<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 32
Statement of Operations.......................... 33
Statement of Changes in Net Assets............... 34
Financial Highlights............................. 35
Notes to Financial Statements.................... 38
Report of Independent Accountants................ 47
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1)...... (3.80%) (4.60%) (4.55%)
One-year total return(2)................... (8.35%) (8.22%) (5.45%)
Five-year average annual total return(2)... 4.68% 4.66% 4.90%
Ten-year average annual total return(2).... 6.13% N/A N/A
Life-of-Fund average annual total
return(2)................................. 8.00% 3.93% 3.47%
Commencement Date.......................... 12/14/84 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution Rate(3)....................... 4.68% 4.12% 4.12%
Taxable-Equivalent Distribution Rate(4).... 7.31% 6.44% 6.44%
SEC Yield(5)............................... 4.41% 3.85% 3.83%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999.
The terms of the insurance are more fully described in the Fund's prospectus; no
representation is made as to the insurer's ability to meet its commitments. In
addition, the insurance does not remove market risk, as it does not apply to the
value of the securities in the Fund's portfolio, which may increase or decrease
depending on interest rates and other factors affecting the municipal credit
markets.
Income may subject certain individuals to the federal alternative minimum tax.
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Insured Tax Free Income Fund vs. the Lehman Brothers Municipal
Bond Index (September 30, 1989 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- --------------------------------
Fund's Total Return
1 Year Total Return = -8.35%
5 Year Avg. Annual = 4.68%
10 Year Avg. Annual = 6.13%
- --------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN INSURED TAX FREE LEHMAN BROTHERS MUNICIPAL BOND
INCOME FUND INDEX
--------------------------- ------------------------------
<S> <C> <C>
Sep 1989 9525 10000
9633 10122
9813 10299
9919 10384
9868 10335
9945 10427
9960 10430
9823 10355
10010 10581
10088 10674
10248 10831
10067 10674
Sep 1990 10072 10680
10252 10673
10521 11092
10621 11141
10738 11290
10863 11388
10831 11393
10926 11544
11040 11647
11014 11635
11130 11777
11277 11933
Sep 1991 11379 12088
11483 12197
11523 12231
11748 12494
11847 12522
11831 12526
11815 12531
11902 12643
12067 12792
12286 13007
12827 13397
12593 13266
Sep 1992 12656 13352
12405 13221
12718 13458
12866 13595
13014 13753
13618 14251
13372 14100
13543 14242
13581 14322
13831 14561
13797 14580
14139 14883
Sep 1993 14332 15053
14347 15081
14132 14949
14451 15264
14639 15438
14250 15038
13573 14426
13646 14549
13792 14675
13716 14586
13984 14853
14013 14905
Sep 1994 13732 14686
13450 14424
13150 14163
13540 14475
13976 14889
14429 15322
14535 15498
14523 15517
14991 16012
14814 15872
14897 16023
15029 16227
Sep 1995 15113 16329
15383 16566
15694 16841
15909 17002
16009 17132
15881 17015
15555 16797
15491 16750
15527 16744
15646 16926
15822 17080
15841 17077
Sep 1996 16061 17316
16240 17511
16564 17832
16488 17757
16447 17791
16595 17954
16348 17716
16472 17864
16701 18132
16878 18326
17418 18834
17169 18657
Sep 1997 17365 18879
17455 19000
17571 19112
17838 19391
18020 19591
18002 19597
17988 19614
17841 19526
18174 19834
18248 19912
18276 19962
18595 20271
Sep 1998 18840 20524
18783 20524
18836 20596
18846 20648
19055 20893
18964 20601
18940 20831
18975 20883
18804 20762
18426 20463
18461 20536
18209 20372
Sep 1999 18123 20380
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INSURED TAX FREE INCOME FUND
We recently spoke with Joseph A. Piraro, the portfolio manager of the Van Kampen
Insured Tax Free Income Fund, about the key events and economic forces that
shaped the markets during the past year. Mr. Piraro has managed the Fund since
1992 and worked in the investment industry since 1971. He is joined by Peter W.
Hegel, chief investment officer for fixed-income investments. The following
comments reflect their views on the Fund's performance during the 12 months
ended September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utilities, environment-related,
and health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A We took advantage of price declines in the general market to enhance the
current income potential and tax management of the Fund. We sold some of
our holdings at a capital loss to offset some of the gains we had earned
early in 1999, so that the Fund can try to avoid the need to distribute taxable
capital gains to shareholders this year. These bonds were replaced with
higher-yielding issues, which increased the Fund's income stream without
sacrificing credit quality. The new bonds also had better protection against
bond calls. We believe that this will allow the Fund to maintain its income
stream for a longer period of time if interest rates fall.
Another major strategy for the Fund was to increase its duration, or
sensitivity to interest-rate changes. We believe that this strategy will work
well in a declining interest-rate environment because it should allow the Fund
to participate more fully in a market
5
<PAGE> 7
rally. In the short term, however, the longer duration negatively affected the
Fund's total return as interest rates climbed.
In addition, we focused on purchasing bonds issued by larger states, such as
Illinois (20.6 percent), California (15.8 percent of the portfolio), and New
York (7.8 percent), because the strong demand for municipal bonds in these
states has helped to keep the issues attractive in the marketplace. Although a
significant proportion of the portfolio is composed of bonds issued by entities
in these three states, we also strive to keep the Fund's holdings geographically
diversified. At the end of the reporting period, the portfolio owned bonds from
41 different states and U.S. territories. For additional portfolio highlights,
please refer to page 9.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A The essential services areas were very attractive during the period
because of their high quality and liquidity. In particular, we emphasized
the general obligation and water and sewer sectors. General obligation
bonds became the second-largest sector for the Fund, comprising 13.8 percent of
the portfolio. Our proportion of water and sewer bonds doubled during the period
and now represents 6.2 percent of the portfolio.
As we increased our holdings in essential services, we reduced our position
in the housing sector, where the generally lower interest-rate environment means
the bonds could be repaid early as more homeowners refinance their mortgages.
While the housing sector usually offers more yield because of its susceptibility
to calls, we did not feel that these bonds offered enough yield to compensate
for the added call risk.
In addition, we reduced the Fund's proportion of health-care bonds because
of the challenges imposed by managed care and changing Medicare reimbursement
policies. Reducing the health-care exposure benefited the Fund because that
sector did not perform as well as most other areas of the municipal market
during the period.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -3.80 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
The Fund provided shareholders with an attractive dividend throughout the
past year, although the dividend rate was reduced twice during the reporting
period. The environment of generally low interest rates over the past few years
eventually reduced the Fund's income stream as higher yielding bonds matured or
were called from the portfolio. This led to a reduction in the monthly dividend
rate to $0.076 per Class A share in November 1998 and to $0.074 in September
1999. At its current rate, the Fund's tax-exempt dividend translates to a
distribution rate of 4.68 percent(3), which is equivalent to a
6
<PAGE> 8
yield of 7.31 percent(4) for an investor in the 36 percent federal income tax
bracket. Please refer to the chart and footnotes on page 3 for additional Fund
performance results. Past performance does not guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive-yielding bonds and protecting the Fund from bond
calls as much as possible. We will also use our research capabilities to monitor
the health-care sector for attractive opportunities throughout the coming
months.
[SIG]
Joseph A. Piraro
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INSURED TAX FREE INCOME FUND
TOP FIVE STATES AS OF SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
Illinois.................. 20.6%
California................ 15.8%
New York.................. 7.8%
Florida................... 5.7%
Texas..................... 4.7%
</TABLE>
CREDIT QUALITY*
<TABLE>
<S> <C>
AAA....................... 100.0%
</TABLE>
DISTRIBUTION HISTORY
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
--------- -------------
<S> <C> <C>
Oct 1998 0.08
Nov 1998 0.076
Dec 1998 0.076 0.0767
Jan 1999 0.076
Feb 1999 0.076
Mar 1999 0.076
Apr 1999 0.076
May 1999 0.076
Jun 1999 0.076
Jul 1999 0.076
Aug 1999 0.076
Sep 1999 0.074
</TABLE>
The Distribution history represents past performance of the Fund's Class A
shares and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Health Care 16.1 23.2
General Purpose 13.8 11.1
Public Education 11.1 10.2
Public Building 10.6 11.8
Retail Elec/Gas/Telephone 9.3 8.8
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.7%
ALABAMA 2.5%
$ 2,250 Alabama St Brd Edl Rev Shelton St
Cmnty College (MBIA Insd)........... 6.000% 10/01/14 $ 2,336,490
1,955 Alabama Wtr Pollutn Ctl Auth
Revolving Fund Ln Ser A (AMBAC
Insd)............................... 6.750 08/15/17 2,102,993
1,900 Birmingham-Carraway, AL Methodist
Hlth Sys Ser A (Connie Lee Insd).... 5.875 08/15/25 1,870,056
6,000 Jefferson Cnty, AL Swr Rev Cap Impt
Ser A (FGIC Insd)................... 5.000 02/01/33 5,173,380
2,000 Lauderdale Cnty & Florence AL
Hlthcare Auth Rev Eliza Coffee Mem
Hosp Rfdg (MBIA Insd)............... 5.750 07/01/19 2,116,000
5,000 Montgomery, AL BMC Spl Care Fac Fin
Auth Rev Baptist Hlth Ser B (MBIA
Insd)............................... 5.000 11/15/29 4,303,650
5,500 Morgan Cnty Decatur, AL Hlthcare
Auth Hosp Rev Decatur Genl Hosp Rfdg
(Connie Lee Insd)................... 6.250 03/01/13 5,785,450
2,400 Muscle Shoals, AL Util Brd Wtr & Swr
Rev (FSA Insd)...................... 6.500 04/01/16 2,552,448
3,000 Orange Beach, AL Wtr Swr & Fire
Protection Auth Rev (FSA Insd)...... 5.000 05/15/23 2,666,760
1,400 West Morgan East Lawrence Wtr Auth
AL Wtr Rev (FGIC Insd).............. 5.625 08/15/21 1,375,710
1,000 West Morgan East Lawrence Wtr Auth
AL Wtr Rev (FGIC Insd).............. 5.625 08/15/25 975,970
--------------
31,258,907
--------------
ALASKA 0.4%
5,000 Alaska St Hsg Fin Corp Genl Mtg Ser
A (MBIA Insd)....................... 6.000 06/01/49 4,860,200
--------------
ARIZONA 1.6%
11,000 Arizona St Ctfs Partn Ser B Rfdg
(AMBAC Insd)........................ 6.250 09/01/10 11,629,970
2,250 Mesa, AZ Indl Dev Auth Rev Discovery
Hlth Sys Ser A (MBIA Insd).......... 5.625 01/01/29 2,183,850
1,945 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson
Ser A Rfdg (FSA Insd)............... 7.250 07/15/10 2,101,475
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$ 1,875 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)........................ 6.000% 09/01/12 $ 1,932,112
1,750 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)........................ 6.125 09/01/17 1,774,553
--------------
19,621,960
--------------
CALIFORNIA 15.6%
4,060 Alameda Corridor Tran Auth CA Rev
Cap Apprec Ser 1999 A (MBIA Insd)... * 10/01/33 550,414
9,605 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Sub Pub Impts Proj Ser C
(FSA Insd).......................... * 09/01/36 1,088,823
4,290 Antioch Area, CA Pub Fac Fin Agy
Cmnty Fac Dist No 1989 (FGIC
Insd)............................... 5.300 08/01/15 4,242,124
2,835 Bay Area Govt Assn CA Rev Tax Alloc
CA Redev Agy Pool Rev Ser A (FSA
Insd)............................... 6.000 12/15/14 2,956,650
5,000 Beverly Hills, CA Pub Fin Auth Lease
Rev Ser A (MBIA Insd)............... 5.650 06/01/15 5,057,400
