Chief Investment Officer-Global
Equity of the same entities since February 2006. Vice
President of Morgan Stanley Institutional and Retail Funds
since February 2006. Vice President of funds in the Fund
Complex since March 2006. Previously, Managing Director and
Director of Global Equity Research at Morgan Stanley from
April 2000 to February 2006.
J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
25 Cabot Square since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
Canary Wharf and Van Kampen Advisors Inc. Chief Investment Officer -
London, GBR E14 4QA Global Fixed Income of the same entities since December
2005. Managing Director and Director of Morgan Stanley
Investment Management Ltd. Director of Morgan Stanley
Investment Management (ACD) Limited since December 2003.
Vice President of Morgan Stanley Institutional and Retail
Funds since February 2006. Vice President of funds in the
Fund Complex since March 2006.
D-43
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
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
Amy R. Doberman (44) 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 Advisors 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 since 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.
Stefanie V. Chang (40) Vice President Officer Executive Director of Morgan Stanley Investment Management
1221 Avenue of the Americas and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10020 Complex.
John L. Sullivan (51) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza Officer since 1998 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 Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
James W. Garrett (38) Chief Financial Officer Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas and Treasurer since 2006 Chief Financial Officer and Treasurer of Morgan Stanley
New York, NY 10020 Institutional Funds since 2002 and of Funds in the Fund
Complex from January 2005 to August 2005 and since September
2006.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Trust's Chief Executive Officer has certified to the New
York Stock Exchange that, as of June 29, 2006, he was not aware of any violation
by the Trust of NYSE corporate governance listing standards.
The certifications by the Trust's principal executive officer and principal
financial officer required by Rule 30a-2 under the 1940 Act were filed with the
Trust's report to the SEC on Form N-CSR and are available on the Securities and
Exchange Commission's web site at http://www.sec.gov.
D-44
Van Kampen Trust for Investment Grade Florida Municipals
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.
(continued on next page)
D-45
Van Kampen Trust for Investment Grade Florida Municipals
An Important Notice Concerning Our U.S. Privacy Policy continued
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, 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.
(continued on back)
D-46
Van Kampen Trust for Investment Grade Florida Municipals
An Important Notice Concerning Our U.S. Privacy Policy continued
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
Copyright (C)2006 Van Kampen Funds Inc.
All rights reserved. Member NASD/SIPC.
VTFANR 12/06
(VAN KAMPEN INVESTMENTS LOGO) RN06-03472P-Y10/06
D-47
APPENDIX E
MORGAN STANLEY INVESTMENT MANAGEMENT
PROXY VOTING POLICY AND PROCEDURES
I. POLICY STATEMENT
Introduction - Morgan Stanley Investment Management's ("MSIM") policy and
procedures for voting proxies ("Policy") with respect to securities held in the
accounts of clients applies to those MSIM entities that provide discretionary
investment management services and for which a MSIM entity has authority to vote
proxies. The Policy will be reviewed and, updated, as necessary, to address new
or revised proxy voting issues. The MSIM entities covered by the Policy
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 an "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 herein as the "MSIM Funds"), each MSIM
Affiliate will vote proxies under this Policy (except for the Morgan Stanley KLD
Social Index Fund, which votes proxies pursuant to the Institutional Shareholder
Services' Social Investment Research Proxy Voting Guidelines) pursuant to
authority granted under its applicable investment advisory agreement or, in the
absence of such authority, as authorized by the Board 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.
Proxy Research Services - Institutional Shareholder Services ("ISS") and Glass
Lewis (together with other proxy research providers as MSIM Affiliates may
retain from time to time, the "Research Providers") 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 include in-depth
research, global issuer analysis, and voting recommendations. While the MSIM
Affiliates may review and utilize the recommendations of the Research Providers
in making proxy voting decisions, they are in no way obligated to follow such
E-1
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
Research Providers.
Voting Proxies for Certain Non-U.S. 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-U.S. 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 to MSIM's clients 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-U.S. proxies.
II. 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) this Policy,
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. Morgan Stanley AIP
GP LP will follow the procedures as described in Appendix A. A MSIM Affiliate
will not generally vote a proxy if it has sold the affected security between the
record date and the meeting date.
III. GUIDELINES
A. CORPORATE GOVERNANCE MATTERS. The following proposals will generally be voted
as indicated below, unless otherwise determined by the Proxy Review Committee.
i. General.
1. Generally, routine management proposals will be supported. The
following are examples of routine management proposals:
E-2
- Approval of financial statements, director and auditor reports.
- General updating/corrective amendments to the charter.
- 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. Proposals to eliminate cumulative voting generally will be supported;
proposals to establish cumulative voting in the election of directors will
not be supported.
3. Proposals requiring confidential voting and independent tabulation of
voting results will be supported.
4. Proposals requiring a U.S. company to have a separate Chairman and CEO
will not be supported. Proposals requiring non-U.S. companies to have a
separate Chairman and CEO will be supported.
5. Proposals by management of non-U.S. companies regarding items that are
clearly related to the regular course of business will be supported.
6. Proposals to require the company to expense stock options will be
supported.
7. Open-ended requests for adjournment generally will not be supported.
However, where management specifically states the reason for requesting an
adjournment and the requested adjournment is necessary to permit a
proposal that would otherwise be supported under this Policy to be carried
out (i.e. an uncontested corporate transaction), the adjournment request
will be supported.
8. Proposals to declassify the Board of Directors (if management supports a
classified board) generally will not be supported.
9. Proposal 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 generally will not be
supported.
ii. Election of Directors. In situations where no conflict exists and where no
specific governance deficiency has been noted, unless otherwise determined by
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the Proxy Review Committee, proxies will be voted in support of nominees of
management.
1. The following proposals generally will be supported:
- Proposals requiring that a certain percentage (up to 66 2/3%) of the
company's board members be independent directors.
- Proposals requiring that members of the company's compensation,
nominating and audit committees be comprised of independent or
unaffiliated directors.
2. Unless otherwise determined by the Proxy Review Committee, a withhold vote
will be made in the following circumstances:
(a) If a company's board is not comprised of a majority of
disinsterested directors, a withhold vote will be made for
interested directors. A director nominee may be deemed to be
interested if the nominee has, or any time during the previous five
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;
(b) If a nominee who is interested is standing for election as a member
of the company's compensation, nominating or audit committees;
(c) A direct conflict exists between the interests of the nominee and
the public shareholders;
(d) 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;
(e) A nominee has failed to attend at least 75% of board meetings within
a given year without a reasonable excuse; or
(f) A nominee serves on the board of directors for more than six
companies (excluding investment companies).
iii. Auditors
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1. Generally, management proposals for selection or ratification of
auditors will be supported. However, such proposals may not be
supported if the fees paid to auditors are excessive. Generally, to
determine if such fees are excessive, a 50% test will be applied:
i.e., non-audit fees should be less than 50% of the total fees paid
to the auditor.
2. Proposals requiring auditors to attend the annual meeting of
shareholders will be supported.
3. Proposals to indemnify auditors will not be supported.
iv. Anti-Takeover Matters
1. Proposals to modify or rescind existing supermajority vote
requirements to amend the charter or bylaws will be supported;
proposals to amend by-laws to require a supermajority shareholder
vote to pass or repeal certain provisions will not be supported.
2. Proposals relating to the adoption of anti-greenmail provisions will
be supported, provided that the proposal: (i) defines greenmail;
(ii) prohibits buyback offers to large block holders (holders of at
least 1% of the outstanding shares and in certain cases, a greater
amount, as determined by the Proxy Review Committee) 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.
3. Proposals requiring shareholder approval or ratification of a
shareholder rights plan or poison pill will be supported.
B. CAPITALIZATION CHANGES. The following proposals generally will be voted as
indicated below, unless otherwise determined by the Proxy Review Committee.
1. The following proposals generally will be supported:
- Proposals relating to capitalization changes that eliminate
other classes of stock and/or eliminate unequal voting rights.
- 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 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.
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- Proposals to create a new class of preferred stock or for
issuances of preferred stock up to 50% of issued capital.
- Proposals for share repurchase plans.
- Proposals to reduce the number of authorized shares of common
or preferred stock, or to eliminate classes of preferred
stock.
- Proposals to effect stock splits.
- 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
generally will be approved if the resulting increase in
authorized shares coincides with the proxy guidelines set
forth above for common stock increases.
2. The following proposals generally will not be supported
(notwithstanding management support).
- Proposals relating to capitalization changes that add classes
of stock which substantially dilute the voting interests of
existing shareholders.
- Proposals to increase the authorized number of shares of
existing classes of stock that carry preemptive rights or
supervoting rights.
- Proposals to create "blank check" preferred stock.
- Proposals relating to changes in capitalization by 100% or
more.
C. COMPENSATION. The following proposals generally will be voted as indicated
below, unless otherwise determined by the Proxy Review Committee.
1. The following proposals generally will be supported:
- Proposals relating to director fees, provided the amounts are
not excessive relative to other companies in the country or
industry.
- 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.
- Proposals for the establishment of employee stock option plans
and other employee ownership plans, provided that our research
does not indicate that approval of the plan would be against
shareholder interest.
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- Proposals for the establishment of employee retirement and
severance plans, provided that our research does not indicate
that approval of the plan would be against shareholder
interest.
2. Blanket proposals requiring shareholder approval of all severance
agreements will not be supported, however, proposals that require
shareholder approval for agreements in excess of three times the
annual compensation (salary and bonus) generally will be supported.
3. Blanket proposals requiring shareholder approval of executive
compensation generally will not be supported.
4. Proposals that request or require disclosure of executive
compensation in addition to the disclosure required by the
Securities and Exchange Commission ("SEC") regulations generally
will not be supported.
D. OTHER RECURRING ITEMS. The following proposals generally will be voted as
indicated below, unless otherwise determined by the Proxy Review Committee.
1. Proposals to add restrictions related to social, political,
environmental or special interest issues that do not relate directly
to the business of the company and which do not appear to be
directed specifically to the business or financial interest of the
company generally will not be supported.
2. Proposals requiring adherence to workplace standards that are not
required or customary in market(s) to which the proposals relate
will not be supported.
E. ITEMS TO BE REVIEWED BY THE PROXY REVIEW COMMITTEE
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.
i. Corporate Transactions
- 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,
Research Providers' research and analysis will be used along
with MSIM Affiliates' research and analysis, including, among
other things, MSIM internal company-specific knowledge.
E-7
Proposals for mergers or other significant transactions that
are friendly and approved by the Research Providers generally
will be supported where there is no portfolio manager
objection and where there is no material conflict of interest
and in those instances will not need to be reviewed by the
Proxy Review Committee.
ii. Compensation
- 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. With respect to proposals
related to severance and change of control situations, MSIM
Affiliates will support a maximum of three times salary and
bonus.
- Proposals relating to Executive/Director stock option plans.
Generally, stock option plans should be incentive based. The
Proxy Review Committee will evaluate the the quantitative
criteria used by a Research Provider when considering such
Research Provider's recommendation. If the Proxy Review
Committee determines that the criteria used by the Research
Provider is reasonable, the proposal will be supported if it
falls within a 5% band above the Research Provider's
threshold.
- Compensation proposals that allow for discounted stock options
that have not been offered to employees in general.
iii. Other
- Proposals for higher dividend payouts.
- Proposals recommending set retirement ages or requiring
specific levels of stock ownership by directors.
- Proposals for election of directors, where a director nominee
is related to MSIM (i.e. on an MSIM Fund's Board of
Directors/Trustees or part of MSIM senior management) must be
considered by the Proxy Review Committee. If the proposal
relates to a director nominee who is on a Van Kampen Fund's
Board of Directors/Trustees, to the extent that the shares of
the relevant company are held by a Van Kampen Fund, the Van
Kampen Board shall vote the proxies with respect to those
shares, to the extent practicable. In the event that the
Committee cannot contact the Van Kampen Board in advance of
the shareholder meeting, the Committee will vote such shares
pursuant to the Proxy Voting Policy.
E-8
- Proposals requiring diversity of board membership relating to
broad based social, religious or ethnic groups.
- Proposals to limit directors' liability and/or broaden
indemnification of directors. Generally, the Proxy Review
Committee will support such proposals provided that the
officers and directors are eligible for indemnification and
liability protection if they have acted in good faith on
company business and were found innocent of any civil or
criminal charges for duties performed on behalf of the
company.
F. FUND OF FUNDS. Certain Funds advised by an MSIM Affiliate invest only in
other MSIM funds. If an underlying fund has a shareholder meeting, in order to
avoid any potential conflict of interest, such proposals will be voted in the
same proportion as the votes of the other shareholders of the underlying fund,
unless otherwise determined by the Proxy Review Committee.
IV. ADMINISTRATION OF POLICY
A. PROXY REVIEW COMMITTEE
1. The MSIM Proxy Review Committee ("Committee") is responsible for
creating and implementing the Policy and, in this regard, has
expressly adopted it.
(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 Policy and determining how MSIM will
vote proxies on an ongoing basis.
(b) The Committee will periodically review and have the authority
to amend, as necessary, the Policy 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 the
Policy 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 Policy (and
any amendments to them and/or any additional guidelines or
procedures it may adopt).
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(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 Policy); (2) review and approve upcoming
votes, as appropriate, for matters for which specific
direction has been provided in this Policy; and (3) determine
how to vote matters for which specific direction has not been
provided in this Policy. Split votes generally will not be
approved within a single Global Investor Group investment
team. The Committee may take into account Research Providers'
recommendations and research as well as any other relevant
information they may request or receive, including portfolio
manager and/or analyst research, as applicable. Generally,
proxies related to securities held in accounts that are
managed pursuant to quantitative, index or index-like
strategies ("Index Strategies") will be voted in the same
manner as those held in actively managed accounts. Because
accounts managed using Index Strategies are passively managed
accounts, research from portfolio managers and/or analysts
related to securities held in these accounts may not be
available. If the affected securities are held only in
accounts that are managed pursuant to Index Strategies, and
the proxy relates to a matter that is not described in this
Policy, the Committee will consider all available information
from the Research Providers, and to the extent that the
holdings are significant, from the portfolio managers and/or
analysts.
(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 Chairperson 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 Research Providers, the Special
Committee may request analysis from MSIM Affiliate investment
E-10
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 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, to 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
party to a merger or acquisition for which Morgan Stanley will
be paid a success fee if completed).
C. PROXY VOTING REPORTS
E-11
(a) MSIM will promptly provide a copy of this Policy to any client
requesting them. 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.
(b) 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.
E-12
APPENDIX F
PRO FORMA FINANCIAL STATEMENTS
The following presents the pro forma financial statements for the combination of
Van Kampen Trust for Investment Grade Florida Municipals and Van Kampen Trust
for Investment Grade Municipals. The statements are presented as of October 31,
2006, the most recent interim period for which financial information is
currently available.
The unaudited Pro Forma Portfolio of Investments and Pro Forma Statement of
Assets and Liabilities reflect the financial position as if the transaction
occurred on October 31, 2006. The Pro Forma Statement of Operations reflects the
expenses for the twelve months ended October 31, 2006. The pro forma statements
give effect to the proposed exchange of Van Kampen Trust for Investment Grade
Municipals shares for the assets and liabilities of the Van Kampen Trust for
Investment Grade Florida Municipals, with Van Kampen Trust for Investment Grade
Municipals being the surviving entity. The proposed transaction will be
accounted for as a tax-free reorganization in accordance with accounting
principles generally accepted in the United States. The historical cost basis of
the investments is carried over to the surviving entity. It is not anticipated
that Van Kampen Trust for Investment Grade Municipals will sell any securities
of Van Kampen Trust for Investment Grade Florida Municipals acquired in the
reorganization other than in the ordinary course of business.
F-1
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PROFORMA PORTFOLIO OF INVESTMENTS
October 31, 2006
(Unaudited)
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------ -------- ------------ ------------ ------------
MUNICIPAL BONDS 173.4%
ALABAMA 3.6%
$ 3,660 $ 3,660 Alabama St Brd Ed Rev & Impt Southn
Univ St Cmnty Rfdg (MBIA Insd)
(a) 5.250% 07/01/20 $ 3,954,337 $ 3,954,337
750 750 Birmingham Baptist Med Ctr AL
Baptist Hlth Sys Ser A 5.875 11/15/24 806,047 806,047
7,700 7,700 Birmingham Baptist Med Ctr AL
Baptist Hlth Sys Ser A 5.000 11/15/30 7,899,738 7,899,738
1,000 1,000 Jefferson Cnty, AL Ltd Oblig Sch Wt
Ser A 5.000 01/01/24 1,048,700 1,048,700
2,250 2,250 Jefferson Cnty, AL Ltd Oblig Sch Wt
Ser A 5.250 01/01/23 2,408,423 2,408,423
7,710 7,710 University AL at Birmingham Hosp Rev
Ser A (c) 5.000 09/01/36 8,028,705 8,028,705
9,840 9,840 University AL at Birmingham Hosp Rev
Ser A (c) 5.000 09/01/41 10,209,460 10,209,460
------------ ------------ ------------
0 34,355,410 34,355,410
------------ ------------ ------------
ALASKA 1.7%
2,000 2,000 Alaska St Hsg Fin Corp Gen Hsg Ser A
(FGIC Insd) 5.000 12/01/30 2,103,740 2,103,740
1,250 1,250 Alaska St Hsg Fin Corp Gen Hsg Ser A
(FGIC Insd) 5.250 12/01/34 1,341,350 1,341,350
3,650 3,650 Alaska St Intl Arpt Rev Ser B (AMBAC
Insd) (Prerefunded @ 10/01/12) 5.250 10/01/27 3,971,309 3,971,309
1,575 1,575 Matanuska-Susitna Boro, AK Ctf Partn
Pub Safety Bldg Lease (FSA Insd) 5.750 03/01/16 1,675,296 1,675,296
7,300 7,300 Northern Tob Securitization Corp Tob
Settlement Rev Asset Bkd Ser A 5.000 06/01/46 7,398,550 7,398,550
------------ ------------ ------------
0 16,490,245 16,490,245
------------ ------------ ------------
ARIZONA 3.6%
1,000 1,000 Arizona Hlth Fac Auth Hosp Sys Rev
John C Lincoln Hlth Network
(Prerefunded @ 12/01/12) 6.375 12/01/37 1,153,960 1,153,960
4,225 4,225 Arizona Tourism & Sports Auth
Multipurpose Stad Fac Ser A (MBIA
Insd) 5.375 07/01/23 4,603,053 4,603,053
6,075 6,075 Glendale, AZ Indl Dev Auth John C
Lincoln Hlth Rfdg Ser B 5.000 12/01/37 6,222,683 6,222,683
3,050 3,050 Glendale, AZ Indl Dev Auth Rfdg 5.000 12/01/35 3,126,189 3,126,189
3,500 3,500 Maricopa Cnty, AZ Hosp Rev Sun Hlth
Corp 5.000 04/01/35 3,594,430 3,594,430
2,800 2,800 Phoenix, AZ Civic Impt Corp Arpt Rev
Jr Lien (FGIC Insd) (AMT) 5.375 07/01/29 2,827,412 2,827,412
11,750 11,750 University of AZ Med Ctr Corp 5.000 07/01/35 12,071,950 12,071,950
------------ ------------ ------------
0 33,599,677 33,599,677
------------ ------------ ------------
F-2
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------ -------- ------------ ------------ ------------
ARKANSAS 0.2%
$ 1,395 $ 1,395 Washington Cnty, AR Hosp Rev Regl
Med Ctr Rfdg Ser B 5.000% 02/01/30 0 $ 1,437,687 $ 1,437,687
------------ ------------ ------------
CALIFORNIA 21.8%
1,300 1,300 Anaheim, CA Pub Fin Auth Lease Rev
Pub Impt Proj Ser C (FSA Insd) 6.000 09/01/16 1,525,186 1,525,186
11,235 11,235 Anaheim, CA Pub Fin Auth Rev Eec Sys
Dist Fac Ser A (FSA Insd) 5.000 10/01/31 11,845,622 11,845,622
1,000 1,000 California Cnty, CA Tob Agy Tob Sec
Asset Bkd Sonoma Cnty Corp Rfdg 5.250 06/01/45 1,036,650 1,036,650
1,500 1,500 California Cnty, CA Tob Agy Tob Sec
Asset Bkd Merced Cnty Rfdg Ser A 5.125 06/01/38 1,541,880 1,541,880
1,660 1,660 California Cnty, CA Tob Agy Tob Sec
Sonoma Cnty Corp Rfdg 5.000 06/01/26 1,698,894 1,698,894
7,800 7,800 California Ed Fac Auth Rev
Pepperdine Univ Rfdg Ser A (FGIC
Insd) 5.000 09/01/33 8,154,354 8,154,354
1,200 1,200 California Hlth Fac Fin Auth Rev
Kaiser Permanente Ser A 5.250 04/01/39 1,279,812 1,279,812
10,380 10,380 California Hlth Fac Fin Auth Rev
Cedars Sinai Med Ctr Rfdg (c) 5.000 11/15/34 10,818,209 10,818,209
1,500 1,500 California Pollutn Ctl Fin Auth
Solid Waste Disp Rev Waste Mgmt Inc
Proj Ser B (AMT) 5.000 07/01/27 1,547,490 1,547,490
11,000 11,000 California St 5.000 02/01/33 11,512,930 11,512,930
7,345 7,345 California St (AMBAC Insd) 5.125 10/01/27 7,504,607 7,504,607
1,350 1,350 California Statewide Cmnty Dev Auth
Rev Daughters of Charity Hlth Ser
A 5.000 07/01/39 1,387,179 1,387,179
9,015 9,015 California Statewide Cmnty Dev Auth
Rev Daughters of Charity Hlth Ser
A 5.250 07/01/30 9,528,404 9,528,404
3,000 3,000 California Statewide Cmnty Dev Auth
Rev Hlth Fac Adventist Hlth Ser A 5.000 03/01/30 3,116,850 3,116,850
3,750 3,750 California Statewide Cmnty Dev Auth
Rev Hlth Fac Adventist Hlth Ser A 5.000 03/01/35 3,888,900 3,888,900
2,300 2,300 California Statewide Cmnty Dev Auth
Rev Kaiser Permanente Ser B 5.000 03/01/41 2,392,943 2,392,943
4,000 4,000 California Statewide Cmnty Dev Auth
Rev Kaiser Permanente Ser B 5.250 03/01/45 4,254,880 4,254,880
3,360 3,360 California Statewide Cmnty Dev Auth
Rev Sutter Hlth Ser A 5.000 11/15/43 3,521,482 3,521,482
1,000 1,000 California St Dept Wtr Res Ctr Vly
Proj Rev Wtr Sys Ser X (FGIC
Insd) 5.000 12/01/29 1,047,710 1,047,710
6,500 6,500 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd) (Prerefunded @
5/01/12) 5.375 05/01/18 7,167,225 7,167,225
2,000 2,000 California St Dept Wtr Res Pwr Ser A
(Prerefunded @ 5/01/12) 6.000 05/01/15 2,266,320 2,266,320
F-3
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------ -------- ------------ ------------ ------------
CALIFORNIA (CONTINUED)
$ 1,000 $ 1,000 California St Pub Wks Brd UCLA
Replacement Hosp Ser A (FSA Insd) 5.375% 10/01/20 $ 1,086,860 $ 1,086,860
5,000 5,000 California St Rfdg 5.000 08/01/28 5,299,450 5,299,450
5,000 5,000 California St Univ Rev & Co
Systemwide Ser A (AMBAC Insd) 5.000 11/01/33 5,216,950 5,216,950
2,000 2,000 El Dorado, CA Irr Dist Ctf Ser A
(FGIC Insd) 5.000 03/01/21 2,113,680 2,113,680
3,000 3,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser B (MBIA
Insd) 5.000 03/01/33 3,155,550 3,155,550
2,000 2,000 Florin, CA Res Consv Dist Cap Impt
Elk Grove Wtr Svc Ser A (MBIA
Insd) 5.000 09/01/33 2,109,260 2,109,260
2,000 2,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Cap Apprec Rfdg (MBIA
Insd) * 01/15/17 1,212,600 1,212,600
10,750 10,750 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Sr Lien Ser A (e) * 01/01/23 5,386,717 5,386,717
3,000 3,000 Fremont, CA Uni Sch Dist Ser A (FGIC
Insd) 5.000 08/01/25 3,191,550 3,191,550
5,000 5,000 Golden St, CA Tob Corp CA Tob
Settlement Rev Enhanced Ser A 5.000 06/01/45 5,171,850 5,171,850
22,000 22,000 Golden St Tob Sec Corp CA Tob
Settlement Rev Ser A (FGIC Insd)
(c) 5.000 06/01/38 23,216,050 23,216,050
4,000 4,000 Los Angeles, CA Dept Wtr & Pwr Ser A
(FGIC Insd) 5.125 07/01/40 4,185,640 4,185,640
2,000 2,000 Los Angeles, CA Wtr & Pwr Rev Pwr
Sys Ser B (FSA Insd) 5.000 07/01/28 2,102,180 2,102,180
1,500 1,500 Metropolitan Wtr Dist Southn CA
Wtrwks Rev Auth Ser B1 (FGIC
Insd) 5.000 10/01/33 1,576,395 1,576,395
3,500 3,500 Palm Springs, CA Fin Auth Lease Rev
Convention Ctr Proj Ser A (MBIA
Insd) 5.500 11/01/35 3,893,365 3,893,365
3,000 3,000 Port Oakland, CA Ser M (FGIC
Insd) 5.250 11/01/18 3,255,720 3,255,720
2,000 2,000 Salinas, CA Uni High Sch Dist Ser A
(MBIA Insd) (Prerefunded @
6/01/12) 5.000 06/01/27 2,170,020 2,170,020
3,000 3,000 San Francisco, CA City & Cnty Pub
Util Com Wtr Rev Ser A (MBIA
Insd) 5.000 11/01/32 3,165,180 3,165,180
3,000 3,000 San Francisco, CA City & Cnty Second
Rfdg Ser Issue 29 B (FGIC Insd) 5.125 05/01/20 3,203,010 3,203,010
1,000 1,000 Santa Clara Cnty, CA Brd Ed Ctf
Partn Rfdg (MBIA Insd) 5.000 04/01/25 1,047,710 1,047,710
3,000 3,000 Temecula, CA Redev Agy Tax Temecula
Redev Proj No 1 (MBIA Insd) 5.250 08/01/36 3,129,480 3,129,480
4,700 4,700 Tobacco Sec Auth Northn CA Tob
Settlement Rev Asset Bkd Ser A1 5.375 06/01/38 4,930,206 4,930,206
3,550 3,550 Tobacco Sec Auth Northn CA Tob
Settlement Rev Bd Ser A1 5.500 06/01/45 3,754,977 3,754,977
F-4
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------ -------- ------------ ------------ ------------
CALIFORNIA (CONTINUED)
$ 3,800 $ 3,800 Tobacco Sec Auth Southn CA Tob
Settlement Ser A 5.000% 06/01/37 $ 3,877,938 $ 3,877,938
9,650 9,650 Tobacco Sec Auth Southn CA Tob
Settlement Ser A 5.125 06/01/46 9,893,277 9,893,277
1,600 1,600 Turlock, CA Hlth Fac Rev Ctf Partn
Emanuel Med Ctr Inc 5.375 10/15/34 1,686,480 1,686,480
----------- ------------ ------------
0 206,069,622 206,069,622
----------- ------------ ------------
COLORADO 3.6%
2,000 2,000 Aurora, CO Ctf Partn (AMBAC Insd)
(Prerefunded @ 12/01/10) 5.500 12/01/30 2,143,440 2,143,440
3,405 3,405 Colorado Ed & Cultural Fac Auth Rev
Impt Charter Sch Rfdg (XLCA Insd) 5.250 12/01/23 3,661,907 3,661,907
4,650 4,650 Colorado Ed & Cultural Fac Auth Rev
Student Hsg Univ CO Fndtn Proj
(AMBAC Insd) 5.000 07/01/32 4,839,162 4,839,162
5,500 5,500 Colorado Hlth Fac Auth Rev Adventist
Hlth/Sunbelt Ser D (g) 5.250 11/15/27 5,892,150 5,892,150
2,000 2,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A (e) 5.500 03/01/32 2,172,680 2,172,680
3,000 3,000 Colorado Hlth Fac Auth Rev Covenant
Retirement Cmntys Inc 5.000 12/01/35 3,062,670 3,062,670
1,125 1,125 Colorado Hlth Fac Auth Rev Hosp
Portercare Adventist Hlth
(Prerefunded @ 11/15/11) 6.500 11/15/31 1,280,992 1,280,992
16 16 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser B1 (AMT) 7.650 11/01/26 16,280 16,280
2,650 2,650 Colorado Springs, CO Util Rev Sys
Sub Lien Impt Ser B 5.000 11/15/30 2,764,162 2,764,162
3,000 3,000 Colorado Springs, CO Util Rev Sys
Sub Lien Impt Rfdg Ser A 5.000 11/15/29 3,112,740 3,112,740
1,000 1,000 El Paso Cnty, CO Ctf Partn Detention
Fac Proj Ser B (AMBAC Insd) 5.375 12/01/18 1,087,340 1,087,340
1,805 1,805 Lakewood, CO Ctf Partn (AMBAC Insd)
(Prerefunded @ 12/01/10) (a) 5.300 12/01/16 1,924,383 1,924,383
1,500 1,500 University of CO Hosp Auth Rev Ser
A 5.250 11/15/39 1,576,110 1,576,110
----------- ------------ ------------
0 33,534,016 33,534,016
----------- ------------ ------------
CONNECTICUT 0.5%
3,580 3,580 Connecticut St Spl Oblig Pkg Rev
Bradley Intl Arpt Ser A (ACA Insd)
(AMT) 6.600 07/01/24 3,919,456 3,919,456
1,000 1,000 Hartford, CT Pkg Sys Rev Ser A
(Prerefunded @ 7/01/10) 6.500 07/01/25 1,097,100 1,097,100
----------- ------------ ------------
0 5,016,556 5,016,556
----------- ------------ ------------
F-5
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------ -------- ------------ ------------ ------------
DELAWARE 0.1%
$ 1,000 $ 1,000 Mashantucket Western Pequot Tribe
Sub Spl Rev Bd Ser A (f) 5.500% 09/01/36 0 $ 1,044,720 $ 1,044,720
------------ ------------ ------------
DISTRICT OF COLUMBIA 0.8%
2,775 2,775 District of Columbia Hosp Rev
Medlantic Hlthcare Rfdg Ser A (MBIA
Insd) (e) 5.250 08/15/12 2,833,969 2,833,969
2,000 2,000 District of Columbia Rev Friendship
Pub Charter Sch Inc (ACA Insd) 5.750 06/01/18 2,196,060 2,196,060
5 5 District of Columbia Ser E (FSA
Insd) (a) 6.000 06/01/13 5,009 5,009