3,345 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd)....... 8.100 03/01/18 3,406,280
9,000 California St (MBIA Insd)........... 5.000 08/01/24 8,107,110
10,000 California St Pub Wks Brd Lease Rev
Dept of Corrections CA St Prison D
Susanville (MBIA Insd).............. 5.375 06/01/18 9,780,300
16,770 Capistrano, CA Uni Pub Fin Auth Spl
Tax Rev First Lien Ser A Rfdg (AMBAC
Insd)............................... 5.700 09/01/16 17,039,662
2,830 Carlsbad, CA Uni Sch Dist (FGIC
Insd) (a)........................... * 05/01/22 761,921
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd)............................... 6.200 09/01/18 3,177,660
220 Concord, CA Redev Agy Tax Alloc Cent
Concord Redev Proj Ser 3 (BIGI
Insd)............................... 8.000 07/01/18 224,334
805 Corona Norco, CA Uni Sch Dist Lease
Rev Partn Insd Land Acquis Ser A
(FSA Insd).......................... 6.000 04/15/19 820,867
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs
Partn Fac Refin (FGIC Insd)......... 6.300 09/01/12 1,307,737
425 Earlimart, CA Elem Sch Dist Ser 1
(AMBAC Insd)........................ 6.700 08/01/21 483,561
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 5,675 Escondido, CA Jt Pwrs Fin Auth Lease
Rev Cap Apprec Cent for the Arts
Rfdg (AMBAC Insd)................... * 09/01/17 $ 1,880,922
1,500 Folsom, CA Pub Fin Auth 1998 Wtr
Proj (FGIC Insd).................... 4.875% 11/01/18 1,357,905
7,440 Foothill/Eastern Tran Corridor Agy
CA Toll Rd Rev (MBIA Insd).......... 5.125 01/15/19 6,951,043
245 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.750 08/01/14 256,336
2,725 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. * 08/01/18 925,683
240 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.750 08/01/18 247,390
265 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.750 08/01/19 272,107
370 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.800 02/01/21 380,749
320 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.800 08/01/22 328,790
475 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.800 02/01/23 487,559
370 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd).................. 5.800 02/01/24 379,487
6,500 Grossmont, CA Union High Sch Dist
Ctfs Partn (MBIA Insd).............. * 11/15/21 1,490,905
1,000 Intermodal Container Transfer Ser A
Rfdg (AMBAC Insd)................... 5.000 11/01/08 1,014,510
1,380 Intermodal Container Transfer Ser A
Rfdg (AMBAC Insd)................... 5.000 11/01/09 1,390,805
3,500 Los Angeles Cnty, CA Cap Asset Lease
Corp Leasehold Rev Rfdg (AMBAC
Insd)............................... 6.000 12/01/16 3,637,235
8,000 Los Angeles Cnty, CA Metro Tran Prop
A Second Tier Rfdg (MBIA Insd)...... 6.000 07/01/21 8,782,560
3,000 Los Angeles, CA Cmnty Redev Agy Tax
Alloc Bunker Hill Ser H Rfdg (FSA
Insd)............................... 6.500 12/01/14 3,254,460
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 5,420 Manteca, CA Redev Agy Tax Alloc
Redev Proj No 1 Ser A Rfdg (MBIA
Insd)............................... 6.700% 10/01/21 $ 5,785,471
1,290 Martinez, CA Uni Sch Dist Gtd Ctfs
Elig Rfdg (FSA Insd)................ 6.000 08/01/09 1,338,259
2,745 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)........... * 09/01/20 773,870
2,880 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)........... * 09/01/21 760,982
2,260 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)........... * 09/01/29 363,159
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev
Ser F Rfdg (AMBAC Insd)............. 6.000 07/01/20 2,036,220
13,610 Norco, CA Redev Agy Tax Alloc Norco
Redev Proj Area No 1 Rfdg (MBIA
Insd)............................... 6.250 03/01/19 14,286,553
1,500 North City West, CA Sch Fac Fin Auth
Spl Tax Ser B Rfdg (FSA Insd)....... 6.000 09/01/19 1,516,935
2,860 Orange Cnty, CA Ctfs Partn Juvenile
Justice Cent Fac Rfdg (AMBAC
Insd)............................... 6.000 06/01/17 2,958,927
1,130 Palmdale, CA Civic Auth Rev Merged
Redev Proj Areas Ser A (MBIA
Insd)............................... 6.000 09/01/15 1,170,307
2,160 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd)......................... 6.250 08/01/11 2,319,365
2,295 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd)......................... 6.250 08/01/12 2,446,332
2,435 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd)......................... 6.250 08/01/13 2,595,564
2,585 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd)......................... 6.250 08/01/14 2,755,455
2,750 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd)......................... 6.250 08/01/15 2,931,335
2,000 Perris, CA Pub Fin Auth Loc Agy Rev
Parity Ser F (FSA Insd)............. 5.850 09/01/24 2,022,720
1,400 Reedley, CA Pub Fin Auth Lease Rev
Wastewtr Treatment Plant Proj (AMBAC
Insd)............................... 6.050 05/01/15 1,436,162
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 600 Roseville, CA City Sch Dist Ctfs
Partn Fin Proj (FSA Insd)........... 4.875% 09/01/23 $ 529,008
3,900 Sacramento, CA Muni Util Dist Elec
Rev Ser A Rfdg (MBIA Insd).......... 5.750 08/15/13 3,949,569
13,800 San Bernardino Cnty, CA Ctfs Partn
Ser B (Embedded Swap) (MBIA Insd)... 6.900 07/01/16 13,794,480
8,535 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev (MBIA Insd)......... * 01/15/34 1,129,693
15,000 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev (MBIA Insd)......... * 01/15/35 1,871,100
1,000 San Jose, CA Fin Auth Rev Convention
Cent Proj Ser C Rfdg (FSA Insd)..... 6.300 09/01/09 1,058,610
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist
Rfdg & Impt (AMBAC Insd)............ 6.200 07/02/09 1,063,370
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg
(FGIC Insd)......................... 6.200 09/01/09 2,120,900
1,635 Saratoga, CA Union Sch Dist Cap
Apprec Ser B (MBIA Insd)............ * 03/01/24 390,111
2,510 Solano Cnty, CA Ctfs Partn Solano
Park Hosp Proj (FSA Insd)........... 5.750 08/01/14 2,699,379
12,600 Southern CA Pub Pwr Auth
Transmission Proj Rev (FSA Insd)
(b)................................. 6.000 07/01/12 13,243,860
3,370 Stockton, CA Pub Fin Auth Rev Ser A
Rfdg (FSA Insd)..................... 5.875 09/02/16 3,448,656
2,500 Temecula Vly, CA Uni Sch Dist Ctfs
Partn Rfdg (FSA Insd)............... 6.000 09/01/25 2,528,225
1,000 Temecula Vly, CA Uni Sch Dist Ser B
Rfdg (FGIC Insd).................... 6.000 09/01/12 1,039,780
2,460 Torrance, CA Hosp Rev Torrance Mem
Hosp Rfdg (MBIA Insd)............... 6.750 01/01/12 2,475,375
3,845 Vista, CA Uni Sch Dist Ctfs Partn
Ser A Rfdg (FSA Insd)............... * 11/01/17 1,325,064
2,000 William S Hart CA Jt Sch Fin Auth
Spl Tax Rev Cmnty Fac Rfdg (FSA
Insd)............................... 6.500 09/01/14 2,179,160
--------------
194,387,245
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO 2.8%
$ 2,365 Arvada, CO Sales & Use Tax Rev (FGIC
Insd)............................... 4.750% 12/01/18 $ 2,078,528
17,750 Denver, CO City & Cnty Arpt Rev Ser
A (MBIA Insd)....................... 5.700 11/15/25 17,452,687
3,625 Denver, CO City & Cnty Arpt Rev Ser
B (FSA Insd)........................ 5.000 11/15/25 3,208,197
5,500 Denver, CO City & Cnty Arpt Rev Ser
D Rfdg (MBIA Insd).................. 5.500 11/15/25 5,282,585
10 Jefferson Cnty, CO Single Family Mtg
Rev Ser A Rfdg (MBIA Insd).......... 8.875 10/01/13 10,463
1,000 Metropolitan Football Stadium Dist
CO Sales Tax Rev Ser B (MBIA
Insd)............................... * 01/01/06 734,330
2,050 Thornton, CO Rfdg (FGIC Insd)....... * 12/01/11 1,070,592
1,100 Thornton, CO Rfdg (FGIC Insd)....... * 12/01/15 440,539
1,000 Westminster, CO Ctfs Partn (MBIA
Insd)............................... 5.500 09/01/15 992,100
1,000 Westminster, CO Ctfs Partn (MBIA
Insd)............................... 5.625 09/01/19 982,330
2,000 Westminster, CO Wtr & Wastewtr Util
Enterprise Rev (AMBAC Insd)......... 6.250 12/01/14 2,123,220
--------------
34,375,571
--------------
DISTRICT OF COLUMBIA 0.4%
4,000 District of Columbia Rev Catholic
Univ Amer Proj (AMBAC Insd)......... 5.625 10/01/29 3,848,840
1,315 District of Columbia Rev Gonzaga
College High Sch (FSA Insd)......... 5.375 07/01/19 1,241,544
600 District of Columbia Rev Gonzaga
College High Sch (FSA Insd)......... 5.375 07/01/29 556,410
--------------
5,646,794
--------------
FLORIDA 5.6%
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd) (b)..................... 8.000 10/01/03 1,140,340
690 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd)......................... 8.000 10/01/04 795,280
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd)......................... 8.000 10/01/05 1,382,630
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd)......................... 8.000 10/01/06 1,516,485
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd)......................... 8.000% 10/01/07 $ 1,655,912
2,095 Dade Cnty, FL Util Pub Impt Rfdg
(FGIC Insd) (b)..................... 12.000 10/01/04 2,775,854
140 Duval Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Ser C (FGIC Insd).... 7.650 09/01/10 145,568
575 Duval Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Ser C (FGIC Insd).... 7.700 09/01/24 597,546
2,000 Florida St Brd of Edl Cap Outlay Pub
Edl Ser B Rfdg (MBIA Insd).......... 4.500 06/01/24 1,621,660
1,410 Florida St Dept Corrections Ctfs
Partn Okeechobee Correctional (AMBAC
Insd)............................... 6.250 03/01/15 1,483,715
2,000 Indian River Cnty, FL Hosp Rev Rfdg
(FSA Insd).......................... 6.100 10/01/18 2,026,920
1,000 Key West, FL Util Brd Elec Rev Ser D
(AMBAC Insd)........................ * 10/01/13 462,080
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev
(Inverse Fltg) (MBIA Insd).......... 9.671 04/01/20 4,405,000
10,000 Miami Dade Cnty, FL Solid Waste Sys
Rev (AMBAC Insd).................... 4.750 10/01/18 8,732,700
10,020 Miami Dade Cnty, FL Spl Oblig Ser B
(MBIA Insd)......................... 5.000 10/01/37 8,692,951
1,500 Miami Dade Cnty, FL Wtr & Swr Rev
Ser A (FGIC Insd)................... 5.000 10/01/29 1,325,490
6,000 Orange Cnty, FL Hlth Fac Auth Rev
(Inverse Fltg) (MBIA Insd).......... 8.746 10/29/21 6,705,000
2,000 Palm Beach Cnty, FL Sch Brd Ctfs
Partn Ser A (Prerefunded @ 08/01/04)
(AMBAC Insd)........................ 6.375 08/01/15 2,181,240
3,725 Santa Rosa Bay Brdg Auth FL Rev Cap
Apprec (MBIA Insd).................. * 07/01/18 1,256,480
5,500 Tallahassee, FL Energy Sys Rev Ser B
(FSA Insd).......................... 5.000 10/01/28 4,868,325
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$10,000 Tallahassee, FL Hlth Fac Rev
Tallahassee Mem Regl Med Ser A Rfdg
(MBIA Insd) (b)..................... 6.625% 12/01/13 $ 10,882,000
5,235 Volusia Cnty, FL Edl Fac Auth Rev
Edl Facs Embry Riddle Ser B Rfdg
(AMBAC Insd)........................ 5.250 10/15/19 4,946,604
--------------
69,599,780
--------------
GEORGIA 3.0%
1,750 Atlanta, GA Ctfs Partn Atlanta
Pretrial Detention Cent (MBIA
Insd)............................... 6.250 12/01/17 1,880,410
6,500 Georgia Muni Elec Auth Pwr Rev Genl
Ser B (BIGI Insd)................... * 01/01/07 4,533,555
4,750 Georgia Muni Elec Auth Pwr Rev Genl
Ser B (BIGI Insd)................... * 01/01/08 3,127,115
15,550 Georgia Muni Elec Auth Pwr Rev Ser Y
(AMBAC Insd) (b).................... 6.400 01/01/13 17,014,499
10,000 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (b)..................... 6.500 01/01/17 11,039,100
--------------
37,594,679
--------------
HAWAII 1.8%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg
(MBIA Insd) (b)..................... 6.400 07/01/08 13,756,788
10,250 Honolulu, HI City & Cnty Wastewtr
Sys Rev (FGIC Insd)................. 4.500 07/01/28 8,148,955
--------------
21,905,743
--------------
ILLINOIS 20.3%
1,000 Berwyn, IL (MBIA Insd).............. 7.000 11/15/10 1,050,130
2,215 Bolingbrook, IL Cap Apprec Ser C
Rfdg (MBIA Insd).................... * 01/01/19 719,033
2,595 Bolingbrook, IL Cap Apprec Ser C
Rfdg (MBIA Insd).................... * 01/01/20 793,006
1,700 Champaign Cnty, IL Cmnty Unit Ser C
(FGIC Insd)......................... * 01/01/14 739,143
1,695 Champaign Cnty, IL Cmnty Unit Ser C
(FGIC Insd)......................... * 01/01/15 690,001