2,000 2,000 Metropolitan Washington DC Arpt Auth
Sys Ser A (FGIC Insd) (AMT) 5.250 10/01/32 2,102,520 2,102,520
------------ ------------ ------------
0 7,137,558 7,137,558
------------ ------------ ------------
FLORIDA 44.1%
12,960 3,500 16,460 Brevard Cnty, FL Hlth Fac Auth
Hlthcare Fac Rev Hlth First Inc
Proj 5.000 04/01/34 13,503,996 3,646,930 17,150,926
4,500 4,500 Brevard Cnty, FL Hlth Fac Hlth First
Inc Proj 5.000 04/01/34 4,688,910 4,688,910
1,000 1,000 Broward Cnty, FL Hsg Fin Auth Multi-
Family Hsg Rev Pembroke Pk Apts Proj
(AMT) 5.650 10/01/28 1,018,300 1,018,300
1,000 1,000 Broward Cnty, FL Sch Brd Ctf Partn Ser
A (FSA Insd) 5.000 07/01/22 1,053,150 1,053,150
1,500 1,500 Capital Tr Agy FL Rev Fort Lauderdale
Proj (AMT) 5.750 01/01/32 1,576,605 1,576,605
5,250 5,250 Coral Gables, FL Hlth Fac Auth Hosp
Rev Baptist Hlth South FL (FSA
Insd) 5.000 08/15/29 5,538,750 5,538,750
750 750 Dade Cnty, FL Ed Fac Auth Rev
Exchanged From Univ of Miami Ser B
(MBIA Insd) 5.750 04/01/20 766,245 766,245
500 500 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd) 5.250 10/01/26 511,240 511,240
3,180 3,180 Dade Cnty, FL Spl Oblig Cap Apprec Ser
B (AMBAC Insd) (Prerefunded @
10/01/08) * 10/01/26 985,514 985,514
2,640 2,640 Daytona Beach, FL Util Sys Rev Rfdg
Ser D (FSA Insd) 5.250 11/15/16 2,856,638 2,856,638
1,500 1,500 Deltona, FL Trans Cap Impt Rev (MBIA
Insd) 5.125 10/01/26 1,621,020 1,621,020
1,125 1,125 Deltona, FL Util Sys Rev (MBIA
Insd) 5.250 10/01/22 1,221,232 1,221,232
105 570 675 Escambia Cnty, FL Hlth Fac Auth Rev
(AMBAC Insd) 5.950 07/01/20 109,725 595,650 705,375
1,000 1,000 Escambia Cnty, FL Util Auth Util Sys
Rev (FGIC Insd) 5.250 01/01/29 1,038,410 1,038,410
5,930 5,930 Flagler Cnty, FL Cap Impt Rev (MBIA
Insd) 5.000 10/01/30 6,295,466 6,295,466
1,250 1,250 Florida Agric & Mechanical Univ Rev
Student Apt Fac (MBIA Insd) 6.500 07/01/23 1,254,387 1,254,387
385 385 Florida Hsg Fin Agy Homeownership Mtg,
Class B (AMT) 8.595 11/01/18 406,352 406,352
2,750 2,750 Florida Hsg Fin Agy Hsg Willow Lake
Apts Ser J-1 (AMBAC Insd)(AMT) 5.350 07/01/27 2,807,915 2,807,915
3,000 3,000 Florida Hsg Fin Corp Rev Homeowner Mtg
Ser 1 (GNMA Collateralized)(AMT) 4.850 07/01/37 3,033,900 3,033,900
2,000 2,000 Florida Hsg Fin Corp Rev Homeowner Mtg
Ser 2 (GNMA Collateralized)(AMT) 4.950 07/01/37 2,046,800 2,046,800
550 550 Florida Hsg Fin Corp Rev Homeowner Mtg
Ser 4 (FSA Insd)(AMT) 6.250 07/01/22 562,941 562,941
1,000 1,000 Florida Hsg Fin Corp Rev Hsg Wentworth
II Apts Ser A (AMBAC Insd)(AMT) 5.375 11/01/29 1,029,950 1,029,950
F-6
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
FLORIDA (CONTINUED)
$ 2,000 $ 2,000 Florida Ports Fin Comm Rev St Trans Tr
Fd (MBIA Insd)(AMT) 5.375% 06/01/27 $ 2,036,500 $ 2,036,500
8,475 8,475 Florida Ports Fin Comm Rev St Trans Tr
Fd Intermodal Pgm (FGIC Insd)(AMT) 5.500 10/01/29 8,915,530 8,915,530
2,000 2,000 Florida St Brd of Ed Cap Outlay Pub Ed
Ser C (FGIC Insd) (Prerefunded @
06/01/10) 5.750 06/01/29 2,164,960 2,164,960
1,600 1,600 Florida St Brd of Ed Cap Outlay Pub Ed
Rfdg Ser C 5.000 06/01/16 1,646,752 1,646,752
2,500 2,500 Florida St Brd of Ed Cap Outlay Pub Ed
Rfdg Ser C (FGIC Insd) (Prerefunded @
06/01/10) 5.750 06/01/29 2,706,200 2,706,200
12,775 12,775 Florida St Brd of Ed Cap Outlay Pub Ed
Rfdg Ser D 5.750 06/01/22 13,773,111 13,773,111
2,000 2,000 Florida St Brd of Ed Lottery Rev Ser A
(FGIC Insd) 5.250 07/01/17 2,126,660 2,126,660
5,000 5,000 Florida St Brd of Ed Lottery Rev Ser A
(FGIC Insd) 5.500 07/01/17 5,366,300 5,366,300
1,000 1,000 Florida St Brd of Ed Lottery Rev Ser A
(FGIC Insd) 6.000 07/01/14 1,088,130 1,088,130
15,000 15,000 Florida St Brd of Ed Pub Ed Cap Outlay
Ser D (c) 4.750 06/01/35 15,495,300 15,495,300
4,500 4,500 Florida St Brd of Ed Pub Ed Ser A 5.000 06/01/32 4,718,475 4,718,475
1,000 1,000 Florida St Brd of Ed Rev FL St Univ
Hsg Fac Ser A (MBIA Insd) 5.000 05/01/29 1,039,670 1,039,670
4,735 4,735 Florida St Brd of Regt Hsg Rev Univ FL
(FGIC Insd) 5.500 07/01/28 5,092,066 5,092,066
1,000 1,000 Florida St Correctional Privatization
Commn Ctf Partn (MBIA Insd) 5.375 08/01/14 1,082,330 1,082,330
2,360 2,360 Florida St Correctional Privatization
Commn Ctf Partn (MBIA Insd)(a) 5.375 08/01/15 2,549,366 2,549,366
3,000 3,000 Florida St Dept Trans 5.000 07/01/32 3,147,030 3,147,030
6,000 6,000 Florida St Dept Trans Right of Way
Ser A 5.250 07/01/21 6,575,760 6,575,760
7,295 7,295 Florida St Dept Trans Tpk Rev Ser A 5.000 07/01/29 7,739,411 7,739,411
5,000 5,000 Florida St Dept Trans Tpk Rev Ser A 5.000 07/01/30 5,308,300 5,308,300
1,500 1,500 Florida St Div Bd Fin Dept Gen Svc Rev
Dept Envrnmtl Preservtn 2000 Ser A
(AMBAC Insd) 5.000 07/01/11 1,528,380 1,528,380
2,000 2,000 Florida St Div Bd Fin Dept Gen Svc Rev
Dept Envrnmtl Preservtn 2000 Ser A
(FGIC Insd) 5.250 07/01/12 2,101,800 2,101,800
1,475 1,475 Florida St Tpk Auth Tpk Rev Dept Trans
Ser B 5.000 07/01/30 1,525,401 1,525,401
1,635 1,635 Fort Myers, FL Util Rev Rfdg Ser A
(FGIC Insd) 5.500 10/01/24 1,731,236 1,731,236
3,500 3,500 Gainesville, FL Util Sys Rev Ser A
(FSA Insd) 5.000 10/01/35 3,715,705 3,715,705
460 460 Gainesville, FL Util Sys Rev (e) 8.125 10/01/14 519,524 519,524
500 500 Gulf Breeze, FL Rev Loc Govt (FGIC
Insd) 5.650 12/01/20 533,415 533,415
730 730 Gulf Breeze, FL Rev Loc Govt (FGIC
Insd) 5.750 12/01/20 784,013 784,013
1,000 1,000 Gulf Breeze, FL Rev Loc Govt (FGIC
Insd) 5.800 12/01/20 1,090,470 1,090,470
F-7
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
FLORIDA (CONTINUED)
$ 5,000 $ 5,000 Halifax Hosp Med Ctr FL Hosp Rev Impt
Rfdg Ser A 5.000% 06/01/38 $ 5,141,700 $ 5,141,700
5,500 5,500 Halifax Hosp Med Ctr FL Hosp Rev Impt
Rfdg Ser A 5.250 06/01/26 5,837,370 5,837,370
2,000 1,000 3,000 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Ser D (Prerefunded
@ 11/15/13) 5.375 11/15/35 2,205,900 1,102,950 3,308,850
1,000 1,000 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Sys Ser C 5.000 11/15/31 1,043,190 1,043,190
2,000 1,900 3,900 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Sys Ser C 5.250 11/15/36 2,135,880 2,029,086 4,164,966
3,520 3,520 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist Hlth Sys Ser D 5.000 11/15/35 3,656,611 3,656,611
3,000 3,000 Highlands Cnty, FL Hlth Fac Auth Rev
Hosp Adventist/Sunbelt Ser A
(Prerefunded @ 11/15/11) 6.000 11/15/31 3,348,960 3,348,960
750 750 Hillsborough Cnty, FL Assmt Rev
Capacity Assmt Spl (FSA Insd) 5.000 03/01/15 790,755 790,755
750 750 Hillsborough Cnty, FL Assmt Rev
Capacity Assmt Spl (FSA Insd) 5.000 09/01/15 790,755 790,755
11,205 11,205 Hillsborough Cnty, FL Ind Dev Auth
Hosp Rev Tampa Gen Hosp Proj (c) 5.000 10/01/36 11,644,236 11,644,236
14,160 14,160 Hillsborough Cnty, FL Ind Dev Auth
Hosp Rev Tampa Gen Hosp Proj (c) 5.250 10/01/41 15,010,804 15,010,804
2,500 2,500 Hillsborough Cnty, FL Ind Dev Tampa
Gen Hosp Proj 5.000 10/01/36 2,598,000 2,598,000
1,000 1,000 Hillsborough Cnty, FL Ind Dev Tampa
Gen Hosp Proj Ser B 5.250 10/01/28 1,055,970 1,055,970
1,000 1,000 Hillsborough Cnty, FL Ind Dev Tampa
Gen Hosp Proj Ser B 5.250 10/01/34 1,051,030 1,051,030
1,000 1,745 2,745 Hillsborough Cnty, FL Port Dist Rev
Tampa Port Auth Proj Ser A (MBIA Insd)
(AMT) 5.375 06/01/27 1,065,780 1,859,786 2,925,566
1,380 1,380 Hollywood, FL Cmnty Redev Agy Beach
Cra 5.625 03/01/24 1,478,642 1,478,642
2,000 2,000 Hollywood, FL Wtr & Swr Rev Impt &
Rfdg (FSA Insd) 5.000 10/01/21 2,144,080 2,144,080
1,500 1,500 Jacksonville, FL Econ Dev Commn Indl
Dev Rev Metro Pkg Solutions Proj (ACA
Insd)(AMT) 5.500 10/01/30 1,611,960 1,611,960
2,500 2,500 Jea, FL Elec Sys Rev Ser Three A (FSA
Insd) 5.000 10/01/41 2,628,175 2,628,175
2,250 2,250 Jea, FL Wtr & Swr Sys Rev Ser A (MBIA
Insd) 5.375 10/01/30 2,264,063 2,264,063
7,000 7,000 Lakeland, FL Elec & Wtr Rev (a)(e) * 10/01/13 5,428,430 5,428,430
2,230 2,230 Lakeland, FL Elec & Wtr Rev (e) 5.750 10/01/19 2,445,864 2,445,864
5,105 5,105 Lakeland, FL Hosp Sys Rev Lakeland
Regl Hlth Sys (g) 5.000 11/15/05 5,308,945 5,308,945
2,000 2,000 Lakeland, FL Hosp Sys Rev Lakeland
Regl Hlth Sys (Prerefunded @
11/15/12) 5.500 11/15/32 2,213,240 2,213,240
1,000 1,000 Lee Cnty, FL Arpt Rev Ser A (FSA Insd)
(AMT) 5.750 10/01/22 1,076,850 1,076,850
F-8
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ----------- ----------- -----------
FLORIDA (CONTINUED)
$ 1,250 $ 1,250 Lee Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Multi-Cnty Pgm Ser A
(GNMA Collateralized)(AMT) 5.000% 03/01/39 $ 1,277,525 $ 1,277,525
1,000 1,000 Leesburg, FL Hosp Rev Leesburg Regl
Med Ctr Proj 5.500 07/01/32 1,048,190 1,048,190
3,200 3,200 Leesburg, FL Util Rev (FGIC Insd) 5.000 10/01/34 3,378,944 3,378,944
1,600 1,600 Manatee Cnty, FL Pub Util Rev Impt &
Rfdg (MBIA Insd) 5.125 10/01/21 1,728,336 1,728,336
650 650 Marion Cnty, FL Hosp Dist Rev Hlth Sys
Munroe Reg Impt & Rfdg 5.500 10/01/29 675,883 675,883
1,000 1,000 Marion Cnty, FL Sch Brd Ctf Partn (FSA
Insd) 5.250 06/01/18 1,082,810 1,082,810
2,135 2,135 Marion Cnty, FL Sch Brd Ctf (FSA
Insd) 5.250 06/01/19 2,311,799 2,311,799
1,500 1,500 Miami Beach, FL Stormwtr Rev (FGIC
Insd) 5.250 09/01/25 1,589,805 1,589,805
1,460 1,460 Miami Beach, FL Stormwtr Rev (FGIC
Insd) (a) 5.750 09/01/14 1,580,669 1,580,669
1,045 1,045 Miami Beach, FL Stormwtr Rev (FGIC
Insd) 5.750 09/01/15 1,130,711 1,130,711
2,000 2,000 Miami-Dade Cnty, FL Aviation Ser A
(FSA Insd)(AMT) 5.000 10/01/33 2,065,000 2,065,000
2,000 2,000 Miami-Dade Cnty, FL Aviation Ser A
(FSA Insd)(AMT) 5.125 10/01/35 2,078,860 2,078,860
4,000 4,000 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt Ser A (CIFG Insd)(AMT) 5.000 10/01/38 4,169,280 4,169,280
2,000 2,000 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt (FGIC Insd)(AMT) 5.375 10/01/27 2,121,800 2,121,800
3,000 1,720 4,720 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt (FGIC Insd)(AMT) 5.375 10/01/32 3,173,520 1,819,485 4,993,005
870 870 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt Ser B (FGIC Insd) 5.450 10/01/15 926,646 926,646
3,000 3,000 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt Ser B (FGIC Insd) 5.750 10/01/29 3,240,210 3,240,210
2,000 2,000 Miami-Dade Cnty, FL Ed Fac Auth Rev
Ser A (AMBAC Insd) 5.750 04/01/29 2,150,040 2,150,040
2,000 2,905 4,905 Miami-Dade Cnty, FL Pub Fac Rev
Jackson Hlth Sys Ser A (MBIA Insd) 5.000 06/01/31 2,113,500 3,069,859 5,183,359
5,000 5,000 Miami-Dade Cnty, FL Sch Brd Ctf Partn
Ser A (AMBAC Insd) 5.000 11/01/25 5,338,650 5,338,650
3,860 3,860 North Broward, FL Hosp Dist Rev Impt
(Prerefunded @ 01/15/11) 6.000 01/15/31 4,250,748 4,250,748
390 390 North Broward, FL Hosp Dist Rev
Impt 6.000 01/15/31 418,646 418,646
1,000 1,000 Orange Cnty, FL Cap Rev Impt & Rfdg
(AMBAC Insd) * 10/01/12 801,270 801,270
1,000 1,000 Orange Cnty, FL Cap Rev Impt & Rfdg