5,000 Chicago, IL (FGIC Insd)............. 5.500 01/01/21 4,791,150
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$10,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform B 1 (FGIC Insd).............. * 12/01/27 $ 1,838,300
8,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser A (FGIC Insd)............ * 12/01/29 1,302,480
10,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser A (FGIC Insd)............ * 12/01/30 1,532,100
1,400 Chicago, IL Brd of Ed Chicago Sch
Reform (AMBAC Insd)................. 5.750% 12/01/20 1,387,190
16,000 Chicago, IL Brd of Ed Chicago Sch
Reform (AMBAC Insd)................. 5.750 12/01/27 15,681,600
25,725 Chicago, IL Brd of Ed Chicago Sch
Reform (Prerefunded @ 12/01/06)
(MBIA Insd)......................... 6.000 12/01/26 28,066,232
2,000 Chicago, IL Lakefront Millenium Pkg
Fac (MBIA Insd)..................... * 01/01/25 1,338,000
2,000 Chicago, IL Lakefront Millenium Pkg
Fac (MBIA Insd)..................... * 01/01/29 1,326,540
25,050 Chicago, IL Proj Rfdg (FGIC Insd)... 5.250 01/01/28 22,646,953
2,720 Chicago, IL Pub Bldg Comm Bldg Rev
Chicago Transit Auth (AMBAC Insd)... 6.600 01/01/15 2,917,962
3,480 Chicago, IL Pub Bldg Comm Bldg Rev
Ser A (MBIA Insd)................... * 01/01/06 2,564,830
3,105 Chicago, IL Pub Bldg Comm Bldg Rev
Ser A (MBIA Insd)................... * 01/01/07 2,162,570
3,150 Chicago, IL Skyway Toll Brdg Rev
(MBIA Insd)......................... 5.500 01/01/23 3,004,754
2,000 Chicago, IL Wastewtr Transmission
Rev (FGIC Insd)..................... 5.125 01/01/25 1,779,620
7,000 Cook Cnty, IL Cap Impt Ser A (FGIC
Insd)............................... 5.000 11/15/28 6,084,680
1,000 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC Insd)
(b)................................. 8.400 01/01/01 1,050,340
5,550 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC
Insd)............................... 8.750 01/01/03 6,252,131
8,460 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC
Insd)............................... 8.750 01/01/04 9,783,482
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,460 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC
Insd)............................... 8.750% 01/01/05 $ 2,907,400
3,500 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC
Insd)............................... 8.750 01/01/07 4,294,570
1,280 Cook Cnty, IL Cmnty High Sch Dist No
233 Homewood & Flossmor (AMBAC
Insd)............................... * 12/01/05 948,096
8,280 Cook Cnty, IL Cnty Juvenile
Detention Ser A (AMBAC Insd)........ * 11/01/08 5,216,566
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn
South (FSA Insd).................... 8.200 12/01/14 1,913,984
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn
South (FSA Insd).................... 8.100 12/01/16 2,270,562
850 Evanston, IL Residential Mtg Rev
(AMBAC Insd)........................ 6.375 01/01/09 875,279
1,380 Grundy Cnty, IL Sch Dist No 054
Morris Ser A (AMBAC Insd)........... 5.500 12/01/09 1,424,933
1,455 Grundy Cnty, IL Sch Dist No 054
Morris Ser A (AMBAC Insd)........... 5.500 12/01/10 1,493,383
1,800 Grundy Cnty, IL Sch Dist No 054
Morris Ser A (AMBAC Insd)........... 5.350 12/01/14 1,760,202
1,900 Grundy Cnty, IL Sch Dist No 054
Morris Ser A (AMBAC Insd)........... 5.400 12/01/15 1,854,837
10,000 Illinois Dev Fin Auth Pollutn Ctl
Rev Comwlth Edison Co Proj Ser D
Rfdg (AMBAC Insd) (b)............... 6.750 03/01/15 10,907,000
35,000 Illinois Dev Fin Auth Pollutn Ctl
Rev IL Pwr Co Proj Ser A First Mtg
Rfdg (MBIA Insd) (b)................ 7.400 12/01/24 39,565,400
2,000 Illinois Dev Fin Auth Rev Sch Dist
Pgm Rockford Sch 205 (FSA Insd)..... 6.650 02/01/11 2,234,760
5,025 Illinois Dev Fin Auth Rev Sch Dist
Pgm Rockford Sch 205 Rfdg (FSA
Insd)............................... 6.650 02/01/12 5,446,698
5,000 Illinois Hlth Fac Auth Rev
Children's Mem Hosp Ser A (AMBAC
Insd)............................... 5.625 08/15/19 4,842,800
5,000 Illinois Hlth Fac Auth Rev
Children's Mem Hosp Ser A (AMBAC
Insd)............................... 5.750 08/15/25 4,858,750
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 924 Illinois Hlth Fac Auth Rev Cmnty
Prov Pooled Pgm Ser B (MBIA Insd)... 7.900% 08/15/03 $ 927,021
220 Illinois Hlth Fac Auth Rev Cmnty
Prov Pooled Pgm Ser B Rfdg (MBIA
Insd)............................... 7.900 08/15/03 241,912
5,000 Illinois Hlth Fac Auth Rev Hosp
Sisters Svcs (Inverse Fltg) (MBIA
Insd)............................... 9.617 06/19/15 5,625,000
5,000 Illinois Hlth Fac Auth Rev Methodist
Hlth Proj (Inverse Fltg)
(Prerefunded @ 05/08/01) (AMBAC
Insd)............................... 9.882 05/18/21 5,568,750
3,400 Illinois Hlth Fac Auth Rev Rush
Presbyterian Saint Luke Hosp
(Inverse Fltg) (Prerefunded @
11/01/01) (MBIA Insd)............... 9.767 10/01/24 3,837,750
3,000 Illinois Hlth Fac Auth Rev Sarah
Bush Lincoln Hlth Rfdg (AMBAC
Insd)............................... 6.000 01/01/27 2,977,770
1,250 Metropolitan Pier & Exposition Auth
IL Dedicated St Tax Rev (FGIC
Insd)............................... 5.375 12/15/18 1,193,700
3,000 Metropolitan Pier & Exposition Auth
IL Dedicated St Tax Rev (FGIC
Insd)............................... 5.500 12/15/24 2,852,700
4,000 Metropolitan Pier & Exposition Auth
IL Dedicated St Tax Rev (FGIC
Insd)............................... 5.250 12/15/28 3,631,880
6,110 Rosemont, IL Tax Increment 3 (FGIC
Insd)............................... * 12/01/06 4,285,187
3,000 Rosemont, IL Tax Increment 3 (FGIC
Insd)............................... * 12/01/07 1,986,540
1,185 Saint Clair Cnty, IL Ctfs Partn
(MBIA Insd)......................... 8.000 12/01/04 1,365,736
1,285 Saint Clair Cnty, IL Ctfs Partn
(MBIA Insd)......................... 8.000 12/01/05 1,503,322
4,000 Southern Illinois Univ Rev Cap
Apprec Hsg & Aux Ser A (MBIA
Insd)............................... * 04/01/19 1,260,400
2,000 Southern Illinois Univ Rev Cap
Apprec Hsg & Aux Ser A (MBIA
Insd)............................... * 04/01/20 592,800
2,500 Southern Illinois Univ Rev Cap
Apprec Hsg & Aux Ser A (MBIA
Insd)............................... * 04/01/23 614,300
2,000 Southern Illinois Univ Rev Cap
Apprec Hsg & Aux Ser A (MBIA
Insd)............................... * 04/01/26 406,840
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,500 Will Cnty, IL Cmnty Unit Sch Dist No
201 Ser C (FSA Insd)................ * 10/01/13 $ 683,745
1,000 Will Cnty, IL Cmnty Unit Sch Dist No
201 Ser C (FSA Insd)................ * 10/01/14 425,960
--------------
252,298,760
--------------
INDIANA 0.7%
2,000 Indiana Bond Bank Spl Pgm Ser A
(AMBAC Insd)........................ 9.750% 08/01/09 2,528,600
5,000 Indiana Hlth Fac Fin Auth Hosp Rev
Cmnty Hosps Proj Rfdg & Impt (MBIA
Insd)............................... 6.400 05/01/12 5,272,800
1,000 Marion Cnty, IN Convention & Rectl
Fac Auth Excise Tax Rev Lease Rental
Ser A (AMBAC Insd).................. 7.000 06/01/21 1,057,330
--------------
8,858,730
--------------
KANSAS 2.0%
18,750 Burlington, KS Pollutn Ctl Rev KS
Gas & Elec Co Proj Rfdg (MBIA
Insd) (b)........................... 7.000 06/01/31 19,793,625
1,400 Kansas St Dev Fin Auth Rev Ltd Tax
Dept Comm Hsg Rfdg (FSA Insd)....... 4.000 06/01/06 1,330,126
1,000 Kansas St Dev Fin Auth Rev Ltd Tax
Dept Comm Hsg Rfdg (FSA Insd)....... 4.200 06/01/07 953,600
2,880 Saline Cnty, KS Uni Sch Dist No 305
Salina (FSA Insd)................... 4.250 09/01/08 2,719,037
--------------
24,796,388
--------------
KENTUCKY 0.0%
20 Kentucky Cntys Single Family Mtg
Presbyterian Homes Ser A Rfdg (MBIA
Insd)............................... 8.625 09/01/15 20,041
--------------
LOUISIANA 1.8%
4,065 Calcasieu Parish, LA Mem Hosp Svcs
Dist Hosp Rev Lake Charles Mem Hosp
Proj Ser A (Connie Lee Insd)........ 6.375 12/01/12 4,436,744
5,530 Calcasieu Parish, LA Mem Hosp Svcs
Dist Hosp Rev Lake Charles Mem Hosp
Proj Ser A (Connie Lee Insd)........ 6.500 12/01/18 6,044,732
310 Louisiana Pub Fac Auth Rev Med Cent
LA at New Orleans Proj (Connie Lee
Insd)............................... 6.250 10/15/10 322,394
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$ 5,000 Louisiana Pub Fac Auth Rev Tulane
Univ of LA (AMBAC Insd)............. 6.050% 10/01/25 $ 5,067,450
10,000 New Orleans, LA Home Mtg Auth Single
Family Mtg Rev 1985 Ser A (MBIA
Insd)............................... * 09/15/16 1,592,000
5,000 Rapides Parish, LA Indl Dev Brd Inc
Pollutn Ctl Rev (AMBAC Insd)........ 5.875 09/01/29 4,978,750
--------------
22,442,070
--------------
MAINE 0.2%
35 Maine Hlth & Higher Edl Fac Auth Rev
Ser B (FSA Insd).................... 7.100 07/01/14 39,414
1,715 Maine Hlth & Higher Edl Fac Auth Rev
Ser B (Prerefunded @ 07/01/04) (FSA
Insd)............................... 7.100 07/01/14 1,927,317
--------------
1,966,731
--------------
MASSACHUSETTS 1.2%
1,700 Massachusetts St Hlth & Edl Fac Auth
Rev Mt Auburn Hosp Ser B1 (MBIA
Insd)............................... 6.250 08/15/14 1,803,462
14,100 Massachusetts St Wtr Res Auth
Houston Ind Inc Proj Ser A (FSA
Insd)............................... 4.750 08/01/37 11,367,561
2,250 Massachusetts St Wtr Res Auth Genl
Ser A (Prerefunded @ 11/01/06) (FGIC
Insd)............................... 5.500 11/01/21 2,374,200
--------------
15,545,223
--------------
MICHIGAN 3.6%
2,325 Bay City, MI (AMBAC Insd)........... * 06/01/15 957,877
1,000 Bay City, MI (AMBAC Insd)........... * 06/01/16 386,180
3,750 Big Rapids, MI Pub Schs Dist Rfdg
(FSA Insd).......................... 4.750 05/01/25 3,155,737
3,250 Central MI Univ Rev (FGIC Insd)..... 5.625 10/01/22 3,447,405
1,100 Central MI Univ Rev (FGIC Insd)..... 5.500 10/01/26 1,158,223
9,270 Detroit, MI City Sch Dist Ser B
(FGIC Insd)......................... 5.000 05/01/21 8,305,364
11,100 Detroit, MI City Sch Dist Ser B
(FGIC Insd)......................... 4.750 05/01/28 9,246,633
3,000 Hazel Park, MI Bldg Auth Ice Arena
(AMBAC Insd)........................ 4.700 04/01/24 2,515,830
21,000 Livonia, MI Pub Sch Dist Ser II
(FGIC Insd)......................... * 05/01/21 5,415,480
5,000 Michigan St Hosp Fin Auth Rev Hosp
Sparrow Oblig Group (MBIA Insd)..... 6.000 11/15/36 4,995,900
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 2,000 Michigan St Hsg Dev Auth Rental Hsg
Rev Ser B (AMBAC Insd).............. 4.850% 04/01/04 $ 1,998,400
5,000 Mount Clemens, MI Cmnty Sch Dist Cap
Apprec (Prerefunded @ 05/01/07)
(MBIA Insd)......................... * 05/01/17 1,731,900
2,500 Plymouth Canton, MI Cmnty Sch Dist
(FSA Insd).......................... 4.750 05/01/23 2,123,550
--------------
45,438,479
--------------
MINNESOTA 0.6%
1,000 Brainerd, MN Rev Evangelical
Lutheran Ser B Rfdg (FSA Insd)...... 6.650 03/01/17 1,060,960
5,600 Minneapolis-St Paul, MN Hsg & Redev
Auth Hlthcare Sys Rev Hlth One Ser A
(MBIA Insd)......................... 7.400 08/15/11 5,881,176
--------------
6,942,136
--------------
MISSISSIPPI 0.1%
1,000 Harrison Cnty, MS Wastewtr Mgmt Dist
Rev Wastewtr Treatment Fac Ser A
Rfdg (FGIC Insd).................... 8.500 02/01/13 1,287,980
--------------
MISSOURI 0.5%
640 Green Cnty, MO Single Family Mtg Rev
(AMBAC Insd)........................ * 12/01/16 118,663
4,585 Missouri St Hlth & Edl Fac Auth
(MBIA Insd)......................... 6.250 06/01/16 4,698,937
125 Saint Louis Cnty, MO Single Family
Mtg Rev (AMBAC Insd)................ 9.250 10/01/16 127,606
1,000 St Louis, MO Pub Safety (FGIC
Insd)............................... 5.000 02/15/15 949,000
--------------
5,894,206
--------------
NEBRASKA 0.2%
2,250 American Pub Energy Agy NE Gas Sup
Rev NE Pub Gas Agy Proj Ser A (AMBAC
Insd)............................... 4.375 06/01/10 2,084,490
--------------
NEVADA 0.8%
1,000 Carson City, NV Hosp Rev Ser B
(AMBAC Insd)........................ 5.400 03/01/17 951,300
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr
Co Proj Ser C Rfdg (AMBAC Insd)..... 7.200 10/01/22 2,171,240
1,675 Clark Cnty, NV Pub Fac Ser C (FGIC
Insd)............................... 5.000 06/01/24 1,483,196
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEVADA (CONTINUED)
$ 1,310 Las Vegas, NV Loc Impt Spl Impt Dist
No 404 Rfdg (FSA Insd).............. 4.400% 11/01/08 $ 1,226,068
1,105 Las Vegas, NV Loc Impt Spl Impt Dist
No 404 Rfdg (FSA Insd).............. 4.500 11/01/09 1,027,164
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA
Insd)............................... * 07/01/07 2,521,379
--------------
9,380,347
--------------
NEW HAMPSHIRE 0.6%
5,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev (AMBAC Insd)............... 6.000 10/01/26 5,015,500
2,500 New Hampshire St Tpk Sys Rev Rfdg
(Inverse Fltg) (FGIC Insd).......... 9.475 11/01/17 2,990,625
--------------
8,006,125
--------------
NEW JERSEY 0.9%
5,500 Howell Twp, NJ Rfdg (FGIC Insd)..... 6.800 01/01/14 5,850,625
3,625 Morristown, NJ Rfdg (FSA Insd)...... 6.400 08/01/14 3,923,011
1,000 New Jersey Econ Dev Auth Rev Trans
Proj Sublease Ser A (FSA Insd)...... 5.125 05/01/10 1,003,200
--------------
10,776,836
--------------
NEW YORK 7.7%
625 Erie Cnty, NY Pub Impt Ser A ( FGIC
Insd)............................... 4.800 10/01/07 620,900
8,000 Metropolitan Tran Auth NY Commuter
Fac Rev Ser A (MBIA Insd)........... 5.625 07/01/27 7,823,360
10,000 Metropolitan Tran Auth NY Tran Fac
Ser C (FSA Insd).................... 4.750 07/01/16 8,849,100
4,350 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd)............................... 6.375 11/15/14 4,662,243
5,000 New York City Muni Wtr Fin Auth Wtr
& Swr Sys Rev (FSA Insd)............ * 06/15/14 2,209,550
8,000 New York City Muni Wtr Fin Auth Wtr
& Swr Sys Rev (MBIA Insd)........... 4.750 06/15/25 6,757,120
50 New York City Ser C Subser C1 (FSA
Insd)............................... 6.250 08/01/09 53,018
2,090 New York City Ser G (MBIA Insd)..... 5.750 02/01/14 2,116,710
18,000 New York City Ser G (FGIC Insd)..... 5.750 02/01/14 18,230,040
9,845 New York City Ser I (MBIA Insd)..... 4.750 04/15/17 8,573,912
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 6,750 New York City Tran Auth Met Ser A
(AMBAC Insd)........................ 5.250% 01/01/29 $ 6,207,300
3,000 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Pgm Ser A (FSA
Insd)............................... 5.500 05/15/25 2,882,400
7,425 New York St Dorm Auth Lease Rev
Office Fac & Audit Ctl (MBIA
Insd)............................... 5.000 04/01/29 6,519,447
2,775 New York St Dorm Auth Rev City Univ
Ser C (FGIC Insd)................... 7.000 07/01/14 2,884,946
3,000 New York St Dorm Auth Rev City Univ
Sys Cons 3rd Genl 1 (FSA
Insd) (a)........................... 5.500 07/01/29 2,879,010
4,700 New York St Dorm Auth Rev Insd Pace
Univ Rfdg (MBIA Insd)............... 5.750 07/01/26 4,645,762
15 New York St Med Care Fac Fin Agy Rev
(FSA Insd).......................... 6.500 08/15/15 15,992
7,000 New York St Med Care Fac Fin Agy Rev
NY Hosp Mtg Ser A (Prerefunded @
02/15/05) (AMBAC Insd) (b).......... 6.750 08/15/14 7,820,470
1,500 New York St Urban Dev Corp Rev
Correctional Fac Rfdg (AMBAC
Insd)............................... 5.250 01/01/18 1,411,740
1,000 Niagara, NY Frontier Tran Auth Arpt
Rev (MBIA Insd)..................... 5.500 04/01/19 966,930
--------------
96,129,950
--------------
NORTH CAROLINA 0.1%
1,250 Franklin Cnty, NC Ctfs Partn Jail &
Sch Projs (FGIC Insd)............... 6.625 06/01/14 1,380,788
--------------
NORTH DAKOTA 0.6%
2,095 Grand Forks, ND Sales Tax Rev Aurora
Proj Ser A (MBIA Insd).............. 5.625 12/15/29 2,015,432
5,000 Mercer Cnty, ND Pollutn Ctl Rev
Antelope Vly Station Rfdg (AMBAC
Insd)............................... 7.200 06/30/13 5,822,500
--------------
7,837,932
--------------
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 2.2%
$ 5,000 Clermont Cnty, OH Hosp Fac Rev Muni
(Inverse Fltg) (Prerefunded @
09/25/01) (AMBAC Insd).............. 9.441% 10/05/21 $ 5,625,000
2,010 Cleveland, OH (Prerefunded @
11/15/04) (MBIA Insd)............... 6.500 11/15/09 2,224,829
15,000 Hamilton Cnty, OH Sales Tax Hamilton
Cnty Football Proj B (MBIA Insd).... 5.000 12/01/27 13,258,200
2,750 Lorain Cnty, OH Hlth Fac Rev
Catholic Hlthcare Partners Ser A
(AMBAC Insd)........................ 5.500 09/01/29 2,616,487
1,500 Ohio St Air Quality Dev Auth Rev
Pollutn Ctl Cleveland Co Proj Rfdg
(FGIC Insd)......................... 8.000 12/01/13 1,659,015
2,500 Ohio St Air Quality Dev Auth Rev
Pollutn Ctl OH Edison Ser A Rfdg
(FGIC Insd)......................... 7.450 03/01/16 2,581,725
--------------
27,965,256
--------------
OKLAHOMA 1.1%
1,760 McAlester, OK Pub Wks Auth Rev Rfdg
& Impt (FSA Insd)................... 5.250 12/01/20 1,815,933
3,300 McAlester, OK Pub Wks Auth Util Sys
Rev (FSA Insd)...................... 5.750 02/01/20 3,311,979
11,000 McAlester, OK Pub Wks Auth Util Sys
Rev (FSA Insd)...................... * 02/01/30 1,681,570
5,660 Mustang, OK Impt Auth Util Rev (FSA
Insd)............................... 5.800 10/01/30 5,575,892
1,820 Oklahoma Hsg Fin Agy Single Family
Rev Mtg Ser A (MBIA Insd)........... 7.200 03/01/11 1,880,115
--------------
14,265,489
--------------
PENNSYLVANIA 4.3%
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev
Pittsburgh Mercy Hlth Sys Inc (AMBAC
Insd)............................... 5.625 08/15/26 4,870,759
2,985 Butler, PA Area Sch Dist Cap Apprec
(Prerefunded @ 11/15/07) (FGIC
Insd)............................... * 11/15/23 791,234
5,650 Butler, PA Area Sch Dist Cap Apprec
(Prerefunded @ 11/15/07) (FGIC
Insd)............................... * 11/15/26 1,248,142
24,000 Dauphin Cnty, PA Genl Auth Hlth Sys
Rev Pinnacle Hlth Sys Proj Rfdg
(MBIA Insd)......................... 5.500 05/15/27 22,619,760
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 Dauphin Cnty, PA Genl Auth Hosp Rev
Hapsco Phoenixville Hosp Proj Ser B
(FGIC Insd)......................... 6.125% 07/01/10 $ 2,129,160
1,000 Lehigh Cnty, PA Indl Dev Auth
Pollutn Ctl Rev PA Pwr & Lt Co Proj
Ser A Rfdg (MBIA Insd).............. 6.400 11/01/21 1,055,670
3,750 Montgomery Cnty, PA Indl Dev Auth
Rev Pollutn Ctl Ser E Rfdg (MBIA
Insd)............................... 6.700 12/01/21 3,979,687
1,500 Philadelphia, PA (FSA Insd)......... 5.000 03/15/28 1,313,955
2,250 Philadelphia, PA Gas Wks Rev 14th
Ser A Rfdg (FSA Insd)............... 6.375 07/01/14 2,403,022
5,000 Philadelphia, PA Gas Wks Rev Second
Ser (FSA Insd)...................... 5.000 07/01/29 4,362,600
2,000 Pittsburgh & Allegheny Cnty, PA Pub
Aud Auth Excise Tax Rev (AMBAC
Insd)............................... 5.000 02/01/19 1,792,800
1,500 Pittsburgh & Allegheny Cnty, PA Pub
Aud Auth Excise Tax Rev (AMBAC
Insd)............................... 5.125 02/01/35 1,317,300
2,500 Pittsburgh & Allegheny Cnty, PA Pub
Aud Auth Regl Asset Dist Sales Tax
Rev (AMBAC Insd).................... 5.000 02/01/24 2,215,500
1,000 Sayre, PA Hlthcare Fac Auth Rev VHA
Cap Asset Fin Pgm Ser H2 (AMBAC
Insd)............................... 7.625 12/01/15 1,035,530
5,000 Westmoreland Cnty, PA Muni Auth Muni
Svc Rev (MBIA Insd)................. * 08/15/22 1,282,900
3,000 Westmoreland Cnty, PA Ser A Rfdg
(MBIA Insd)......................... * 12/01/19 923,070
--------------
53,341,089
--------------
RHODE ISLAND 0.2%
2,000 Rhode Island St Hlth & Edl Bldg Corp
Rev Higher Edl Fac Roger Williams
(Prerefunded @ 11/15/04) (Connie Lee
Insd)............................... 7.250 11/15/24 2,278,760
--------------
SOUTH CAROLINA 1.2%
70 Charleston Cnty, SC Ctfs Partn Ser B
(MBIA Insd)......................... 6.875 06/01/14 76,557
1,430 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA
Insd)............................... 6.875 06/01/14 1,596,452
2,475 Lancaster Cnty, SC Sch Dist (FSA
Insd)............................... 4.750 03/01/16 2,198,468
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 2,600 Lancaster Cnty, SC Sch Dist (FSA
Insd)............................... 4.750% 03/01/17 $ 2,286,180
2,725 Lancaster Cnty, SC Sch Dist (FSA
Insd)............................... 4.750 03/01/18 2,382,658
6,500 South Carolina Tran Infrastructure
Bk Rev (AMBAC Insd)................. 5.375 10/01/24 6,158,230
--------------
14,698,545
--------------
SOUTH DAKOTA 0.9%
1,610 South Dakota St Hlth & Edl Fac Auth
Rev (AMBAC Insd).................... 5.250 08/01/24 1,467,515
5,205 South Dakota St Lease Rev Trust Ctfs
Ser A (FSA Insd).................... 6.625 09/01/12 5,838,761
4,000 South Dakota St Lease Rev Trust Ctfs
Ser A (FSA Insd).................... 6.700 09/01/17 4,491,000
--------------
11,797,276
--------------
TENNESSEE 0.9%
2,000 Chattanooga-Hamilton Cnty, TN Hosp
Auth Hosp Rev Erlanger Med Cent Ser
B (Inverse Fltg) (Prerefunded @
05/01/01) (FSA Insd)................ 9.672 05/25/21 2,222,500
2,000 Franklin, TN Spl Sch Dist Cap Apprec
(FSA Insd).......................... * 06/01/17 722,040
2,320 Johnson City, TN Sch Sales Tax
(Prerefunded @ 05/01/06) (AMBAC
Insd)............................... 6.700 05/01/18 2,580,791
6,000 Tennergy Corp, TN Gas Rev (MBIA
Insd)............................... 4.125 06/01/09 5,480,100
--------------
11,005,431
--------------
TEXAS 4.6%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev
High Plains Baptist Hosp (Inverse
Fltg) (FSA Insd).................... 9.149 01/01/22 3,367,500
12,500 Austin, TX Util Sys Rev Ser A Rfdg
(MBIA Insd)......................... * 11/15/10 6,947,375
1,935 Corpus Christi, TX Hsg Fin Corp
Single Family Mtg Rev Ser A Rfdg
(MBIA Insd)......................... 7.700 07/01/11 2,061,104
7,705 Dallas Cnty, TX Util & Reclamation
Dist (MBIA Insd).................... * 02/15/09 4,057,838
8,500 Dallas Cnty, TX Util & Reclamation
Dist Ser B Rfdg (AMBAC Insd) (a).... 5.875 02/15/29 8,445,855
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,750 Dallas, TX Wtrwks & Swr Sys Rev Rfdg
(FSA Insd).......................... 5.000% 10/01/29 $ 4,986,400
1,400 El Paso, TX Hsg Fin Corp Mtg Rev
Single Family (FGIC Insd)........... * 11/01/16 212,464
4,615 Harris Cnty, TX Toll Rd Tax & Sub
Lien Ser A Rfdg (FGIC Insd)......... * 08/15/07 3,108,849
7,510 Harris Cnty-Houston, TX Sports Auth
Spl Rev Ser A (MBIA Insd)........... 5.000 11/15/28 6,504,636
10,000 Lower Co Riv Auth TX Rev Ser A Rfdg
(AMBAC Insd) (a).................... 5.500 05/15/21 9,590,700
2,505 Montgomery Cnty, TX Cap Apprec Rfdg
(MBIA Insd)......................... * 03/01/15 1,034,264
1,000 Montgomery Cnty, TX Cap Apprec Rfdg
(MBIA Insd)......................... * 03/01/16 386,760
1,305 Montgomery Cnty, TX Cap Apprec Rfdg
(MBIA Insd)......................... * 03/01/17 473,141
3,600 North Cent, TX Hlth Fac Dev TX Hlth
Res Sys Ser B (MBIA Insd)........... 5.375 02/15/26 3,319,200
1,000 San Antonio, TX Indpt Sch Dist Pub
Fac Corp Lease Rev (AMBAC Insd)..... 5.850 10/15/10 1,049,250
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp
Hlth Sys Rev Ser B (FGIC Insd)...... 5.000 09/01/15 1,648,168
--------------
57,193,504
--------------
UTAH 2.7%
21,000 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd).......... 5.750 07/01/19 20,912,010
750 Provo, UT Elec Rev 1984 Ser A Rfdg
(AMBAC Insd)........................ 10.375 09/15/15 1,045,208
7,385 Utah St Muni Fin Co-op Loc Govt Rev
Pool Cap Salt Lake (FSA Insd)....... * 03/01/09 4,532,691
3,115 West Jordan, UT Multi-Family Rev
Broadmoor Vlg Apts Proj Ser A Rfdg
(FSA Insd).......................... 6.800 01/01/15 3,256,826
4,540 West Valley City, UT Muni Bldg Lease
Ser A Rfdg (AMBAC Insd)............. 4.750 04/15/19 3,936,679
--------------
33,683,414
--------------
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA 1.6%
$ 4,000 Loudoun Cnty, VA Ctfs Partn (FSA
Insd)............................... 6.800% 03/01/14 $ 4,348,920
5,000 Richmond, VA (FSA Insd) (a)......... 5.500 01/15/16 4,831,050
5,000 Richmond, VA (FSA Insd) (a)......... 5.500 01/15/17 4,801,200
5,000 Richmond, VA (FSA Insd) (a)......... 5.500 01/15/18 4,770,000
750 University of VA Hosp Rev Ser C Rfdg
(Prerefunded @ 06/01/00) (AMBAC
Insd)............................... 9.375 06/01/07 785,123
--------------
19,536,293
--------------
WASHINGTON 1.6%
2,995 Grant Cnty, WA Pub Util Dist No 2
Priest Rapids Hydro Elec Rev Second
Ser C Rfdg (AMBAC Insd)............. 6.000 01/01/13 3,109,858
2,335 Grant Cnty, WA Pub Util Dist No 2
Priest Rapids Hydro Elec Rev Second
Ser C Rfdg (AMBAC Insd)............. 6.000 01/01/17 2,377,030
1,315 Grant Cnty, WA Pub Util Dist No 2
Wanapum Hydro Elec Rev Second Ser C
Rfdg (AMBAC Insd)................... 6.000 01/01/13 1,365,430
1,025 Grant Cnty, WA Pub Util Dist No 2