(AMBAC Insd) * 10/01/13 770,770 770,770
20 20 Orange Cnty, FL Hlth Fac Auth Hosp
Hlthcare Ser E (Prerefunded @
10/01/09) 6.000 10/01/26 21,483 21,483
980 980 Orange Cnty, FL Hlth Fac Auth Hosp
Hlthcare Ser E 6.000 10/01/26 1,040,535 1,040,535
1,000 1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Orlando Regl Hlthcare Ser B 5.125 11/15/39 1,054,370 1,054,370
F-9
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ----------- ----------- -----------
FLORIDA (CONTINUED)
$ 1,000 $ 1,000 Orange Cnty, FL Hsg Fin Auth
Multi-Family Rev Mtg Hands Inc Proj
Ser A (Acquired 06/19/95, Cost
$1,000,000)(b) 7.000% 10/01/25 $ 1,075,170 $ 1,075,170
1,000 1,000 Orange Cnty, FL Sales Tax Rev Rfdg
Ser A (FGIC Insd) 5.125 01/01/20 1,072,460 1,072,460
2,000 2,000 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd)(Prerefunded @
10/01/09) 5.500 10/01/31 2,109,080 2,109,080
4,000 4,000 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd)(Prerefunded @
10/01/09) 5.625 10/01/14 4,231,920 4,231,920
1,500 1,500 Orlando & Orange Cnty Expwy Auth FL
Expwy Rev Jr Lien (FGIC Insd) 5.000 07/01/28 1,537,920 1,537,920
1,000 1,000 Osceola Cnty, FL Sch Brd Ctf Ser A
(AMBAC Insd) 5.125 06/01/22 1,069,110 1,069,110
2,000 2,000 Osceola Cnty, FL Sch Brd Ctf Ser A
(AMBAC Insd) 5.250 06/01/27 2,133,220 2,133,220
3,715 3,715 Palm Bay, FL Util Rev Sys Impt Ser A
(FGIC Insd) 5.000 10/01/25 3,972,524 3,972,524
1,000 1,000 Palm Beach Cnty, FL Sch Brd Ctf Partn
Ser A (FSA Insd) 5.000 08/01/31 1,063,810 1,063,810
1,000 1,000 Palm Beach Cnty, FL Sch Brd Ctf Partn
Ser A (FGIC Insd) (Prerefunded @
08/01/10) 5.875 08/01/21 1,087,820 1,087,820
1,000 1,000 Palm Coast, FL Util Sys Rev (MBIA
Insd) 5.250 10/01/21 1,088,070 1,088,070
5,000 5,000 Pasco Cnty, FL Wtr & Swr Rev Rfdg (FSA
Insd) 5.000 10/01/36 5,322,300 5,322,300
1,000 1,000 Pembroke Pines, FL Cons Util Sys Rev
(FGIC Insd) (e) 6.250 09/01/11 1,079,060 1,079,060
1,500 1,500 Pensacola, FL Arpt Rev Rfdg Ser A
(MBIA Insd)(AMT) 6.000 10/01/12 1,583,715 1,583,715
1,565 1,565 Pensacola, FL Arpt Rev Rfdg Ser A
(MBIA Insd) (AMT) 6.125 10/01/18 1,660,262 1,660,262
500 500 Polk Cnty, FL Sch Brd Ctf Partn Master
Lease Ser A (FSA Insd) 5.500 01/01/25 537,520 537,520
1,000 1,000 Port Saint Lucie, FL Util Rev (MBIA
Insd) 5.000 09/01/23 1,064,140 1,064,140
1,000 1,000 Port Saint Lucie, FL Util Rev Impt &
Rfdg Ser A (MBIA Insd) 5.125 09/01/27 1,020,160 1,020,160
3,000 3,000 Port Saint Lucie, FL Util Rev Sys Rfdg
Ser A (MBIA Insd) 5.000 09/01/27 3,207,780 3,207,780
1,000 1,000 Saint Johns Cnty, FL Indl Dev Auth
Hlthcare Glenmoor Proj Ser A 5.250 01/01/26 1,015,190 1,015,190
1,500 1,500 Saint Johns Cnty, FL Indl Dev Auth
Hlthcare Glenmoor Proj Ser A 5.375 01/01/40 1,531,995 1,531,995
2,000 2,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A
(FSA Insd) 5.000 07/01/21 2,106,300 2,106,300
1,000 1,000 Saint Lucie Cnty, FL Sch Brd Ctf Ser A
(FSA Insd) 5.000 07/01/23 1,053,150 1,053,150
1,210 1,210 Saint Lucie Cnty, FL Sch Brd Ctf Ser A
(FSA Insd)(a) 5.500 07/01/14 1,314,592 1,314,592
5,860 5,860 Saint Lucie Cnty, FL Sch Brd Ctf Partn
(FSA Insd) 5.000 07/01/29 6,190,738 6,190,738
1,420 1,420 Sebring, FL Wtr & Wastewtr Rev Rfdg
(FGIC Insd) 5.250 01/01/19 1,534,196 1,534,196
F-10
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ----------- ------------
FLORIDA (CONTINUED)
$ 5,500 $ 5,500 South FL Wtr Mgmt Dist Ctf (g) 5.000% 10/01/31 $ 5,855,960 $ 5,855,960
9,500 9,500 South FL Wtr Mgmt Dist Ctf (g) 5.000 10/01/36 10,099,070 10,099,070
1,000 1,000 South Lake Cnty Hosp Dist FL South
Lake Hosp Inc 6.375 10/01/28 1,116,320 1,116,320
1,500 1,500 South Miami, FL Hlth Fac Auth Hosp Rev
Baptist Hlth (AMBAC Insd) 5.250 11/15/33 1,588,650 1,588,650
1,000 1,000 Tallahassee, FL Hlth Fac Rev
Tallahassee Mem Hlthcare Proj 6.375 12/01/30 1,077,290 1,077,290
1,000 1,000 Tallahassee, FL Lease Rev FL St Univ
Proj Ser A (MBIA Insd)(a) 5.500 08/01/17 1,074,600 1,074,600
1,115 1,115 Tallahassee, FL Lease Rev FL St Univ
Proj Ser A (MBIA Insd)(a) 5.500 08/01/19 1,197,365 1,197,365
2,500 2,500 Tampa Bay Wtr FL A Regl Wtr Supply
Auth Util Sys Rev Impt & Rfdg (FGIC
Insd) 4.500 10/01/36 2,502,900 2,502,900
1,750 1,250 3,000 Tampa, FL Hosp Rev Cap Impt H Lee
Moffitt Ser A 5.750 07/01/19 1,830,378 1,307,413 3,137,791
1,800 1,800 Tampa, FL Hosp Rev Cap Impt H Lee
Moffitt Ser A 5.750 07/01/29 1,877,346 1,877,346
2,880 2,880 Tampa, FL Occupational License Rfdg
Ser A (FGIC Insd) 5.375 10/01/15 3,138,941 3,138,941
5,150 1,000 6,150 Tampa-Hillsborough Cnty, FL Expwy Auth
Rev (AMBAC Insd) 5.000 07/01/25 5,522,963 1,072,420 6,595,383
2,500 1,000 3,500 Village Ctr Cmnty Dev Dist FL
Recreational Rev Ser A (MBIA Insd) 5.125 11/01/36 2,678,600 1,071,440 3,750,040
1,000 1,000 Village Ctr Cmnty Dev Dist FL
Recreational Rev Ser A (MBIA Insd) 5.200 11/01/25 1,065,940 1,065,940
2,000 2,000 Village Ctr Cmnty Dev Dist FL Util Rev
(MBIA Insd) 5.250 10/01/23 2,169,940 2,169,940
1,000 1,000 Village Ctr Cmnty Dev Dist FL Util Rev
(FGIC Insd)(e) 6.000 11/01/18 1,181,280 1,181,280
1,000 1,000 Volusia Cnty, FL Ed Fac Auth Rev Ed
Fac Embry Riddle Aero Ser A 5.750 10/15/29 1,043,680 1,043,680
3,250 3,250 Volusia Cnty, FL Ed Fac Auth Rev Ed
Fac Embry Riddle Rfdg (Radian Insd) 5.000 10/15/35 3,396,640 3,396,640
3,000 3,000 West Orange Hlthcare Dist FL Ser A 5.800 02/01/31 3,187,560 3,187,560
820 820 West Palm Beach, FL Cmnty Redev Agy
Northwood - Cmnty Redev 5.000 03/01/35 848,700 848,700
------------ ------------ ------------
333,218,308 83,019,467 416,237,775
------------ ------------ ------------
GEORGIA 2.8%
2,000 2,000 Atlanta, GA Arpt Passenger Fac
Charge Rev Gen Sub Lien Ser C (FSA
Insd) 5.000 01/01/33 2,096,480 2,096,480
2,872 2,872 Fulton Cnty, GA Lease Rev (Acquired
12/23/94, Cost $2,872,000) (b) 7.250 06/15/10 2,940,989 2,940,989
1,500 1,500 George L Smith II GA World Congress
Cent Auth Rev Domed Stadium Proj
Rfdg (MBIA Insd) (AMT) 5.500 07/01/20 1,589,175 1,589,175
85 85 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (Prerefunded @
1/01/14) 6.500 01/01/17 100,121 100,121
F-11
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
GEORGIA (CONTINUED)
$ 5,575 $ 5,575 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) 6.500% 01/01/17 $ 6,632,354 $ 6,632,354
240 240 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (e) 6.500 01/01/17 294,778 294,778
2,635 2,635 Georgia Muni Elec Auth Pwr Rev Ser A
(MBIA Insd) 6.500 01/01/20 3,308,664 3,308,664
3,000 3,000 Georgia Muni Elec Auth Pwr Rev Rfdg
Ser B (FGIC Insd) 6.250 01/01/17 3,602,220 3,602,220
2,000 2,000 Municipal Elec Auth GA Combustion
Turbine Proj Ser A (MBIA Insd) 5.250 11/01/22 2,153,180 2,153,180
800 800 Royston, GA Hosp Auth Hosp Rev Ctf
Hlthcare Sys Inc 6.700 07/01/16 837,480 837,480
2,500 2,500 Royston, GA Hosp Auth Hosp Rev Ctf
Hlthcare Sys Inc Rfdg 6.500 07/01/27 2,587,925 2,587,925
------------ ------------ ------------
0 26,143,366 26,143,366
------------ ------------ ------------
ILLINOIS 9.3%
2,000 2,000 Bedford Park, IL Rfdg Ser A (FSA
Insd) 5.250 12/15/20 2,190,700 2,190,700
2,000 2,000 Chicago, IL Brd of Ed (FGIC Insd)
(Prerefunded @ 12/01/10) 5.500 12/01/31 2,146,580 2,146,580
4,000 4,000 Chicago, IL Brd of Ed Chicago Sch
Reform Ser A (AMBAC Insd) 5.250 12/01/27 4,138,520 4,138,520
1,500 1,500 Chicago, IL Lakefront Millennium Pk
Fac (MBIA Insd) 5.125 01/01/28 1,566,930 1,566,930
3,000 3,000 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien C-2 Rfdg (AMT) (XLCA
Insd) 5.250 01/01/34 3,156,990 3,156,990
1,500 1,500 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien Rfdg (AMT) Ser C-2
(FSA Insd) 5.250 01/01/30 1,580,385 1,580,385
4,400 4,400 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien (MBIA Insd) (c) 5.250 01/01/24 4,787,486 4,787,486
11,500 11,500 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien (MBIA Insd) (c) 5.250 01/01/25 12,512,747 12,512,747
5,000 5,000 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien Ser A (FGIC Insd)
(c) 5.250 01/01/23 5,453,350 5,453,350
1,000 1,000 Chicago, IL O'Hare Intl Arpt Rev
Second Lien Passenger Fac Ser B
(AMBAC Insd) 5.500 01/01/16 1,071,430 1,071,430
2,000 2,000 Chicago, IL O'Hare Intl Arpt Rev
Second Lien Passenger Fac Ser B
(AMBAC Insd) 5.500 01/01/17 2,148,860 2,148,860
3,500 3,500 Chicago, IL Proj Rfdg Ser A (MBIA
Insd) (d) 5.000 01/01/31 3,631,110 3,631,110
375 375 Chicago, IL Proj Rfdg Ser C (FGIC
Insd) 5.750 01/01/14 404,794 404,794
F-12
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
ILLINOIS (CONTINUED)
$ 375 $ 375 Chicago, IL Proj Rfdg Ser C (FGIC
Insd) 5.750% 01/01/15 $ 404,524 $ 404,524
4,895 4,895 Chicago, IL Pub Bldg Comm Bldg Rev
Cap Apprec Ser A (MBIA Insd) (e) * 01/01/07 4,866,266 4,866,266
1,000 1,000 Chicago, IL Rfdg Ser B (AMBAC
Insd) 5.125 01/01/15 1,083,970 1,083,970
1,000 1,000 Cook Cnty, IL Ser A (FGIC Insd)
(Prerefunded @ 5/15/11) 5.500 11/15/31 1,081,280 1,081,280
3,230 3,230 Cook Cnty, IL Rfdg Ser A (MBIA
Insd) 5.625 11/15/16 3,324,510 3,324,510
3,500 3,500 Du Page Cnty, IL Fst Presv Dist * 11/01/10 3,017,840 3,017,840
2,310 2,310 Illinois Dev Fin Auth Rev Adventist
Hlth Ser A (MBIA Insd) 5.500 11/15/13 2,551,718 2,551,718
2,500 2,500 Illinois Dev Fin Auth Rev Adventist
Hlth Ser A (MBIA Insd) 5.500 11/15/15 2,791,700 2,791,700
1,475 1,475 Illinois Dev Fin Auth Rev Loc Govt
Pgm Geneva Cmnty 304 Ser B (FSA
Insd) (a) 5.750 01/01/15 1,618,119 1,618,119
1,145 1,145 Illinois Dev Fin Auth Rev Loc Govt
Pgm Geneva Cmnty 304 Ser B (FSA
Insd) (a) 5.750 01/01/17 1,254,691 1,254,691
1,330 1,330 Illinois Fin Auth Solid Waste Rev
Disp Waste Mgmt Inc Proj (AMT) 5.050 08/01/29 1,355,336 1,355,336
1,325 1,325 Illinois Fin Auth Student Hsg Rev
MJH Ed Assistance IV-S Ser A 5.125 06/01/35 1,366,486 1,366,486
1,250 1,250 Illinois Hlth Fac Auth Rev
Evangelical Hosp Ser C (FSA Insd) 6.750 04/15/17 1,493,575 1,493,575
700 700 Illinois Hlth Fac Auth Rev Highland
Park Hosp Proj Ser A (MBIA Insd)
(Prerefunded @ 10/01/07) 5.750 10/01/17 727,335 727,335
2,275 2,275 Illinois Hlth Fac Auth Rev South
Suburban Hosp (e) 7.000 02/15/18 2,733,572 2,733,572
4,750 4,750 Illinois Hsg Dev Auth Rev Homeowner
Mtg Sub Ser C2 (AMT) 5.150 08/01/37 4,928,362 4,928,362
1,000 1,000 Illinois St (FGIC Insd) 5.250 12/01/20 1,018,430 1,018,430
1,900 1,900 Kendall, Kane & Will Cntys, IL Cmnty
Unit Sch Dist No 308 Ser B (FGIC
Insd) 5.250 10/01/21 2,048,352 2,048,352
250 250 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expn Proj Ser A (FGIC Insd) 5.375 12/15/18 264,193 264,193
1,250 1,250 Sangamon Cnty, IL Ctf Partn 10.000 12/01/06 1,256,288 1,256,288
1,000 1,000 Schaumburg, IL Ser B (FGIC Insd) 5.000 12/01/41 1,046,990 1,046,990
3,020 3,020 University IL Univ Rev Auxiliary Fac
Sys (MBIA Insd) 4.500 04/01/36 3,012,571 3,012,571
------------ ------------ ------------
0 88,035,990 88,035,990