Wanapum Hydro Elec Rev Second Ser C
Rfdg (AMBAC Insd)................... 6.000 01/01/17 1,043,450
350 Pierce Cnty, WA Swr Rev Ser A (MBIA
Insd)............................... 9.000 02/01/05 420,721
5,000 Spokane, WA Regl Solid Waste Mgmt
Sys Rev (AMBAC Insd)................ 6.250 12/01/11 5,311,650
160 University of WA Univ Rev (MBIA
Insd)............................... 7.000 12/01/21 170,794
3,090 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev Proj No 1 Rev
Ser A Rfdg (AMBAC Insd)............. 5.700 07/01/09 3,218,204
3,015 Washington St Pub Pwr Supply Sys
Nuclear Proj No 2 Rev Ser C Rfdg
(MBIA Insd)......................... * 07/01/04 2,410,945
--------------
19,428,082
--------------
WISCONSIN 1.4%
1,350 Plover, WI Wtr Sys Rev (AMBAC
Insd)............................... 5.400 12/01/16 1,309,783
1,500 Plover, WI Wtr Sys Rev (AMBAC
Insd)............................... 5.500 12/01/18 1,457,325
12,490 Wisconsin St Hlth & Edl Fac Auth Rev
Aurora Med Group Inc Proj (FSA Insd)
(b)................................. 5.750 11/15/25 12,135,784
</TABLE>
See Notes to Financial Statements
30
<PAGE> 32
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 1,000 Wisconsin St Hlth & Edl Fac Auth Rev
Med College of WI Inc Proj (MBIA
Insd)............................... 5.500% 03/01/17 $ 959,400
1,000 Wisconsin St Hlth & Edl Fac Auth Rev
Med College of WI Inc Proj (MBIA
Insd)............................... 5.750 03/01/27 980,350
--------------
16,842,642
--------------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp
Proj (AMBAC Insd)................... 6.700 05/01/12 2,140,160
--------------
PUERTO RICO 0.2%
3,000 Puerto Rico Indl Tourist Edl Med &
Environmental Ctl Fac Hosp Aux (MBIA
Insd)............................... 6.250 07/01/16 3,153,810
--------------
TOTAL LONG-TERM INVESTMENTS 98.7%
(Cost $1,194,403,076)............................................. 1,227,667,842
SHORT-TERM INVESTMENTS 3.3%
(Cost $40,200,000)................................................ 40,200,000
--------------
TOTAL INVESTMENTS 102.0%
(Cost $1,234,603,076)............................................. 1,267,867,842
LIABILITIES IN EXCESS OF OTHER ASSETS (2.0%)....................... (24,444,294)
--------------
NET ASSETS 100.0%.................................................. $1,243,423,548
==============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
31
<PAGE> 33
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,234,603,076)..................... $1,267,867,842
Cash........................................................ 4,269
Receivables:
Interest.................................................. 17,411,259
Investments Sold.......................................... 17,032,747
Fund Shares Sold.......................................... 2,024,831
Other....................................................... 68,539
--------------
Total Assets.......................................... 1,304,409,487
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 56,182,546
Fund Shares Repurchased................................... 1,646,108
Income Distributions...................................... 1,381,051
Distributor and Affiliates................................ 727,565
Investment Advisory Fee................................... 515,487
Accrued Expenses............................................ 331,443
Trustees' Deferred Compensation and Retirement Plans........ 201,739
--------------
Total Liabilities..................................... 60,985,939
--------------
NET ASSETS.................................................. $1,243,423,548
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,214,847,932
Net Unrealized Appreciation................................. 33,264,766
Accumulated Distributions in Excess of Net Investment
Income.................................................... (487,916)
Accumulated Net Realized Loss............................... (4,201,234)
--------------
NET ASSETS.................................................. $1,243,423,548
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,178,342,105 and 65,168,747 shares of
beneficial interest issued and outstanding)............. $18.08
Maximum sales charge (4.75%* of offering price)......... .90
--------------
Maximum offering price to public........................ $18.98
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $56,764,436 and 3,138,853 shares of
beneficial interest issued and outstanding)............. $18.08
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $8,317,007 and 460,024 shares of
beneficial interest issued and outstanding)............. $18.08
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
32
<PAGE> 34
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 75,945,082
-------------
EXPENSES:
Investment Advisory Fee..................................... 6,729,700
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of 2,952,701, 660,342 and $80,230,
respectively)............................................. 3,693,273
Shareholder Services........................................ 1,304,891
Legal....................................................... 99,600
Custody..................................................... 80,288
Trustees' Fees and Related Expenses......................... 56,526
Insurance................................................... 35,500
Other....................................................... 623,787
-------------
Total Operating Expenses.................................... 12,623,565
Less Credits Earned on Cash Balances...................... 54,688
-------------
Net Operating Expenses.................................... 12,568,877
Interest Expense.......................................... 234,497
-------------
NET INVESTMENT INCOME....................................... $ 63,141,708
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (1,043,226)
Futures................................................... (1,580,036)
-------------
Net Realized Loss........................................... (2,623,262)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 143,148,176
End of the Period:
Investments............................................. 33,264,766
-------------
Net Unrealized Depreciation During the Period............... (109,883,410)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $(112,506,672)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (49,364,964)
=============
</TABLE>
See Notes to Financial Statements
33
<PAGE> 35
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999,
the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................ $ 63,141,708 $ 49,110,538 $ 68,037,607
Net Realized Gain/Loss............... (2,623,262) 15,077,312 8,525,006
Net Unrealized
Appreciation/Depreciation
During the Period.................. (109,883,410) 12,112,058 31,101,903
-------------- -------------- --------------
Change in Net Assets from
Operations......................... (49,364,964) 76,299,908 107,664,516
-------------- -------------- --------------
Distributions from Net Investment
Income............................. (63,107,634) (49,274,568) (67,785,067)
Distributions in Excess of Net
Investment Income.................. -0- (521,990) -0-
-------------- -------------- --------------
Distributions from and in Excess of
Net Investment Income*............. (63,107,634) (49,796,558) (67,785,067)
Distributions from Net Realized
Gain*.............................. (16,810,581) (2,401,285) (11,111,608)
-------------- -------------- --------------
Total Distributions.................. (79,918,215) (52,197,843) (78,896,675)
-------------- -------------- --------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.............. (129,283,179) 24,102,065 28,767,841
-------------- -------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............ 692,548,007 505,859,955 631,717,458
Net Asset Value of Shares Issued
Through Dividend Reinvestment...... 57,008,999 35,644,233 54,493,315
Cost of Shares Repurchased........... (809,433,864) (492,241,941) (716,001,683)
-------------- -------------- --------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............... (59,876,858) 49,262,247 (29,790,910)
-------------- -------------- --------------
TOTAL INCREASE/DECREASE IN NET
ASSETS............................. (189,160,037) 73,364,312 (1,023,069)
NET ASSETS:
Beginning of the Period.............. 1,432,583,585 1,359,219,273 1,360,242,342
-------------- -------------- --------------
End of the Period (Including
accumulated undistributed net
investment income of $(487,916),
$(521,990) and $164,030,
respectively)...................... $1,243,423,548 $1,432,583,585 $1,359,219,273
============== ============== =============
* Distributions by Class
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $ (60,158,791) $ (47,397,474) $ (64,607,170)
Class B Shares...................... (2,628,280) (2,215,435) (2,965,479)
Class C Shares...................... (320,563) (183,649) (212,418)
-------------- -------------- --------------
$ (63,107,634) $ (49,796,558) $ (67,785,067)
============== ============== ==============
Distributions from Net Realized Gain:
Class A Shares...................... $ (15,893,768) $ (2,262,642) $ (10,489,973)
Class B Shares...................... (826,371) (128,797) (580,452)
Class C Shares...................... (90,442) (9,846) (41,183)
-------------- -------------- --------------
$ (16,810,581) $ (2,401,285) $ (11,111,608)
============== ============== ==============
</TABLE>
See Notes to Financial Statements
34
<PAGE> 36
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -----------------------------------------
Class A Shares 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $19.956 $19.631 $ 19.238 $ 19.549 $ 17.572 $ 19.857
------- ------- -------- -------- -------- --------
Net Investment
Income.............. .914 .710 .974 .980 1.021 1.051
Net Realized and
Unrealized
Gain/Loss........... (1.641) .371 .551 (.304) 1.982 (2.280)
------- ------- -------- -------- -------- --------
Total from Investment
Operations.......... (.727) 1.081 1.525 .676 3.003 (1.229)
------- ------- -------- -------- -------- --------
Less:
Distributions from
and in Excess of
Net Investment
Income............ .914 .720 .971 .987 1.026 1.056
Distributions from
Net Realized
Gain.............. .234 .036 .161 -0- -0- -0-
------- ------- -------- -------- -------- --------
Total Distributions... 1.148 .756 1.132 .987 1.026 1.056
------- ------- -------- -------- -------- --------
Net Asset Value, End
of the Period....... $18.081 $19.956 $ 19.631 $ 19.238 $ 19.549 $ 17.572
======= ======= ======== ======== ======== ========
Total Return (a)...... (3.80%) 5.61%* 8.19% 3.65% 17.49% (6.31%)
Net Assets at End of
the Period (In
millions)........... $1,178.3 $1,353.9 $1,283.5 $1,283.7 $1,365.4 $1,110.2
Ratio of Expenses to
Average Net Assets
(b)................. .92% .90% .92% .95% .88% .88%
Ratio of Net
Investment Income to
Average
Net Assets (b)...... 4.77% 4.85% 5.07% 5.11% 5.44% 5.70%
Portfolio Turnover.... 92% 62%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
35
<PAGE> 37
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class B Shares 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $19.957 $19.634 $19.240 $19.549 $17.563 $19.824
------- ------- ------- ------- ------- -------
Net Investment
Income............... .769 .598 .826 .832 .890 .899
Net Realized and
Unrealized
Gain/Loss............ (1.643) .370 .551 (.304) 1.978 (2.276)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... (.874) .968 1.377 .528 2.868 (1.377)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............. .765 .609 .822 .837 .882 .884
Distributions from
Net Realized Gain.. .234 .036 .161 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions.... .999 .645 .983 .837 .882 .884
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $18.084 $19.957 $19.634 $19.240 $19.549 $17.563
======= ======= ======= ======= ======= =======
Total Return (a)....... (4.60%) 5.07%* 7.36% 2.83% 16.67% (7.03%)
Net Assets at End of
the Period (In
millions)............ $56.8 $71.9 $70.1 $71.6 $75.3 $30.0
Ratio of Expenses to
Average Net Assets
(b).................. 1.68% 1.66% 1.69% 1.74% 1.67% 1.71%
Ratio of Net Investment
Income to Average Net
Assets (b)........... 3.99% 4.08% 4.29% 4.38% 4.69% 4.88%
Portfolio Turnover..... 92% 62%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sale charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
36
<PAGE> 38
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class C Shares 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $19.952 $19.630 $19.239 $19.548 $17.568 $19.823
------- ------- ------- ------- ------- -------
Net Investment
Income............... .763 .594 .822 .830 .883 .908
Net Realized and
Unrealized
Gain/Loss............ (1.636) .373 .552 (.302) 1.979 (2.279)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... (.873) .967 1.374 .528 2.862 (1.371)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............. .765 .609 .822 .837 .882 .884
Distributions from
Net Realized
Gain............... .234 .036 .161 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions.... .999 .645 .983 .837 .882 .884
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $18.080 $19.952 $19.630 $19.239 $19.548 $17.568
======= ======= ======= ======= ======= =======
Total Return (a)....... (4.55%) 5.02%* 7.36% 2.83% 16.60% (6.98%)
Net Assets at End of
the Period (In
millions)............ $ 8.3 $ 6.8 $ 5.6 $ 4.9 $ 5.1 $ 3.5
Ratio of Expenses to
Average Net Assets
(b).................. 1.68% 1.66% 1.69% 1.74% 1.67% 1.70%
Ratio of Net Investment
Income to Average Net
Assets (b)........... 3.99% 4.06% 4.29% 4.37% 4.68% 4.89%
Portfolio Turnover..... 92% 62%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
37
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Insured Tax Free Income Fund (the "Fund") is organized as a series of
Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors with a high level of current income exempt from federal
income taxes, with liquidity and safety of principal, primarily through an
investment in a diversified portfolio of insured municipal securities. The Fund
commenced the distribution of its Class B and Class C shares on May 1, 1993 and
August 13, 1993, respectively. In July, 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from December 31 to September
30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
38
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Income and expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund'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.
Net realized gains or losses may differ for financial reporting and tax
reporting purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following fiscal year and
the deferral of losses relating to wash sale transactions.
At September 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $1,234,611,123; the aggregate gross unrealized
appreciation is $57,607,153 and the aggregate gross unrealized depreciation is
$24,350,434, resulting in net unrealized appreciation on long- and short-term
investments of $33,256,719.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
F. INSURANCE EXPENSES--The Fund typically invests in insured bonds. Any
portfolio securities not specifically covered by a primary insurance policy are
insured secondarily through the Fund's portfolio insurance policy. Insurance
premiums are based on the daily balances of uninsured bonds in the portfolio of
investments and are charged to expense on an accrual basis. The insurance policy
guarantees the timely payment of principal and interest on the securities in the
Fund's portfolio.
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
G. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Trust's
custody fee was reduced by $54,688 as a result of credits earned on cash
balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -------------------------------------------------------------------
<S> <C>
First $500 million.................................... .525 of 1%
Next $500 million..................................... .500 of 1%
Next $500 million..................................... .475 of 1%
Over $1.5 billion..................................... .450 of 1%
</TABLE>
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $69,300 representing legal expenses provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $336,600 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $964,600. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
40
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $1,146,455,777, $59,293,894 and
$9,098,261 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 34,531,055 $ 665,555,139
Class B.................................... 613,802 11,864,633
Class C.................................... 778,739 15,128,235
----------- -------------
Total Sales.................................. 35,923,596 $ 692,548,007
=========== =============
Dividend Reinvestment:
Class A.................................... 2,854,181 $ 54,768,276
Class B.................................... 101,275 1,947,040
Class C.................................... 15,346 293,683
----------- -------------
Total Dividend Reinvestment.................. 2,970,802 $ 57,008,999
=========== =============
Repurchases:
Class A.................................... (40,059,533) $(773,708,764)
Class B.................................... (1,177,316) (22,609,500)
Class C.................................... (676,622) (13,115,600)
----------- -------------
Total Repurchases............................ (41,913,471) $(809,433,864)
=========== =============
</TABLE>
41
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $1,199,841,126, $68,091,721 and
$6,791,943 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 24,717,457 $ 483,526,778
Class B.................................... 517,918 10,164,399
Class C.................................... 621,935 12,168,778
----------- -------------
Total Sales.................................. 25,857,310 $ 505,859,955
=========== =============
Dividend Reinvestment:
Class A.................................... 1,747,169 $ 34,263,263
Class B.................................... 63,858 1,252,254
Class C.................................... 6,563 128,716
----------- -------------
Total Dividend Reinvestment.................. 1,817,590 $ 35,644,233
=========== =============
Repurchases:
Class A.................................... (24,001,702) $(470,222,851)
Class B.................................... (552,971) (10,848,637)
Class C.................................... (570,061) (11,170,453)
----------- -------------
Total Repurchases............................ (25,124,734) $(492,241,941)
=========== =============
</TABLE>
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $1,152,273,936, $67,523,705 and
$5,664,902 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 32,247,420 $ 617,534,974
Class B.................................... 410,394 7,887,393
Class C.................................... 324,754 6,295,091
----------- -------------
Total Sales.................................. 32,982,568 $ 631,717,458
=========== =============
Dividend Reinvestment:
Class A.................................... 2,721,901 $ 52,405,367
Class B.................................... 99,148 1,908,983
Class C.................................... 9,300 178,965
----------- -------------
Total Dividend Reinvestment.................. 2,830,349 $ 54,493,315
=========== =============
Repurchases:
Class A.................................... (36,316,268) $(697,389,583)
Class B.................................... (660,311) (12,665,655)
Class C.................................... (306,866) (5,946,445)
----------- -------------
Total Repurchases............................ (37,283,445) $(716,001,683)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the year ended September 30, 1999, 672,438 Class B shares automatically
converted to Class A shares. The CDSC will be imposed on
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
most redemptions made within six years of the purchase for Class B and one year
of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 3.75% None
Third........................................ 3.50% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>
For the year ended September 30, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $79,600 and CDSC on redeemed shares of approximately $95,300.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $1,236,470,758 and
$1,304,031,337, 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.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising a call option contract or taking
delivery of a security underlying a futures contract. In these instances, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. 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).
Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998........................... -0-
Futures Opened.............................................. 7,882
Futures Closed.............................................. (7,882)
------
Outstanding at September 30, 1999........................... -0-
======
</TABLE>
B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
45
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 1999, are payments retained by Van Kampen of
approximately $805,900.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the fund complex, has entered into a $100 million revolving
credit agreement which expires November 10, 1999. The maximum amount available
to any single fund is $75 million. Interest is charged under the agreement at a
rate of .45% above the federal funds rate. An annual facility fee of .06% is
charged on the unused portion of the credit facility.
The average daily balance of bank borrowings for the year ended September
30, 1999 was approximate $4,279,045 with an average interest rate of 5.48%. At
September 30, 1999, the Fund did not have any outstanding borrowings under the
agreement.
46
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Insured Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Insured Tax Free Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Insured Tax Free Income Fund as of September 30, 1999, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
November 5, 1999
47
<PAGE> 49
VAN KAMPEN INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN*--Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For Federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
September 30, 1999. The Fund designated 99.99% of the income distributions as a
tax-exempt income distribution. Additionally, during the period, the Fund
designated and paid $11,310,142 as a 20% rate gain distribution. These
distributions, where applicable were included in 1998's form 1099-DIV which was
mailed to shareholders in January of 1999. In January, 2000, the Fund will
provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc. 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 28, 2000, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
48
<PAGE> 50
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 38
Statement of Operations.......................... 39
Statement of Changes in Net Assets............... 40
Financial Highlights............................. 41
Notes to Financial Statements.................... 44
Report of Independent Accountants................ 54
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 52
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 53
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 54
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN TAX FREE HIGH INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... (2.51%) (3.25%) (3.25%)
One-year total return(2)................. (7.12%) (6.94%) (4.18%)
Five-year average annual total
return(2)................................ 4.78% 4.73% 4.98%
Ten-year average annual total
return(2)................................ 4.93% N/A N/A
Life-of-Fund average annual total
return(2)................................ 6.93% 4.87% 4.37%
Commencement date........................ 6/28/85 05/01/93 08/13/93
DISTRIBUTION RATES
Distribution rate(3)..................... 5.51% 4.96% 4.96%
Taxable-equivalent distribution
rate(4).................................. 8.61% 7.75% 7.75%
SEC Yield(5)............................. 5.41% 4.92% 4.91%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999.