------------ ------------ ------------
F-13
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
INDIANA 2.0%
$ 2,560 $ 2,560 East Washington, IN Multi Sch Bldg
Corp First Mtg (FGIC Insd)
(Prerefunded @ 7/15/12) 5.375% 07/15/28 $ 2,794,419 $ 2,794,419
1,660 1,660 Indiana Hlth & Ed Fac Fin Auth Hosp
Rev Clarian Hlth Oblig Ser A 5.000 02/15/36 1,717,868 1,717,868
3,500 3,500 Indiana Hlth Fac Fin Auth Hosp Rev
Cmnty Proj Ser A (AMBAC Insd) 5.000 05/01/35 3,676,715 3,676,715
4,000 4,000 Indiana Hlth Fac Fin Auth Rev
Deaconess Hosp Ser A (AMBAC Insd) 5.375 03/01/34 4,305,000 4,305,000
1,280 1,280 North Adams, IN Cmnty Sch Renovation
Bldg Corp Cap Apprec First Mtg (FSA
Insd) (a) * 01/15/19 766,105 766,105
1,500 1,500 Petersburg, IN Pollutn Ctl Rev IN
Pwr & Lt (AMT) 5.950 12/01/29 1,602,930 1,602,930
1,605 1,605 Richland Beanblossom, IN Sch First
Mtg (FGIC Insd) (Prerefunded @
7/15/11) (a) 5.500 07/15/12 1,739,804 1,739,804
2,530 2,530 Vigo Cnty, IN Sch Bldg Corp First
Mtg Impt & Rfdg (FSA Insd) 5.250 07/10/24 2,691,085 2,691,085
------------ ------------ ------------
0 19,293,926 19,293,926
------------ ------------ ------------
IOWA 1.8%
1,685 1,685 Des Moines, IA Pub Pkg Sys Ser A
(FGIC Insd) (a) 5.750 06/01/15 1,801,029 1,801,029
1,785 1,785 Des Moines, IA Pub Pkg Sys Ser A
(FGIC Insd) (a) 5.750 06/01/16 1,909,165 1,909,165
2,750 2,750 Tobacco Settlement Auth IA Tob
Settlement Rev Asset Bkd Ser C 5.375 06/01/38 2,890,662 2,890,662
6,700 6,700 Tobacco Settlement Auth IA Tob
Settlement Rev Asset Bkd Ser C 5.500 06/01/42 7,062,604 7,062,604
2,750 2,750 Tobacco Settlement Auth IA Tob
Settlement Rev Asset Bkd Ser C 5.625 06/01/46 2,922,865 2,922,865
------------ ------------ ------------
0 16,586,325 16,586,325
------------ ------------ ------------
KANSAS 0.4%
3,810 3,810 Kansas St Dev Fin Auth Rev KS Proj
Ser N (AMBAC Insd) (a) 5.250 10/01/22 0 4,085,539 4,085,539
------------ ------------ ------------
KENTUCKY 2.2%
1,000 1,000 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/Northn KY Intl Arpt Rfdg
Ser A (MBIA Insd) (AMT) 6.200 03/01/08 1,032,260 1,032,260
3,690 3,690 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/Northn KY Intl Arpt Rfdg
Ser A (MBIA Insd) (AMT) (a) 6.250 03/01/09 3,879,740 3,879,740
F-14
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
KENTUCKY (CONTINUED)
$ 12,390 $ 12,390 Louisville & Jefferson Cnty, KY
Metro Govt Hlth Sys Rev (c) 5.250% 10/01/36 $ 12,999,505 $ 12,999,505
2,450 2,450 Louisville & Jefferson Cnty, KY Swr
Ser A (MBIA Insd) (a) 5.500 05/15/16 2,677,287 2,677,287
------------ ------------ ------------
0 20,588,792 20,588,792
------------ ------------ ------------
LOUISIANA 2.2%
4,395 4,395 Ernest N Morial New Orleans, LA
Exhib Hall Auth Spl Tax Sub Ser A
(AMBAC Insd) 5.250 07/15/22 4,676,500 4,676,500
3,000 3,000 Lafayette, LA Util Rev (MBIA
Insd) 5.250 11/01/21 3,273,900 3,273,900
2,470 2,470 Louisiana Hsg Fin Agy Rev Azalea
Estates Rfdg Ser A (GNMA
Collateralized) (AMT) 5.375 10/20/39 2,586,370 2,586,370
2,580 2,580 Louisiana Loc Govt Environmental Rev
Southeastn LA Student Hsg Ser A
(MBIA Insd) 5.250 08/01/21 2,792,024 2,792,024
6,600 6,600 Louisiana St Gas & Fuels Tax Rev Ser
A (FGIC Insd) (c) (g) 5.000 05/01/41 6,986,265 6,986,265
------------ ------------ ------------
0 20,315,059 20,315,059
------------ ------------ ------------
MARYLAND 1.1%
470 470 Baltimore, MD Convention Ctr Hotel
Rev Ser A (XLCA Insd) (c) 5.250 09/01/24 516,128 516,128
2,530 2,530 Baltimore, MD Convention Ctr Hotel
Rev Ser A (XLCA Insd) (c) 5.250 09/01/25 2,778,307 2,778,307
2,500 2,500 Maryland St Hlth & Higher Ed Fac
Auth Rev MD Inst College of Art 5.000 06/01/40 2,552,975 2,552,975
2,250 2,250 Maryland St Trans Auth Arpt
Baltimore/WA Intl Arpt Ser B (AMBAC
Insd) (AMT) 5.125 03/01/24 2,368,507 2,368,507
2,350 2,350 Northeast, MD Waste Disp Auth Rfdg
(AMBAC Insd) (AMT) 5.500 04/01/16 2,543,264 2,543,264
------------ ------------ ------------
0 10,759,181 10,759,181
------------ ------------ ------------
MASSACHUSETTS 1.6%
500 500 Massachusetts St Hlth & Ed Fac Auth
Rev Hlthcare Sys Covenant Hlth 6.000 07/01/31 544,560 544,560
1,000 1,000 Massachusetts St Hlth & Ed Fac Auth
Rev Partners Hlthcare Sys Ser C 5.750 07/01/32 1,088,090 1,088,090
5,835 5,835 Massachusetts St Hlth & Ed Fac Auth
Rev Univ MA Mem Issue Ser D 5.000 07/01/33 5,960,161 5,960,161
2,805 2,805 Massachusetts St Port Auth Rev Ser A
(MBIA Insd) 5.000 07/01/22 2,981,070 2,981,070
4,500 4,500 Massachusetts St Wtr Res Auth Gen
Ser A (c) 5.000 08/01/41 4,757,602 4,757,602
------------ ------------ ------------
0 15,331,483 15,331,483
------------ ------------ ------------
F-15
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
MICHIGAN 4.3%
$ 3,015 $ 3,015 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 * 07/01/17 $ 1,837,642 $ 1,837,642
3,050 3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a) * 07/01/18 1,766,590 1,766,590
3,050 3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a) * 07/01/19 1,679,543 1,679,543
3,050 3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a) * 07/01/22 1,435,666 1,435,666
3,050 3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a) * 07/01/23 1,366,004 1,366,004
3,050 3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1 (a) * 07/01/24 1,301,740 1,301,740
2,965 2,965 Detroit, MI Wtr Supply Sys Ser C
(MBIA Insd) (a) 5.250% 07/01/20 3,220,494 3,220,494
3,500 3,500 Grand Rapids, MI Downtown Dev Cap
Apprec (MBIA Insd) * 06/01/15 2,506,490 2,506,490
2,765 2,765 Grand Rapids, MI Downtown Dev Cap
Apprec (MBIA Insd) * 06/01/16 1,891,011 1,891,011
2,000 2,000 Grand Rapids, MI Wtr Supply Sys Rfdg
(FGIC Insd) 5.750 01/01/13 2,162,480 2,162,480
1,180 1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Ctr 5.750 05/15/18 1,267,686 1,267,686
2,000 2,000 Kent Hosp Fin Auth MI Rev Metro Hosp
Proj Ser A 6.000 07/01/35 2,213,200 2,213,200
4,000 4,000 Michigan St Bldg Auth Rev Fac Pgm
Rfdg Ser III (FSA Insd) (Prerefunded
@ 10/15/12) 5.000 10/15/26 4,292,160 4,292,160
2,850 2,850 Michigan St Hosp Fin Auth Rev
Ascension Hlth Cr Ser A (MBIA Insd)
(Prerefunded @ 11/15/09) 5.750 11/15/18 3,052,550 3,052,550
2,500 2,500 Michigan St Strategic Fd Detroit
Edison Co Proj Ser A (XLCA Insd)
(AMT) 5.500 06/01/30 2,698,850 2,698,850
2,500 2,500 Michigan St Strategic Fd Detroit
Edison Co Proj Rfdg Ser C (XLCA
Insd) (AMT) 5.450 12/15/32 2,661,625 2,661,625
2,500 2,500 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Rfdg (AMBAC Insd)
(h) 4.850 09/01/30 2,608,625 2,608,625
1,000 1,000 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Rfdg Ser B
(AMT) 5.650 09/01/29 1,060,030 1,060,030
1,355 1,355 Zeeland, MI Pub Sch Bldg & Site
(MBIA Insd) (a) 5.250 05/01/21 1,476,638 1,476,638
------------ ------------ ------------
0 40,499,024 40,499,024
------------ ------------ ------------
F-16
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- ---------- ----------- ------ -------- ------------ ------------ ------------
MINNESOTA 1.3%
$ 1,175 $ 1,175 Maple Grove, MN Hlthcare Fac Rev
North Mem Hlthcare 5.000% 09/01/35 $ 1,220,402 $ 1,220,402
5,000 5,000 Minneapolis & Saint Paul, MN Metro
Arpt Comm Arpt Rev Ser A (FGIC
Insd) 5.125 01/01/31 5,177,100 5,177,100
2,750 2,750 Minnesota Agric & Econ Dev Brd Rev
Hlthcare Sys A (MBIA Insd)
(Prerefunded @ 11/15/07) 5.750 11/15/26 2,865,170 2,865,170
50 50 Minnesota Agric & Econ Dev Brd Rev
Hlthcare Sys A (MBIA Insd) 5.750 11/15/26 51,982 51,982
1,100 1,100 Saint Paul, MN Hsg & Redev Auth Hosp
Rev Hlth East Proj 6.000 11/15/30 1,228,766 1,228,766
1,250 1,250 Saint Paul, MN Hsg & Redev Auth Hosp
Rev Hlth East Proj 6.000 11/15/35 1,389,625 1,389,625
------------ ------------ ------------
0 11,933,045 11,933,045
------------ ------------ ------------
MISSISSIPPI 0.2%
1,500 1,500 Mississippi Hosp Equip & Fac Auth
Rev MS Baptist Med Ctr Rfdg (MBIA
Insd) 6.000 05/01/13 0 1,510,080 1,510,080
------------ ------------ ------------
MISSOURI 1.8%
1,500 1,500 Cape Girardeau Cnty, MO Indl Dev
Auth Hlthcare Fac Rev Southeast MO
Hosp Assoc 5.625 06/01/27 1,571,505 1,571,505
1,250 1,250 Cole Cnty, MO Indl Dev Auth Sr
Living Fac Rev Lutheran Sr Svc
Heisinger Proj 5.500 02/01/35 1,324,437 1,324,437
1,625 1,625 Jefferson Cnty, MO Reorg Sch Dist No
R-6 (FGIC Insd) 5.625 03/01/20 1,723,475 1,723,475
1,500 1,500 Kansas City, MO Met Cmnty Leasehold
Jr College Impt & Rfdg (FGIC
Insd) 5.500 07/01/17 1,619,010 1,619,010
3,275 3,275 Missouri Jt Muni Elec Util Cmnty Pwr
Proj Rev Plum Point Proj (MBIA
Insd) 5.000 01/01/26 3,496,881 3,496,881
1,250 1,250 Saint Charles, MO Ctf Partn Ser B 5.500 05/01/18 1,325,913 1,325,913
6,000 6,000 Springfield, MO Pub Util Rev 4.500 08/01/36 6,001,980 6,001,980
------------ ------------ ------------
0 17,063,201 17,063,201
------------ ------------ ------------
NEBRASKA 0.3%
2,615 2,615 Omaha Pub Pwr Dist NE Elec Rev Sys
Ser A 5.000 02/01/34 0 2,738,585 2,738,585
------------ ------------ ------------
NEVADA 2.6%
8,000 8,000 Clark Cnty, NV Arpt Rev Sub Lien Ser
A-2 (FGIC Insd) 5.000 07/01/36 8,364,640 8,364,640
5,165 5,165 Clark Cnty, NV Bd Bk (MBIA Insd) 5.000 06/01/32 5,388,851 5,388,851
2,400 2,400 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj (FGIC Insd)
(AMT) 4.750 09/01/36 2,432,448 2,432,448
F-17
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
NEVADA (CONTINUED)
$ 3,000 $ 3,000 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj Ser A (AMBAC
Insd) (AMT) 5.250% 07/01/34 $ 3,173,250 $ 3,173,250
3,500 3,500 Clark Cnty, NV Indl Dev Rev
Southwest Gas Corp Proj Ser D1 (FGIC
Insd) (AMT) 5.250 03/01/38 3,720,850 3,720,850
1,500 1,500 Reno, NV Sr Lien Retrac Reno Trans
Proj (AMBAC Insd) (Prerefunded @
6/01/12) 5.125 06/01/32 1,612,995 1,612,995
------------ ------------ ------------
0 24,693,034 24,693,034
------------ ------------ ------------
NEW HAMPSHIRE 0.2%
1,000 1,000 New Hampshire Hlth & Ed Fac Auth Rev
Derryfield Sch 7.000 07/01/30 1,090,770 1,090,770
1,000 1,000 New Hampshire St Bus Fin Auth Wtr
Fac Rev Pennichuck Wtrwks Inc (AMBAC
Insd) (AMT) 6.300 05/01/22 1,032,410 1,032,410
------------ ------------ ------------
0 2,123,180 2,123,180
------------ ------------ ------------
NEW JERSEY 5.4%
1,000 1,000 Bergen Cnty, NJ Impt Auth Sch Dist
Rev Wyckoff Twp Brd Ed Proj 5.000 04/01/32 1,063,630 1,063,630
1,200 1,200 New Jersey Econ Dev Auth Cig Tax 5.750 06/15/29 1,306,800 1,306,800
1,500 1,500 New Jersey Econ Dev Auth Cig Tax 5.750 06/15/34 1,623,390 1,623,390
3,000 3,000 New Jersey Econ Dev Auth Rev Motor
Vehicle Sur Rev Ser A (MBIA Insd) 5.000 07/01/23 3,180,990 3,180,990
25,000 25,000 New Jersey Econ Dev Auth St Contract
Econ Recovery (MBIA Insd) 5.900 03/15/21 30,137,500 30,137,500
3,000 3,000 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)
(Prerefunded @ 9/01/12) 5.250 09/01/19 3,263,970 3,263,970
1,835 1,835 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)
(Prerefunded @ 9/01/12) 5.250 09/01/21 1,996,462 1,996,462
6,000 6,000 New Jersey St Tpk Auth Tpk Rev Ser
C-1 (AMBAC Insd) 5.000 01/01/35 6,198,120 6,198,120
2,095 2,095 New Jersey St Trans Tr Fd Auth Trans
Sys Ser A 5.750 06/15/17 2,422,616 2,422,616
------------ ------------ ------------
0 51,193,478 51,193,478
------------ ------------ ------------
NEW MEXICO 0.1%
1,250 1,250 Jicarilla, NM Apache Nation Rev Ser
A (Acquired 10/23/03, Cost
$1,275,475) (b) 5.500 09/01/23 0 1,355,388 1,355,388
------------ ------------ ------------
F-18
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
NEW YORK 13.4%
$ 2,980 $ 2,980 Erie Cnty, NY Tob Asset Sec Corp Ser
A 5.000% 06/01/38 $ 3,043,474 $ 3,043,474
2,700 2,700 Long Island Pwr Auth NY Elec Sys Rev
Gen Ser B 5.000 12/01/35 2,848,149 2,848,149
3,000 3,000 Metropolitan Trans Auth NY Commuter
Fac Rev Ser A (MBIA Insd)
(Prerefunded @ 1/01/08) 5.625 07/01/27 3,116,190 3,116,190
2,500 2,500 Metropolitan Trans Auth NY Rev Rfdg
Ser A (FGIC Insd) 5.250 11/15/31 2,684,175 2,684,175
3,000 3,000 Metropolitan Trans Auth NY Rev Rfdg
Ser A (AMBAC Insd) 5.500 11/15/18 3,307,710 3,307,710
1,000 1,000 Nassau Cnty, NY Tob Settlement Corp
Ser A-3 5.000 06/01/35 1,024,830 1,024,830
2,000 2,000 Nassau Cnty, NY Tob Settlement Corp
Ser A-3 5.125 06/01/46 2,065,680 2,065,680
690 690 New York City Ser H 5.750 03/15/13 748,967 748,967
1,700 1,700 New York City Ser I 6.000 04/15/12 1,733,609 1,733,609
445 445 New York City Ser C (a) 7.000 08/15/08 446,170 446,170
1,775 1,775 New York City Tob Tr IV Settlement
Pass Thru Ser A 5.000 06/01/42 1,809,044 1,809,044
16,930 16,930 New York City Trans Auth Trans Fac
Livingston Plaza Proj Rfdg Ser 1993
(FSA Insd) (e) 5.400 01/01/18 18,975,483 18,975,483
5,305 5,305 New York City Trans Future Tax
Second Ser C (AMBAC Insd) 5.250 08/01/20 5,742,769 5,742,769
4,545 4,545 New York City Trans Future Tax
Second Ser D (MBIA Insd) 5.250 02/01/21 4,928,007 4,928,007
2,000 2,000 New York City Trans Future Tax
Second Ser C (AMBAC Insd) 5.250 08/01/22 2,155,900 2,155,900
6,000 6,000 New York City Trans Future Tax
Second Rfdg Ser A (i) 5.500/
14.000 11/01/26 6,487,200 6,487,200
2,500 2,500 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Pgm Ser A (FSA
Insd) 5.500 05/15/25 2,575,625 2,575,625
9,635 9,635 New York St Dorm Auth Rev City Univ
Sys Ser C 7.500 07/01/10 10,363,791 10,363,791
3,000 3,000 New York St Dorm Auth Rev Hosp (MBIA
Insd) 5.000 08/01/33 3,168,360 3,168,360
2,000 2,000 New York St Dorm Auth Rev Sch Dist
Fin Pgm Ser D (MBIA Insd) 5.500 10/01/17 2,210,360 2,210,360
3,000 3,000 New York St Dorm Auth Rev St Univ Ed
Fac (FGIC Insd) (Prerefunded @
5/15/10) 5.750 05/15/24 3,251,400 3,251,400
2,000 2,000 New York St Dorm Auth Rev St Univ Ed
Fac 1989 Res (MBIA Insd) 6.000 05/15/16 2,175,740 2,175,740
1,500 1,500 New York St Environmental Fac
Revolving Fd Ser C 5.000 07/15/21 1,594,635 1,594,635
F-19
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
NEW YORK (CONTINUED)
$ 2,840 $ 2,840 New York St Loc Govt Assistance Corp
Rfdg Ser E 6.000% 04/01/14 $ 3,222,349 $ 3,222,349
1,500 1,500 New York St Urban Dev Corp Rev
Correctional Fac 5.500 01/01/13 1,626,405 1,626,405
2,680 2,680 Port Auth NY & NJ Cons 119th Ser
(FGIC Insd) (AMT) 5.500 09/15/17 2,710,472 2,710,472
12,080 12,080 Port Auth NY & NJ (c) (g) 5.000 10/01/35 12,851,792 12,851,792
3,000 3,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd) (AMT) 5.750 12/01/22 3,123,420 3,123,420
3,000 3,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd) (AMT) 5.750 12/01/25 3,065,730 3,065,730
6,000 6,000 Tsasc, Inc NY Ser 1 5.000 06/01/34 6,148,980 6,148,980
5,000 5,000 Tsasc, Inc NY Ser 1 5.125 06/01/42 5,164,200 5,164,200
1,700 1,700 Westchester, NY Tob Asset Sec
Corp 5.125 06/01/38 1,753,516 1,753,516
------------ ------------ ------------
0 126,124,132 126,124,132
------------ ------------ ------------
NORTH CAROLINA 3.9%
2,000 2,000 Charlotte, NC Ctf Partn Convention
Fac Proj Rfdg Ser A 5.500 08/01/19 2,199,700 2,199,700
4,000 4,000 North Carolina Eastern Muni Pwr Agy
Pwr Sys Rev Ser D 6.750 01/01/26 4,353,520 4,353,520
25,000 25,000 North Carolina Muni Pwr Agy No 1
Catawba Elec Rev Rfdg (MBIA Insd) 6.000 01/01/12 27,760,750 27,760,750
2,300 2,300 North Carolina Muni Pwr Agy Ser A
(MBIA Insd) 5.250 01/01/19 2,479,722 2,479,722
------------ ------------ ------------
0 36,793,692 36,793,692
------------ ------------ ------------
NORTH DAKOTA 0.3%
770 770 North Dakota St Hsg Fin Agy Rev Hsg
Fin Pgm Home Mtg Fin Ser B (MBIA
Insd) (AMT) 5.500 07/01/29 780,534 780,534
1,500 1,500 Ward Cnty, ND Hlthcare Fac Rev
Trinity Obligated Group (g) 5.125 07/01/29 1,570,350 1,570,350
------------ ------------ ------------
0 2,350,884 2,350,884
------------ ------------ ------------
OHIO 3.2%
1,000 1,000 Cleveland, OH Muni Sch Dist (FSA
Insd) 5.250 12/01/23 1,090,600 1,090,600
3,000 3,000 Columbus, OH City Sch Dist Sch Fac
Constr & Impt (FSA Insd)
(Prerefunded @ 12/01/14) 5.250 12/01/22 3,328,410 3,328,410
2,000 2,000 Cuyahoga Cnty, OH Hosp Fac Rev
Canton Inc Proj 7.500 01/01/30 2,223,640 2,223,640
1,000 1,000 Delaware Cnty, OH Cap Fac
(Prerefunded @ 12/01/10) 6.000 12/01/25 1,100,790 1,100,790
F-20
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
OHIO (CONTINUED)
$ 1,000 $ 1,000 Hamilton, OH One Renaissance Ctr Ser
A (AMBAC Insd) 5.500% 11/01/16 $ 1,092,680 $ 1,092,680
1,000 1,000 Lorain Cnty, OH Hosp Rev Catholic
Hlthcare Ser S 5.375 10/01/30 1,059,610 1,059,610
2,000 2,000 Lorain, OH City Sch Dist Classroom
Fac Impt (MBIA Insd) 5.250 12/01/20 2,185,140 2,185,140
13,460 13,460 Ohio St Air Quality Dev Auth Rev
(FGIC Insd) (c) 4.800 09/01/36 13,652,108 13,652,108
4,000 4,000 Olentangy Loc Sch Dist OH Rfdg Ser A
(FSA Insd) (g) 4.500 12/01/32 4,017,600 4,017,600
------------ ------------ ------------
0 29,750,578 29,750,578
------------ ------------ ------------
OKLAHOMA 0.6%
1,505 1,505 Alva, OK Hosp Auth Hosp Rev Sales
Tax (Radian Insd) 5.250 06/01/25 1,616,159 1,616,159
1,500 1,500 Jenks, OK Aquarium Auth Rev First
Mtg (MBIA Insd) (Prerefunded @
7/01/10) 6.100 07/01/30 1,643,250 1,643,250
1,575 1,575 Oklahoma City, OK Arpt Tr Jr Lien
27th Ser B (FSA Insd) (AMT) 5.750 07/01/16 1,672,729 1,672,729
1,000 1,000 Oklahoma City, OK Pub Ppty Auth
Hotel Tax Rev (FGIC Insd) 5.250 10/01/29 1,087,080 1,087,080
------------ ------------ ------------
0 6,019,218 6,019,218
------------ ------------ ------------
OREGON 1.6%
5,350 5,350 Oregon Hlth Sciences Univ Insd Ser A
(MBIA Insd) 5.250 07/01/22 5,763,448 5,763,448
5,060 5,060 Oregon St Dept Admin Rfdg Ser C
(MBIA Insd) 5.250 11/01/17 5,430,190 5,430,190
745 745 Oregon St Vets Welfare Ser 76A 6.050 10/01/28 752,234 752,234
1,135 1,135 Portland, OR Swr Sys Rev Second Lien
Rfdg Ser A (FSA Insd) 5.250 06/01/19 1,231,747 1,231,747
1,985 1,985 Portland, OR Urban Renewal & Redev
Downtown Wtrfront Ser A (AMBAC
Insd) 5.750 06/15/16 2,141,855 2,141,855
------------ ------------ ------------
0 15,319,474 15,319,474
------------ ------------ ------------
PENNSYLVANIA 2.3%
575 575 Allegheny Cnty, PA Rfdg Ser C-53
(FGIC Insd) 5.500 11/01/14 618,482 618,482
230 230 Allegheny Cnty, PA San Auth Swr Rev
(MBIA Insd) 5.500 12/01/30 247,257 247,257
3,035 3,035 Falls Twp, PA Hosp Auth Hosp Rev DE
Vly Med Rfdg (FHA Gtd) 7.000 08/01/22 3,055,729 3,055,729
1,000 1,000 Greensburg Salem, PA Sch Dist Rfdg
(FGIC Insd) 5.375 09/15/15 1,089,290 1,089,290
60 60 Penn Hills, PA (FGIC Insd)
(Prerefunded @ 12/01/07) 5.900 12/01/17 61,502 61,502
F-21
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
PENNSYLVANIA (CONTINUED)
$ 1,600 $ 1,600 Pennsylvania Hsg Fin Agy Single
Family Mtg Rev Ser 94-A (AMT) 5.100% 10/01/31 $ 1,652,592 $ 1,652,592
1,000 1,000 Pennsylvania St Higher Ed Fac Auth
College & Univ Rev Bryn Mawr College
(MBIA Insd) 5.625 12/01/27 1,030,840 1,030,840
2,600 2,600 Philadelphia, PA Auth Indl Dev Lease
Rev Ser B (FSA Insd) 5.500 10/01/16 2,831,478 2,831,478
1,000 1,000 Philadelphia, PA Auth Indl Dev
Philadelphia Arpt Sys Proj Ser A
(FGIC Insd) (AMT) 5.125 07/01/19 1,051,310 1,051,310
2,400 2,400 Philadelphia, PA Gas Wks Rev 1998
Gen Ordinance Ser 4 (FSA Insd) 5.250 08/01/22 2,573,592 2,573,592
2,220 2,220 Pittsburgh, PA Ser A (AMBAC Insd)
(Prerefunded @ 3/01/12) 5.500 09/01/16 2,426,504 2,426,504
2,350 2,350 Pittsburgh, PA Ser A (AMBAC Insd) 5.500 09/01/16 2,550,549 2,550,549
2,000 2,000 Ridley Park, PA Hosp Auth Rev Taylor
Hosp Ser A (e) 6.000 12/01/13 2,153,280 2,153,280
------------ ------------ ------------
0 21,342,405 21,342,405
------------ ------------ ------------
SOUTH CAROLINA 6.8%
2,275 2,275 Beaufort Cnty, SC Tax Increment New
Riv Redev Proj Area (MBIA Insd)
(a) 5.500 06/01/19 2,496,812 2,496,812
2,375 2,375 Berkeley Cnty, SC Sch Dist Ctf Partn
Berkeley Sch Fac Grp Inc (MBIA Insd)
(e) 5.250 02/01/16 2,582,385 2,582,385
3,375 3,375 Charleston Ed Excellence Fin Corp SC
Rev (c) 5.250 12/01/25 3,627,670 3,627,670
10,125 10,125 Charleston Ed Excellence Fin Corp SC
Rev (c) 5.250 12/01/26 10,883,008 10,883,008
6,510 6,510 Charleston Ed Excellence Fin Corp SC
Rev (AGC Insd) (c) 5.250 12/01/28 3,779,478 3,779,478
3,490 3,490 Charleston Ed Excellence Fin Corp SC
Rev (AGC Insd) (c) 5.250 12/01/30 7,049,972 7,049,972
5,000 5,000 Kershaw Cnty, SC Pub Sch Fndt
Kershaw Cnty Sch Dist Proj (CIFG
Insd) 5.000 12/01/25 5,319,550 5,319,550
2,080 2,080 Laurens Cnty, SC Sch Dist No 55
Installment Pur Rev 5.250 12/01/30 2,202,346 2,202,346
2,300 2,300 Medical Univ SC Hosp Auth Fac Rev
Mtg Rfdg Ser A (MBIA Insd) 5.250 08/15/25 2,472,316 2,472,316
1,840 1,840 Myrtle Beach, SC Hospitality Fee Rev
Ser A (FGIC Insd) (a) 5.375 06/01/21 2,021,700 2,021,700
1,935 1,935 Myrtle Beach, SC Hospitality Fee Rev
Ser A (FGIC Insd) (a) 5.375 06/01/22 2,126,081 2,126,081
1,000 1,000 Newberry Invtg in Newberry Cnty Sch
Dist Proj 5.000 12/01/30 1,029,390 1,029,390
F-22
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
SOUTH CAROLINA (CONTINUED)
$ 4,500 $ 4,500 South Carolina Jobs Econ Dev Auth
Indl Rev Elec & Gas Co Proj Ser A
(AMBAC Insd) 5.200% 11/01/27 $ 4,797,405 $ 4,797,405
3,750 3,750 South Carolina Jobs Econ Dev Auth
Indl Rev Elec & Gas Co Proj Ser B
(AMBAC Insd) (AMT) 5.450 11/01/32 3,990,825 3,990,825
9,290 9,290 South Carolina Trans Infrastructure
Bk Rev Ser A (AMBAC Insd) 5.000 10/01/33 9,757,380 9,757,380
------------ ------------ ------------
0 64,136,318 64,136,318
------------ ------------ ------------
SOUTH DAKOTA 0.5%
2,250 2,250 Deadwood, SD Ctf Partn (ACA Insd) 6.375 11/01/20 2,415,128 2,415,128
1,000 1,000 South Dakota St Hlth & Ed Fac Auth
Rev Childrens Care Hosp Rfdg 6.125 11/01/29 1,056,620 1,056,620
980 980 South Dakota St Hlth & Ed Fac Auth
Vocational Ed Pgm Ser A (AMBAC