A portion of the interest income may be subject to the federal alternative
minimum tax (AMT).
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
An investment in medium- and lower-grade securities involves the risk of
potentially greater sensitivity to an economic downturn which would affect the
issuer's ability to make timely payment of principal and interest.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 55
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Tax Free High Income Fund vs. Lehman Brothers Municipal Bond
Index (September 30, 1989 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Return = -7.12%
5 Year Avg. Annual = 4.78%
10 Year Avg. Annual = 4.93%
- ------------------------------
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND
VAN KAMPEN TAX FREE HIGH INCOME INDEX
------------------------------- ------------------------------
<S> <C> <C>
Sep 1989 9523.00 10000.00
9610.00 10122.00
9693.00 10299.00
9757.00 10384.00
9790.00 10335.00
9817.00 10427.00
9844.00 10430.00
9804.00 10355.00
9875.00 10581.00
9908.00 10674.00
9980.00 10831.00
9927.00 10674.00
Sep 1990 9986.00 10680.00
9977.00 10873.00
10044.00 11092.00
10072.00 11141.00
10121.00 11290.00
10182.00 11386.00
10192.00 11393.00
10264.00 11544.00
10324.00 11647.00
10364.00 11635.00
10458.00 11777.00
10573.00 11933.00
Sep 1991 10695.00 12088.00
10743.00 12197.00
10804.00 12231.00
10929.00 12494.00
10971.00 12522.00
10950.00 12526.00
10886.00 12531.00
10929.00 12643.00
11029.00 12792.00
11072.00 13007.00
11130.00 13397.00
10966.00 13266.00
Sep 1992 10940.00 13352.00
10767.00 13221.00
10890.00 13458.00
10938.00 13595.00
11002.00 13753.00
11082.00 14251.00
11223.00 14100.00
11334.00 14242.00
11446.00 14322.00
11637.00 14561.00
11770.00 14580.00
12132.00 14883.00
Sep 1993 12243.00 15053.00
12314.00 15081.00
12370.00 14949.00
12669.00 15264.00
12802.00 15438.00
12546.00 15038.00
11960.00 14426.00
12013.00 14549.00
12092.00 14675.00
12046.00 14586.00
12227.00 14853.00
12298.00 14905.00
Sep 1994 12209.00 14686.00
12017.00 14424.00
11772.00 14163.00
12045.00 14475.00
12358.00 14889.00
12655.00 15322.00
12778.00 15498.00
12769.00 15517.00
13045.00 16012.00
12982.00 15872.00
13090.00 16023.00
13235.00 16227.00
Sep 1995 13326.00 16329.00
13518.00 16566.00
13766.00 16841.00
13914.00 17002.00
13960.00 17132.00
13829.00 17015.00
13642.00 16797.00
13585.00 16750.00
13661.00 16744.00
13766.00 16926.00
13852.00 17080.00
13862.00 17077.00
Sep 1996 14037.00 17316.00
14193.00 17511.00
14379.00 17832.00
14360.00 17757.00
14375.00 17791.00
14491.00 17954.00
14427.00 17716.00
14524.00 17864.00
14672.00 18132.00
14821.00 18326.00
15236.00 18834.00
15137.00 18657.00
Sep 1997 15305.00 18879.00
15433.00 19000.00
15447.00 19112.00
15660.00 19391.00
15800.00 19591.00
15846.00 19597.00
15887.00 19614.00
15822.00 19626.00
16025.00 19834.00
16111.00 19912.00
16164.00 19962.00
16414.00 20271.00
Sep 1998 16599.00 20524.00
16532.00 20524.00
16564.00 20596.00
16596.00 20648.00
16738.00 20893.00
16667.00 20801.00
16686.00 20831.00
16751.00 20883.00
16690.00 20762.00
16447.00 20463.00
16478.00 20536.00
16244.00 20372.00
Sep 1999 16183.00 20380.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 56
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN TAX FREE HIGH INCOME FUND
We recently spoke with David C. Johnson, portfolio manager of the Van Kampen Tax
Free High Income Fund, about the key events and economic forces that shaped the
markets during the past year. Mr. Johnson has managed the Fund since 1989 and
worked in the investment industry since 1981. He is joined by Peter W. Hegel,
chief investment officer for fixed-income investments. The following comments
reflect their views on the Fund's performance during the 12 months ended
September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utilities, environment-related,
and health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market. With the exception of the health-care
sector, overall credit quality remained high, and we witnessed a number of
credit upgrades as tax revenues kept municipal finances strong. In addition,
municipal bond yields remained very attractive compared with Treasury bonds,
especially when considering the tax advantages of municipals. At the end of the
reporting period, AAA-rated municipals were offering yields that were about 90
percent of comparable Treasury yields, making municipals very attractive for
investors in higher income tax brackets.
Another positive effect was that credit spreads--the difference in yields
between higher- and lower-quality bonds--widened toward the end of the reporting
period. We have considerable experience in researching and selecting those
lower-quality bonds that
5
<PAGE> 57
we feel have been undervalued, so this gave us a much wider range from which to
choose. While we are always looking for bonds in this area that might benefit
the Fund, the widening of credit spreads meant that the Fund received better
yields from these bonds than we had earlier in the reporting period.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A The widening of credit spreads gave us the opportunity to increase the
proportion of higher-yielding bonds, which helped to support the Fund's
dividend. Higher-yielding bonds were very attractive during the last
several months because the demand for these bonds dissipated as interest rates
rose, requiring issuers to provide more attractive yields. We increased the
Fund's non-rated bond allocation to 48 percent at the end of the reporting
period. These higher-yielding bonds also served as a defensive strategy for the
Fund because these bonds have tended to suffer less than high-quality bonds when
rates increase.
Another major strategy for the Fund has been to increase its duration, or
sensitivity to interest rate changes. We did so by purchasing longer-duration
securities such as zero coupon and deep-discount bonds. We feel that this
strategy will work well in a declining interest-rate environment because it
should allow the Fund to participate more fully in a market rally. In the short
term, however, the longer duration negatively affected the Fund's total return
as interest rates climbed.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A Bonds issued in California have been very attractive during the past year
because of the state's strong economic condition and the solid fiscal
management of many municipalities. As a result, we sold some of our
California bonds that had appreciated in value and replaced them with
higher-yielding bonds, which contributed to the Fund's total return and income
stream. Our research team continues to seek attractive securities issued in
California and other states with strong demand for municipal bonds.
In addition, we reduced our position in the health-care sector. Although
many health-care bonds remain attractive, the challenges imposed by managed care
and changing Medicare reimbursement policies have led us to look to other
sectors in recent months. For additional portfolio highlights, please refer to
page 9.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -2.51 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based
6
<PAGE> 58
statistical composite of municipal bonds and does not reflect any commissions
that would be paid by an investor purchasing the securities it represents.
On the positive side, the Fund's dividend remained unchanged over the past
six months even though many other municipal bond funds experienced dividend
decreases. However, as we mentioned in our last report, the Fund had a dividend
decrease in January 1999. The Fund's tax-exempt dividend of $0.067 per Class A
share translates to a distribution rate of 5.51 percent(3), which is equivalent
to a yield of 8.61 percent(4) for an investor in the 36 percent federal income
tax bracket. Please refer to the chart and footnotes on page 3 for additional
Fund performance results. Past performance does not guarantee future
performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive higher-yielding bonds and protecting the Fund from
bond calls as much as possible. We will also use our research capabilities to
monitor the health-care sector for attractive opportunities throughout the
coming months.
[SIG]
David C. Johnson
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 59
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 60
PORTFOLIO HIGHLIGHTS
VAN KAMPEN TAX FREE HIGH INCOME FUND
TOP FIVE STATES AS OF SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
Illinois.................. 12.0%
Texas..................... 10.7%
Pennsylvania.............. 8.0%
Florida................... 8.0%
California................ 7.4%
</TABLE>
CREDIT QUALITY*
AS OF SEPTEMBER 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA B/B CC/CC
------- ----- --- ------- ----- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 28.10 2.10 6.60 12.10 2.60 0.40 0.10
1999
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 48.00
1999
</TABLE>
AS OF SEPTEMBER 30, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of September 30, 1998 31.00 3.80 6.60 12.80 3.00
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1998 42.80
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 0.069
Nov 1998 0.069
Dec 1998 0.069
Jan 1999 0.067
Feb 1999 0.067
Mar 1999 0.067
Apr 1999 0.067
May 1999 0.067
Jun 1999 0.067
Jul 1999 0.067
Aug 1999 0.067
Sep 1999 0.067
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Industrial Revenue 16.20 15.30
Health Care 12.50 14.80
Other Care 11.60 10.00
Multi-Family Housing 10.30 10.50
General Purpose 8.70 9.60
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 61
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 103.1%
ALABAMA 1.0%
$ 1,500 Mobile, AL Indl Dev Brd Pollution
Ctl Rev Intl Paper Co Proj Rfdg..... 4.750% 04/01/10 $ 1,373,535
240 Mobile, AL Indl Dev Brd Solid Waste
Disp Rev Mobile Energy Svcs Co Proj
Rfdg................................ 6.950 01/01/20 83,180
2,150 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A............... 5.650 11/01/22 1,942,396
1,395 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A............... 5.600 11/01/16 1,279,968
1,000 West Jefferson Cnty, AL Amusement &
Pub Park Auth (Prerefunded @
12/01/06) (b)....................... 7.500 12/01/08 1,132,090
2,000 West Jefferson Cnty, AL Amusement &
Pub Park Auth....................... 6.375 02/01/29 1,666,940
3,000 West Jefferson Cnty, AL Amusement &
Pub Park Auth (Prerefunded @
12/01/06) (b)....................... 8.000 12/01/26 3,628,110
--------------
11,106,219
--------------
ALASKA 0.4%
2,000 Juneau, AK City & Borough
Nonrecourse Rev..................... 6.875 12/01/25 1,957,020
2,250 Seward, AK Rev AK Sealife Cent
Proj................................ 7.650 10/01/16 2,305,328
--------------
4,262,348
--------------
ARIZONA 2.0%
6,169 Chandler, AZ Indl Dev Auth Rev
Chandler Finl Cent Proj Ser 1986 (c)
(g)................................. 9.875 12/01/16 5,243,773
4,000 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev................ 6.625 07/01/33 3,816,080
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr
Living Fac Rev...................... 7.750 04/01/15 2,661,972
2,700 Maricopa Cnty, AZ Uni Sch Dist No 41
Gilbert Rfdg (FGIC Insd)............ * 01/01/08 1,780,380
1,500 Peoria, AZ Indl Dev Auth Rev Sierra
Winds Life Ser A Rfdg............... 6.500 08/15/31 1,425,660
2,420 Pima Cnty, AZ Indl Dev Auth Sr