Insd) 5.400 08/01/13 1,009,096 1,009,096
------------ ------------ ------------
0 4,480,844 4,480,844
------------ ------------ ------------
TENNESSEE 2.0%
4,345 4,345 Chattanooga, TN Hlth Ed & Hsg Fac
Brd Rev CDFI Phase I LLC Proj Rfdg
Ser A 5.125 10/01/35 4,414,737 4,414,737
6,000 6,000 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Mtn St Hlth Ser
A 5.500 07/01/36 6,441,420 6,441,420
3,500 3,500 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Mtn St Hlth Rfdg
Ser A (MBIA Insd) 7.500 07/01/25 4,249,245 4,249,245
410 410 Montgomery Cnty, TN Pub Impt Rfdg
(FGIC Insd) (a) 5.500 05/01/16 447,917 447,917
2,000 2,000 Sullivan Cnty, TN Hlth Ed & Hsg Fac
Brd Hosp Rev Wellmont Hlth Sys Proj
Ser C (g) 5.250 09/01/36 2,103,400 2,103,400
1,500 1,500 Tennessee Hsg Dev Agy Homeownership
Prog 2006 (AMT) 5.150 01/01/37 1,557,060 1,557,060
------------ ------------ ------------
0 19,213,779 19,213,779
------------ ------------ ------------
TEXAS 9.6%
1,370 1,370 Alliance Arpt Auth Inc TX Spl Fac
Rev FedEx Corp Proj Rfdg (AMT) 4.850 04/01/21 1,392,536 1,392,536
2,685 2,685 Beaumont, TX Wtrwks & Swr Sys (FGIC
Insd) (Prerefunded @ 9/01/10) (a)
(d) 6.250 09/01/15 2,939,001 2,939,001
300 300 Brazos Cnty, TX Hlth Fac Dev Oblig
Grp 5.375 01/01/32 317,511 317,511
4,000 4,000 Dallas-Fort Worth, TX Intl Arpt Rev
Impt Jt Rfdg Ser A (FGIC Insd)
(AMT) 5.500 11/01/31 4,272,280 4,272,280
4,000 4,000 Dallas-Fort Worth, TX Intl Arpt Rev
Jt Ser A (FGIC Insd) (AMT) 5.750 11/01/30 4,213,040 4,213,040
F-23
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
TEXAS (CONTINUED)
$ 7,250 $ 7,250 Harris Cnty-Houston, TX Sports Auth
Spl Rev Jr Lien Rfdg Ser B (MBIA
Insd) 5.250% 11/15/40 $ 7,690,292 $ 7,690,292
1,000 1,000 Harris Cnty, TX Hlth Fac Dev Mem
Hermann Hlthcare Ser A (Prerefunded
@ 6/01/11) 6.375 06/01/29 1,123,390 1,123,390
4,820 4,820 Harris Cnty, TX Toll Rd (AMBAC Insd)
(Prerefunded @ 8/15/09) * 08/15/18 2,343,966 2,343,966
1,000 1,000 Harris Cnty, TX Toll Rd (AMBAC Insd)
(Prerefunded @ 8/15/09) * 08/15/21 395,600 395,600
4,000 4,000 Harris Cnty, TX Toll Rd Sub Lien
Rfdg 5.000 08/01/33 4,070,800 4,070,800
1,000 1,000 Houston, TX Arpt Sys Rev Sub Lien
Ser A (FSA Insd) (AMT) 5.625 07/01/30 1,056,070 1,056,070
5,105 5,105 Houston, TX Hotel Occupancy Tax &
Spl Rev Convention & Entmt Ser B
(AMBAC Insd) 5.750 09/01/15 5,559,294 5,559,294
225 225 Houston, TX Pub Impt & Rfdg (FSA
Insd) 5.750 03/01/15 241,497 241,497
6,000 6,000 Houston, TX Util Sys Rev First Lien
Rfdg Ser A (FSA Insd) 5.250 05/15/21 6,520,500 6,520,500
6,000 6,000 Houston, TX Util Sys Rev First Lien
Rfdg Ser A (FGIC Insd) 5.250 05/15/23 6,520,500 6,520,500
2,750 2,750 Lower CO Riv Auth TX Transmission
Proj Corp (FGIC Insd) 5.000 05/15/33 2,837,148 2,837,148
1,500 1,500 Mesquite, TX Hlth Fac Dev Retirement
Fac Christian Care Ctr 5.625 02/15/35 1,584,615 1,584,615
1,500 1,500 Mesquite, TX Hlth Fac Dev Retirement
Fac Christian Care Ctr (Prerefunded
@ 2/15/10) 7.500 02/15/18 1,684,935 1,684,935
1,500 1,500 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj 7.250 01/01/31 1,553,430 1,553,430
1,100 1,100 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj 7.200 01/01/21 1,142,570 1,142,570
1,500 1,500 North Central, TX Hlth Fac Dev Corp
Rev Hosp Baylor Hlthcare Sys Proj
Ser A 5.125 05/15/29 1,541,475 1,541,475
5,750 5,750 North Central, TX Hlth Fac Dev Corp
Rev Hosp Childrens Med Ctr Dallas
(AMBAC Insd) 5.250 08/15/32 6,098,910 6,098,910
2,805 2,805 Tarrant Regl Wtr Dist TX Wtr Rev
Impt Rfdg (FSA Insd) 5.250 03/01/19 3,029,428 3,029,428
253 253 Texas Muni Pwr Agy Rev (AMBAC Insd)
(e) * 09/01/07 245,648 245,648
3,272 3,272 Texas Muni Pwr Agy Rev (AMBAC
Insd) * 09/01/07 3,178,486 3,178,486
1,610 1,610 Texas St Pub Ppty Fin Corp Rev
Mental Hlth & Retardation Rfdg (FSA
Insd) 5.500 09/01/13 1,618,823 1,618,823
3,500 3,500 Texas St Trans Commn Mobility Fd Ser
A (FGIC Insd) 4.500 04/01/35 3,480,435 3,480,435
F-24
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
TEXAS (CONTINUED)
$ 2,750 $ 2,750 Texas St Vets Housing Assistance Pgm
Vet Ser B (FHA/VA Gtd) (AMT) 6.100% 06/01/31 $ 2,900,975 $ 2,900,975
1,000 1,000 Texas Tech Univ Rev Fin Sys Ser 7
(MBIA Insd) (Prerefunded @
2/15/12) 5.000 08/15/25 1,067,570 1,067,570
1,500 1,500 Texas Wtr Dev Brd Rev St Revolving
Fd Sr Lien Ser B 5.250 07/15/17 1,570,275 1,570,275
2,500 2,500 University of TX Univ Rev Fin Sys
Ser B 5.250 08/15/20 2,715,750 2,715,750
3,000 3,000 University of TX Univ Rev Fin Sys
Ser A 5.250 08/15/20 3,258,900 3,258,900
2,300 2,300 University of TX Univ Rev Fin Sys
Ser C (Prerefunded @ 8/15/11) 5.375 08/15/19 2,473,259 2,473,259
------------ ------------ ------------
0 90,638,909 90,638,909
------------ ------------ ------------
UTAH 0.1%
1,000 1,000 Salt Lake Cnty, UT College Rev
Westminster College Proj 5.750 10/01/27 1,028,050 1,028,050
50 50 Utah St Hsg Fin Agy Single Family
Mtg, Class II Ser B-2 (FHA/VA Gtd)
(AMT) 6.250 07/01/14 51,051 51,051
15 15 Utah St Hsg Fin Agy Single Family
Mtg Mezzanine Issue H1 (AMBAC
Insd) 6.000 07/01/12 15,278 15,278
------------ ------------ ------------
0 1,094,379 1,094,379
------------ ------------ ------------
VIRGINIA 0.9%
1,320 1,320 Fairfax Cnty, VA Ctf Partn 5.300 04/15/23 1,418,868 1,418,868
800 800 Tobacco Settlement Fin Corp VA 5.500 06/01/26 851,488 851,488
5,920 5,920 Tobacco Settlement Fin Corp VA 5.625 06/01/37 6,322,264 6,322,264
------------ ------------ ------------
0 8,592,620 8,592,620
------------ ------------ ------------
WASHINGTON 4.3%
2,500 2,500 Energy Northwest WA Elec Rev Proj No
3 Rfdg Ser A (FSA Insd) 5.500 07/01/18 2,713,875 2,713,875
5,360 5,360 Energy Northwest WA Elec Rev Proj No
3 Rfdg Ser B (FSA Insd) 6.000 07/01/16 6,002,128 6,002,128
2,500 2,500 Goat Hill Ppty WA Lease Rev Govt
Office Bldg Proj (MBIA Insd) 5.000 12/01/33 2,617,475 2,617,475
4,400 4,400 King Cnty, WA Rfdg Ser B (MBIA
Insd) 5.250 01/01/34 4,514,532 4,514,532
7,720 7,720 Klickitat Cnty, WA Pub Util Dist No
001 Elec Rev Rfdg Ser B (FGIC Insd)
(a) 5.000 12/01/25 8,272,366 8,272,366
1,000 1,000 Port Seattle, WA Rev Ser B (MBIA
Insd) (AMT) 5.625 02/01/24 1,057,250 1,057,250
1,435 1,435 Radford Ct Ppty WA Student Hsg Rev
(MBIA Insd) (a) 6.000 06/01/15 1,559,357 1,559,357
1,585 1,585 Radford Ct Ppty WA Student Hsg Rev
(MBIA Insd) (a) 6.000 06/01/16 1,720,692 1,720,692
1,000 1,000 Seattle, WA Muni Lt & Pwr Rev 5.625 12/01/18 1,070,150 1,070,150
1,250 1,250 Skagit Cnty, WA Pub Hosp Dist No 001
Skagit Vly Hosp 5.500 12/01/30 1,318,937 1,318,937
F-25
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------ ------------ ------------
WASHINGTON (CONTINUED)
$ 2,100 $ 2,100 Spokane, WA Pub Fac Dist Hotel (MBIA
Insd) 5.750% 12/01/21 $ 2,342,487 $ 2,342,487
3,000 3,000 Spokane, WA Pub Fac Dist Hotel Motel
& Sales Use Tax (MBIA Insd) 5.250 09/01/33 3,203,460 3,203,460
1,000 1,000 Spokane, WA Pub Fac Dist Hotel Motel
& Sales Use Tax (MBIA Insd) 5.750 12/01/20 1,119,740 1,119,740
1,650 1,650 Tacoma, WA Elec Sys Rev Rfdg Ser B
(FSA Insd) 5.500 01/01/12 1,793,682 1,793,682
1,350 1,350 Tacoma, WA Elec Sys Rev Rfdg Ser A
(FSA Insd) 5.750 01/01/15 1,469,111 1,469,111
------------ ------------ ------------
0 40,775,242 40,775,242
------------ ------------ ------------
WEST VIRGINIA 0.4%
3,750 3,750 West Virginia Univ Rev Impt Univ
Proj Ser C (FGIC Insd) 5.000 10/01/34 0 3,961,800 3,961,800
------------ ------------ ------------
WISCONSIN 0.6%
2,345 2,345 Appleton, WI Wtrwks Rev Rfdg (FGIC
Insd) 5.375 01/01/19 2,526,339 2,526,339
510 510 Badger Tob Asset Sec Corp WI 6.375 06/01/32 557,384 557,384
2,000 2,000 Southeast WI Professional Baseball
Pk Dist Sales Tax Rev Rfdg Ser A
(MBIA Insd) 5.500 12/15/20 2,331,820 2,331,820
------------ ------------ ------------
0 5,415,543 5,415,543
------------ ------------ ------------
WYOMING 0.2%
2,000 2,000 Sweetwater Cnty, WY Solid Waste Disp
Rev FMC Corp Proj Rfdg (AMT) 5.600 12/01/35 0 2,127,180 2,127,180
------------ ------------ ------------
GUAM 0.7%
5,800 5,800 Guam Pwr Auth Rev Ser A (AMBAC
Insd) 5.250 10/01/34 0 6,085,186 6,085,186
------------ ------------ ------------
F-26
PROFORMA
VTF VGM PAR VTF VGM PROFORMA
PAR AMOUNT PAR AMOUNT AMOUNT MARKET MARKET MARKET
(000) (000) (000) DESCRIPTION COUPON MATURITY VALUE VALUE VALUE
---------- ---------- -------- ----------- ------ -------- ------------- -------------- --------------
PUERTO RICO 2.0%
2,980 2,980 Childrens Tr Fd PR Tob Settlement
Rev 5.500 05/15/39 3,125,335 3,125,335
2,855 2,855 Childrens Tr Fd PR Tob Settlement
Rev 5.625 05/15/43 3,008,713 3,008,713
1,110 1,110 Puerto Rico Comwlth Aqueduct & Swr
Auth Rev Rfdg (Comwth Gtd) 5.000 07/01/15 1,127,494 1,127,494
2,000 2,000 Puerto Rico Comwlth Hwy & Tran Auth
Hwy Rev Rfdg Ser W 5.500 07/01/15 2,220,100 2,220,100
4,000 4,000 Puerto Rico Comwlth Hwy & Tran Auth
Hwy Rev Rfdg Ser Y (FSA Insd) 6.250 07/01/21 5,024,200 5,024,200
1,000 1,000 Puerto Rico Indl Tourist Ed Med &
Environmental Ctl Fac Fin Auth Higher
Ed Rev 5.375 02/01/19 1,031,270 1,031,270
3,500 3,500 Puerto Rico Pub Bldg Auth Rev Govt Fac
Ser I (Comwth Gtd) 5.250 07/01/33 3,746,855 3,746,855
------------- -------------- --------------
13,378,348 5,905,619 19,283,967
------------- -------------- --------------
VIRGIN ISLANDS 0.4%
1,000 1,000 Virgin Islands Pub Fin Auth Rev Gross
Rcpt Taxes Ln Nt Ser A (ACA Insd)
(Prerefunded @ 10/01/10) 6.125 10/01/29 1,101,100 1,101,100
1,500 1,500 Virgin Islands Pub Fin Auth Rev Gross
Rcpt Taxes Ln Nt Ser A 6.375 10/01/19 1,651,935 1,651,935
1,000 1,000 Virgin Islands Pub Fin Auth Rev Gross
Rcpt Taxes Ln Nt Ser A (Prerefunded
@ 10/01/10) (d) 6.500 10/01/24 1,111,970 1,111,970
------------- -------------- --------------
3,865,005 0 3,865,005
------------- -------------- --------------
TOTAL INVESTMENTS 173.4%
(Cost $330,700,022, $1,211,446,175 and $1,542,146,197) 350,461,661 1,286,081,436 1,636,543,097
LIABILITY FOR FLOATING RATE NOTE OBLIGATIONS RELATED TO
SECURITIES HELD (15.4%)
(Cost ($145,470,000))
(145,470) Notes with interest rates ranging from 3.580% to
3.660% at October 31, 2006 and contractual
maturities of collateral ranging from 2023 to 2041
(see Note 1) (j) (31,590,000) (113,880,000) (145,470,000)
------------- -------------- --------------
TOTAL NET INVESTMENTS 158.0%
(Cost $299,110,022, $1,097,566,175 and $1,396,676,197) 318,871,661 1,172,201,436 1,491,073,097
LIABILITIES IN EXCESS OF OTHER ASSETS (1.1%) (12,069,399) 1,753,796 (10,315,603)
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (56.9%) (106,240,186) (430,588,239) (536,828,425)
------------- -------------- --------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0% $ 200,562,076 $ 743,366,993 $ 943,929,069
============= ============== ==============
Percentages are calculated as a percentage of net assets applicable to common
shares.
* Zero coupon bond
(a) The Trust holds 100% of the outstanding bond issuance.
(b) This security is restricted and may be resold only in transactions exempt
from registration which are normally those transactions with qualified
institutional buyers. Restricted securities comprise 0.6% of net assets
applicable to common shares.
(c) Underlying security related to Inverse Floaters entered into by the Trust.
See Note 1.
(d) All or a portion of this security has been physically segregated in
connection with open futures or swap contracts.
(e) Escrowed to Maturity
(f) 144A-Private Placement securities 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.
(g) Security purchased on a when-issued or delayed delivery basis.
F-27
(h) Variable Rate Coupon
(i) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(j) Floating rate notes. The interest rates shown reflect the rates in effect at
October 31, 2006.
ACA--American Capital Access
AGC--AGC Insured Custody Certificates
AMBAC--AMBAC Indemnity Corp.
AMT--Alternative Minimum Tax
CIFG--CDC IXIS Financial Guaranty
COMWLTH--Commonwealth of Puerto Rico
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
RADIAN--Radian Asset Assurance
XLCA--XL Capital Assurance Inc.
SWAP AGREEMENTS OUTSTANDING AS OF OCTOBER 31, 2006:
INTEREST RATE SWAP
NOTIONAL UNREALIZED
PAY/RECEIVE EXPIRATION AMOUNT APPRECIATION/
FUND COUNTERPARTY FLOATING RATE INDEX FLOATING RATE FIXED RATE DATE (000) DEPRECIATION
---- ------------ ------------------- ------------- ---------- ---------- -------- -------------
VGM JP Morgan Chase Bank, N.A. USD - BMA Municipal Swap Index Receive 4.096% 12/15/26 $30,300 $ (890,506)
VTF JP Morgan Chase Bank, N.A. USD - BMA Municipal Swap Index Receive 4.096% 12/15/26 6,300 (185,155)
------- -----------
$36,600 $(1,075,661)
======= ===========
FUTURES CONTRACTS OUTSTANDING AS OF OCTOBER 31, 2006:
UNREALIZED
APPRECIATION/
FUND SHORT CONTRACTS: CONTRACTS DEPRECIATION
---- ---------------- --------- -------------
VGM U.S. Treasury Notes 10-Year Futures, December 2006
(Current Notional Value of $108,219 per contract) 860 $ (919,979)
VTF U.S. Treasury Notes 10-Year Futures, December 2006
(Current Notional Value of $108,219 per contract) 259 $ (189,905)
VGM U.S. Treasury Bonds Futures, December 2006
(Current Notional Value of $112,656 per contract) 261 (580,151)
VTF U.S. Treasury Bonds Futures, December 2006
(Current Notional Value of $112,656 per contract) 185 (376,062)
----- -----------
1,565 $(2,066,097)
===== ===========
F-28
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PROFORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2006
(UNAUDITED)
AMOUNTS IN THOUSANDS
VAN KAMPEN VAN KAMPEN
TRUST FOR TRUST FOR
INVESTMENT INVESTMENT
GRADE FLORIDA GRADE
MUNICIPALS MUNICIPALS ADJUSTMENTS PROFORMA
------------- ----------- ----------- -----------
ASSETS:
Total Investments (Cost of $330,700, $1,211,446, and
$1,542,146 respectively) $ 350,462 $ 1,286,081 $ $ 1,636,543
Receivables:
Interest 4,095 17,852 21,947
Investment Sold 2,137 31,381 33,518
Other 9 22 31
----------- ----------- ----------- -----------
Total Assets 356,703 1,335,336 1,692,039
----------- ----------- ----------- -----------
LIABILITIES:
Payables:
Floating Rate Note Obligations 31,590 113,880 145,470
Investments Purchased 15,656 43,863 59,519
Custodian Bank 1,179 331 1,510
Variation Margin on Futures 260 623 883
Investment Advisory Fee 142 545 687
Income Distributions-Common Shares 18 125 143
Other Affiliates 12 40 52
Trustee's Deferred Compensation and
Retirement Plans 730 875 1,605
Swap Contracts 185 891 1,076
Accrued Expenses 129 208 337
Merger Cost - - 241 (2) 241
----------- ----------- ----------- -----------
Total Liabilities 49,901 161,381 241 211,523
Preferred Shares (Including accrued
distributions) 106,240 430,588 536,828
----------- ----------- ----------- -----------
NET ASSETS APPLICABLE TO COMMON SHARES $ 200,562 $ 743,367 $ (241) $ 943,688
=========== =========== =========== ===========
Net Assets Applicable to Common Shares $ 200,562 $ 743,367 $ (241) (2) $ 943,688
Common Shares Outstanding 11,712 43,799 93 (1) 55,604
----------- ----------- -----------
NET ASSET VALUE PER COMMON SHARE $ 17.12 $ 16.97 $ 16.97
=========== =========== ===========
NET ASSETS CONSIST OF:
Common Shares ($.01 par value) $ 117 $ 438 $ 1 (1) $ 556
Paid in Surplus 181,662 664,624 (242) (1)(2) 846,044
Net Unrealized Appreciation 19,011 72,245 91,256
Accumulated Undistributed Net Investment Income 249 2,330 2,579
Accumulated Net Realized Gain/(Loss) (477) 3,730 3,253
----------- ----------- ----------- -----------
NET ASSETS APPLICABLE TO COMMON SHARES $ 200,562 $ 743,367 $ (241) $ 943,688
=========== =========== =========== ===========
PREFERRED SHARES $ 106,000 $ 430,000 $ 536,000
=========== =========== =========== ===========
NET ASSETS INCLUDING PREFERRED SHARES $ 306,562 $ 1,173,367 $ (241) $ 1,479,688
=========== =========== =========== ===========
(1) The proforma statements presume the issuance by the Van Kampen Trust for
Investment Grade Municipals of approximately 11,804,000 common shares in
exchange for the assets and liabilities of the Van Kampen Trust for Investment
Grade Florida Municipals.
(2) A non-recurring cost associated with this transaction of approximately
$548,000 will be incurred. The approximate cost and per share cost that will be
borne by the common shareholders are as follows:
Approximate Cost Cost Per Share
---------------- --------------
Van Kampen Trust for Investment Grade Municipals .............................. $ 297,338 $ 0.007
Van Kampen Trust for Investment Grade Florida Municipals ...................... 40,115 0.003
Van Kampen .................................................................... 210,547
---------
$ 548,000
---------
F-29
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
PROFORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2006
(UNAUDITED)
AMOUNTS IN THOUSANDS
VAN KAMPEN
TRUST FOR VAN KAMPEN
INVESTMENT TRUST FOR
GRADE INVESTMENT
FLORIDA MUNICIPALS GRADE MUNICIPALS ADJUSTMENTS (1) PROFORMA
------------------- ----------------- ---------------- ------------
INVESTMENT INCOME:
Interest $ 15,023 $ 58,026 $ 73,049
------------------- ----------------- ---------------- ------------
EXPENSES:
Investment Advisory Fee 1,669 6,376 8,045
Preferred Share Maintenance 306 1,121 (6) 1,421
Trustees' Fees and Related Expenses 104 167 (33) 238
Professional Fees 90 153 (62) 181
Accounting and Administrative Expenses 65 198 (15) 248
Reports to Shareholders 43 89 (10) 122
Transfer Agent Fees 28 88 (14) 102
Custody 25 82 107
Registration Fees 20 39 (14) 45
Interest and Residual Trust Expense 104 824 928
Other 58 194 (11) 241
------------------- ----------------- ---------------- ------------
Total Expenses 2,512 9,331 (165) 11,678
------------------- ----------------- ---------------- ------------
NET INVESTMENT INCOME $ 12,511 $ 48,695 $ 165 $ 61,371
=================== ================= ================ ============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments $ 965 $ 3,921 4,886
Futures 166 4,336 4,502
Swap Contracts (257) (1,089) (1,346)
------------------- ----------------- ---------------- ------------
Net Realized Gain/Loss 874 7,168 8,042
------------------- ----------------- ---------------- ------------
Unrealized Appreciation/Depreciation:
Beginning of the Period 16,681 58,997 75,678
------------------- ----------------- ---------------- ------------
End of the Period:
Investments 19,762 74,635 94,397
Futures (566) (1,500) (2,066)
Swap Contracts (185) (890) (1,075)
------------------- ----------------- ---------------- ------------
19,011 72,245 91,256
------------------- ----------------- ---------------- ------------
Net Unrealized Appreciation During the Period 2,330 13,248 $ 15,578
------------------- ----------------- ---------------- ------------
NET REALIZED AND UNREALIZED GAIN $ 3,204 $ 20,416 $ 23,620
=================== ================= ================ ============
DISTRIBUTION TO PREFERRED SHAREHOLDERS $ (3,719) $ (15,290) $ (19,009)
=================== ================= ================ ============
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 11,996 $ 53,821 $ 165 $ 65,982
=================== ================= ================ ============
(1) Reflects the reduction in certain operating expenses as a result of the
elimination of certain duplicative expenses and the result of operating a
larger, more efficient fund.
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS -
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
NOTES TO PRO FORMA FINANCIAL STATEMENTS - OCTOBER 31, 2006 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Acquiring Trust, Van Kampen Trust for Investment Grade Municipals (the
"Acquiring Trust") is registered as a diversified, closed-end management
investment company under the Investment Company Act of 1940 (the "1940 Act"), as
amended. The Acquiring Trust's investment objective is to provide a high level
of current income exempt from federal income tax, consistent with preservation
of capital. The Acquiring Trust will invest substantially all of its assets in
municipal securities rated investment grade at the time of investment. The
Acquiring Trust commenced investment operations on January 24, 1992.
The following is a summary of significant accounting policies
consistently followed by the Acquiring 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. Interest rate swaps are valued using market
quotations from brokers. 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
Acquiring 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
Acquiring 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.
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 Acquiring 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.
E. DISTRIBUTION OF INCOME AND GAINS The Acquiring 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 and a portion of futures gains,
which are included as ordinary income for tax purposes.
F. FLOATING RATE NOTE OBLIGATIONS RELATED TO SECURITIES HELD The Acquiring Trust
enters into transactions in which it transfers to dealer trusts fixed rate bonds
in exchange for cash and residual interests in the dealer trusts' assets and
cash flows, which are in the form of inverse floating rate investments. The
dealer trusts fund the purchases of the fixed rate bonds by issuing floating
rate notes to third parties and allowing the Acquiring Trust to retain residual
interests in the bonds. The Acquiring Trust enters into shortfall and
forbearance agreements with the dealer trusts, which commit the Acquiring Trust
to pay the dealer trusts, in certain circumstances, the difference between the
liquidation value of the fixed rate bonds held by the dealer trusts and the
liquidation value of the floating rate notes held by third parties, as well as
any shortfalls in interest cash flows. The residual interests held by the
Acquiring Trust (inverse floating rate investments) include the right of the
Acquiring Trust (1) to cause the holders of the floating rate notes to tender
their notes at par at the next interest rate reset date, and (2) to transfer the
municipal bond from the dealer trusts to the Acquiring Trust, thereby collapsing
the dealer trusts. The Acquiring Trust accounts for the transfer of bonds to the
dealer trusts as secured borrowings, with the securities transferred remaining
in the Acquiring Trust's investment assets, and the related floating rate notes
reflected as Acquiring Trust liabilities under the caption "Floating Rate Note
Obligations" on the Statement of Assets and Liabilities. The notes issued by the
dealer trusts have interest rates that reset weekly and the floating rate note
holders have the option to tender their notes to the dealer trusts for
redemption at par at each reset date. Contractual maturities of the floating
rate notes and interest rates in effect at October 31, 2006 are presented on the
Portfolio of Investments.
F-31
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Section 5.3 of the Registrant's Declaration of Trust, which is
incorporated herein by reference, 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 in such
conduct:
C-1
(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 thenor had been pending.
ITEM 16. EXHIBITS
(1) (a) (i) Declaration of Trust of the Registrant+
(ii) Certificates of Amendment to the Declaration of Trust+
C-2
(b) Form of Certificate of Vote Establishing Preferred Shares
of the Registrant and amendments thereto (included as
Appendix B to the Statement of Additional Information
contained in this Registration Statement)++
(2) (a) By-Laws of the Registrant+
(b) Articles of Amendment to the By-Laws of the Registrant+
(c) Amended and Restated By-Laws of the Registrant++
(3) Not applicable
(4) Form of Agreement and Plan of Reorganization between the
Registrant and the Target Fund (included as Appendix A to
the Statement of Additional Information contained in this
Registration Statement)++
(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 Number One to the Investment Advisory Agreement+
(7) Not Applicable
(8) (a) Form of Amended and Restated Deferred Compensation
Agreement+
(b) Form of Retirement Plan+
(9) (a) Custodian Contract+
(b) Amendment to Custodian Contract+
(c) Amendment to Custodian Contract++
(10) Not Applicable
(11) (a) Consent of Skadden, Arps, Slate, Meagher & Flom LLP++
(b) Opinion of Skadden, Arps, Slate, Meagher & Flom LLP+++
(12) Tax opinion of Skadden, Arps, Slate, Meagher & Flom LLP+++
(13) (a) Transfer Agency and Service Agreement+
(b) (i) Auction Agency Agreement+
(ii) Amendment to Auction Agency Agreement++
(c) (i) Form of Broker-Dealer Agreement+
(ii) Amendment to Broker-Dealer Agreement++
(d) (i) Letter of Representations+
(ii) Form of Letter of Representations+
(e) Fund Accounting Agreement+
(f) Amended and Restated Legal Services Agreement+
(14) Consent of Independent Registered Public Accounting Firm+++
(15) Not Applicable
(16) Power of Attorney++
(17) (a) Code of Ethics of the Investment Adviser++
(b) Codes of Ethics of the Funds+
(99) (a) Proxy card for the Target Fund++
(b) Proxy card for the Acquiring Fund++
C-3
+ Incorporated herein by reference to Pre-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-14, File Nos.
333-123453 and 811-06471, filed with the Securities and
Exchange Commission on May 5, 2005.
++ Filed herewith.
+++ 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.
(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 closes, 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.
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of New York,
and the Sate of New York, on February 16, 2007.
VAN KAMPEN TRUST FOR INVESTMENT
GRADE MUNICIPALS
By: /s/ Ronald E. Robison
----------------------------------
Ronald E. Robison
President and Principal Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 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 President and Principal Executive Officer
-------------------------------------
Ronald E. Robison
PRINCIPAL FINANCIAL OFFICER:
/s/ James W. Garrett* Chief Financial Officer and Treasurer
--------------------------------------
James W. Garrett
TRUSTEES:
/s/ David C. Arch* Trustee
--------------------------------------
David C. Arch
/s/ Jerry D. Choate* Trustee
--------------------------------------
Jerry D. Choate
/s/ Rod Dammeyer* Trustee
--------------------------------------
Rod Dammeyer
C-5
/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/ Jack E. Nelson* Trustee
---------------------------------------
Jack E. Nelson
/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 February 16, 2007
----------------------------------------
Lou Anne McInnis
Attorney-in-Fact
C-6
EXHIBIT INDEX
(2) (c) Amended and Restated By-Laws of the Registrant
(5) (a) Specimen share certificate for common shares of the Registrant
(5) (b) Specimen share certificate for preferred shares of the Registrant
(9) (c) Amendment to Custodian Contract
(11) (a) Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(13) (b)(ii) Amendment to Auction Agency Agreement
(13) (c)(ii) Amendment to Broker Dealer Agreement
(16) Power of Attorney
(17) (a) Code of Ethics of the Investment Adviser
(99) (a) Proxy Card for the Target Fund
(99) (b) Proxy Card for the Acquiring Fund