Living Facs Catilina Vlg Ser A
Rev................................. 6.500 07/01/29 2,224,077
2,160 Pima Cnty, AZ Indl Dev Auth
Multi-Family Rev.................... 6.625 10/01/28 2,082,024
</TABLE>
See Notes to Financial Statements
10
<PAGE> 62
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$ 305 Pinal Cnty, AZ Sch Dist No 8 Mammoth
Ser A............................... 11.000% 07/01/00 $ 320,695
1,900 Red Hawk Canyon Cmnty Facs Dist No 2
AZ Dist Assmt Rev................... 6.500 12/01/12 1,802,473
1,000 Tuscon, AZ Indl Dev Auth Rev Clarion
Santa Rita Hotel Ser A Rfdg......... 6.375 12/01/16 939,890
--------------
22,297,024
--------------
CALIFORNIA 7.6%
2,000 Abag Fin Auth For Nonprofit Corps CA
Ctfs Partn.......................... 6.375 11/15/28 1,902,320
4,330 California Edl Fac Auth Rev Cap
Apprec Univ (AMBAC Insd)............ * 10/01/23 1,071,155
1,310 California Edl Fac Auth Rev Univ of
La Verne............................ 6.375 04/01/13 1,344,741
1,000 Capistrano, CA Uni Sch Dist Cmnty
Fac Dist Spl Tax (Prerefunded @
09/01/07) (b)....................... 7.100 09/01/21 1,175,420
1,470 Colton, CA Pub Fin Auth Rev Elec Sys
Impts (Prerefunded @ 10/01/03)
(b)................................. 7.500 10/01/20 1,643,916
5,000 Contra Costa, CA Home Mtg Fin Auth
Home Mtg Rev (MBIA Insd)............ * 09/01/17 1,807,350
2,500 Corona, CA Ctfs Partn Vista Hosp Sys
Inc Ser C........................... 8.375 07/01/11 2,382,475
2,000 Culver City, CA Redev Fin Auth Rev
Tax Alloc Rfdg (AMBAC Insd) (b)..... 5.500 11/01/14 2,048,400
3,465 Escondido, CA Jt Pwrs Fin Auth Lease
Rev CA Cent for the Arts (AMBAC
Insd)............................... * 09/01/15 1,324,219
3,480 Escondido, CA Jt Pwrs Fin Auth Lease
Rev CA Cent for the Arts (AMBAC
Insd)............................... * 09/01/18 1,076,225
6,000 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev (MBIA Insd).......... * 01/15/18 2,036,640
22,985 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/24 5,016,706
4,000 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/26 2,137,000
3,000 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/27 1,594,530
</TABLE>
See Notes to Financial Statements
11
<PAGE> 63
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$15,000 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/30 $ 2,228,250
42,460 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/31 5,904,912
35,000 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/37 3,298,400
15,000 Foothill/Eastern Trans Corridor Agy
CA Toll Rd Rev...................... * 01/15/38 1,326,300
2,705 Healdsburg, CA Ctfs Partn Nuestro
Hospital Inc........................ 6.375% 11/01/28 2,458,737
980 Indio, CA Pub Fin Auth Rev Tax
Increment........................... 6.500 08/15/27 986,135
1,990 Lake Elsinore, CA Pub Fin Auth Loc
Agy Rev............................. 7.100 09/01/20 2,064,068
1,500 Millbrae, CA Residential Fac Rev
Magnolia of Millbrae Proj Ser A..... 7.375 09/01/27 1,540,020
2,350 Riverside Cnty, CA Air Force Vlg
West Inc Ser A Rfdg (Prerefunded @
06/15/02) (b)....................... 8.125 06/15/20 2,630,919
5,500 Riverside Cnty, CA Asset Leasing
Corp Leasehold Rev (MBIA Insd)...... * 06/01/22 1,460,690
8,255 Riverside Cnty, CA Asset Leasing
Corp Leasehold Rev (MBIA Insd)...... * 06/01/26 1,721,580
4,000 Sacramento, CA City Fin Auth Rev Sr
Convention Ctr Hotel Ser A.......... 6.250 01/01/30 3,813,600
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC
Insd) (b)........................... 5.500 08/15/10 2,083,220
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC
Insd)............................... 5.500 08/15/11 1,963,859
7,625 San Francisco, CA City & Cnty Redev
Agy Lease Rev Gains (Crossover Rfdg
@ 07/01/04) (h)..................... 0/8.500 07/01/14 6,963,989
3,300 San Francisco, CA City & Cnty Redev
Fin Auth Tax Alloc Rev.............. 5.250 08/01/21 3,066,954
31,000 San Joaquin Hills CA Trans
Corridor Agy Toll Rd Rev
(MBIA Insd)......................... * 01/15/36 3,621,110
2,000 San Jose, CA Multi-family Hsg Rev
Helzer Courts Apts Ser A 144A (f)... 6.400 12/01/41 1,899,700
</TABLE>
See Notes to Financial Statements
12
<PAGE> 64
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 San Luis Obispo, CA Ctfs Partn Vista
Hosp Sys Inc........................ 8.375% 07/01/29 $ 932,090
9,635 San Ramon Valley, CA Uni Sch Dist
Ser A (FGIC Insd)................... * 07/01/18 3,312,706
1,500 Simi Valley, CA Cmnty Dev Agy Coml
Sycamore Plaza II Rfdg.............. 6.000 09/01/12 1,530,510
2,000 Ventura, CA Port Dist Ctfs Partn.... 6.375 08/01/28 1,901,400
--------------
83,270,246
--------------
COLORADO 4.6%
400 Arapahoe Cnty, CO Centennial Downs
Metro Dist Aranum-Butler, OH LSD
(e)................................. 6.000 12/01/34 360,353
650 Arapahoe Cnty, CO Centennial Downs
Metro Dist Ltd Tax Bond Ser 1993
Rfdg................................ 8.090 12/01/34 657,737
61 Arapohoe Cnty, CO Centennial Downs
Metro Dist Cash Payment
Deficiency.......................... 8.090 12/01/34 61,132
986 Bowles Metro Dist CO (Prerefunded @
12/01/05)........................... 7.750 12/01/15 1,135,379
2,000 Colorado Hlth Fac Auth Rev Baptist
Home Assn Ser A..................... 6.375 08/15/24 1,970,400
1,590 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj.................. 6.850 01/01/15 1,636,380
1,060 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj.................. 7.050 01/01/19 1,101,361
6,200 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj (b).............. 9.000 01/01/25 7,002,032
2,205 Denver, CO City & Cnty Arpt Rev Ser
A (b)............................... 8.875 11/15/12 2,409,337
795 Denver, CO City & Cnty Arpt Rev Ser
A (Prerefunded @ 11/15/01).......... 8.875 11/15/12 884,040
2,500 Denver, CO City & Cnty Arpt Rev Ser
D (b)............................... 7.750 11/15/13 2,969,200
1,030 Eagle Riverview Affordable Housing
Corp Multi-family Rev............... 6.300 07/01/29 993,723
671 East River Regl Santn Dist CO Var
Rfdg (Var Rate Cpn)................. 4.000 12/01/08 677,641
5,715 Greeley, CO Multi-Family Rev Hsg Mtg
Creek Stone (FHA Gtd)............... 6.050 07/01/37 5,770,779
</TABLE>
See Notes to Financial Statements
13
<PAGE> 65
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 4,163 Himalaya Wtr & Santn Dist Adams
Cnty, CO Genl Oblig Ltd Tax Rfdg
Bond Ser 1995 (d)................... 9.500% 12/01/24 $ 3,330,268
2,125 Lafayette, CO Indl Dev Rev Rocky Mtn
Instr Proj A........................ 7.000 10/01/18 1,997,075
870 Lafayette, CO Indl Dev Rev Rocky Mtn
Instr Proj Ser A.................... 6.750 10/01/14 862,405
1,960 Northern Metro Dist CO Adams Cnty
Rfdg................................ 6.500 12/01/16 2,011,823
4,572 Skyland Metro Dist CO Gunnison Cnty
Rfdg (Var Rate Cpn) (g)............. 4.000 12/01/08 3,271,437
13,868 Tower Metro Dist Adams Cnty, CO Gen
Oblig Ltd Tax Rfdg Bond Ser 1995
(d)................................. 9.500 02/01/24 11,094,445
--------------
50,196,947
--------------
CONNECTICUT 1.4%
3,740 Connecticut St Hlth & Edl Fac Auth
Rev Nursing Home Pgm AHF/Windsor
Proj (Prerefunded @ 11/01/04) (b)... 7.125 11/01/24 4,231,848
2,980 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A (Prerefunded @
09/01/07) (f)....................... 6.400 09/01/11 3,324,935
3,020 Mashantucket Western Pequot Tribe CT
Spl Rev Ser B, 144A (f)............. 6.400 09/01/11 3,157,440
5,000 Stamford, CT Hsg Auth Multi-Family
Rev Fairfield Apts Proj Rfdg........ 4.750 12/01/28 4,722,050
--------------
15,436,273
--------------
DELAWARE 0.2%
2,225 Wilmington, DE Multi-Family Rent Rev
Hsg Electra Arms Sr Assoc Proj...... 6.250 06/01/28 2,055,500
--------------
DISTRICT OF COLUMBIA 0.5%
1,000 District of Columbia Rev Methodist
Home Issue.......................... 6.000 01/01/29 912,970
1,615 District of Columbia A-1 Rfdg (MBIA
Insd) (b)........................... 6.500 06/01/10 1,777,469
85 District of Columbia A-1 Rfdg (MBIA
Insd)............................... 6.500 06/01/10 94,952
2,000 District of Columbia Ser E (FSA
Insd) (b)........................... 6.000 06/01/11 2,121,880
--------------
4,907,271
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 66
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA 8.2%
$28,000 Dade Cnty, FL Gtd Entitlement Rev
Cap Apprec Ser A Rfdg (MBIA Insd)
(b)................................. * 02/01/18 $ 9,379,440
4,585 Escambia Cnty, FL Rev ICF/MR
Pensacola Care Dev Cent............. 10.250% 07/01/11 4,584,083
1,935 Escambia Cnty, FL Rev ICF/MR
Pensacola Care Dev Cent Ser A....... 10.250 07/01/11 1,934,613
1,115 Fishhawk Cmnty, FL Dev Dist Spl
Assmt Rev........................... 7.625 05/01/18 1,161,128
3,000 Florida Hsg Fin Corp Rev Hsg Beacon
Hill Apts Ser C..................... 6.610 07/01/38 2,870,940
4,000 Florida Hsg Fin Corp Rev Hsg Cypress
Trace Apts Ser G.................... 6.600 07/01/38 3,840,640
3,000 Florida Hsg Fin Corp Rev Hsg
Westbrook Apts Ser U1............... 6.450 01/01/39 2,783,460
4,000 Florida Hsg Fin Corp Rev Hsg
Westchase Apts Ser B................ 6.610 07/01/38 3,840,800
4,445 Florida St Brd of Edl Cap Outlay Pub
Edl Ser A Rfdg (FGIC Insd).......... 4.500 06/01/23 3,629,431
1,000 Heritage Harbor Cmnty Dev Dist Spl
Assmt Ser A......................... 6.700 05/01/19 981,240
1,300 Heritage Harbor Cmnty Dev Dist FL
Rev Rectl........................... 7.750 05/01/19 1,258,634
4,845 Hillsborough Cnty, FL Edl Fac Univ
Tampa Proj Rfdg..................... 5.750 04/01/18 4,713,361
960 Lake Saint Charles, FL Cmnty Dev
Dist Spl Assmt Rev.................. 7.875 05/01/17 995,866
3,000 Leon Cnty, FL Edl Facs Auth Rev
Southgate Residence Hall Ser A
Rfdg................................ 6.750 09/01/28 2,949,240
3,000 Martin Cnty, FL Indl Dev Auth Indl
Dev Rev Indiantown Cogeneration Proj
Ser A Rfdg.......................... 7.875 12/15/25 3,111,480
5,500 Miramar, FL Wastewtr Impt Assmt Rev
(FGIC Insd) (b)..................... 6.750 10/01/25 6,090,260
1,185 North Springs, FL Impt Dist Spl
Assmt Rev........................... 6.250 05/01/05 1,178,980
2,280 Northern Palm Beach Cnty Impt Dist
FL Wtr Ctl & Impt Unit Dev 5A
Rfdg................................ 6.000 08/01/10 2,203,232
1,500 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Tower.... 8.750 07/01/26 1,671,915
</TABLE>
See Notes to Financial Statements
15
<PAGE> 67
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,300 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr
Rfdg................................ 8.625% 07/01/20 $ 1,455,896
2,000 Orange Cnty, FL Hlth Facs Auth
Westminster Cmnty Care (a).......... 6.600 04/01/24 2,000,000
7,000 Orlando, FL Util Comm Wtr & Elec Rev
Reg Linked Savrs & Ribs............. 5.600 10/06/17 6,952,960
2,395 Pinellas Cnty, FL Edl Fac Auth Rev
College Harbor Proj Ser A........... 8.250 12/01/21 2,499,877
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth
Fac Sunnyside Prty (b).............. 6.700 07/01/25 5,625,900
16,065 Sun N Lake of Sebring, FL Impt Dist
Spl Assmt Ser A (d) (g)............. 10.000 12/15/11 6,426,000
835 Tampa Palms, FL Open Space & Transn
Cmnty Dev Dist Rev Cap Impt Area 7
Proj................................ 8.500 05/01/17 894,661
1,695 Volusia Cnty, FL Indl Dev Auth
Bishops Glen Proj Rfdg.............. 7.500 11/01/16 1,902,061
2,000 Volusia Cnty, FL Indl Dev Auth
Bishops Glen Proj Rfdg.............. 7.625 11/01/26 2,355,860
--------------
89,291,958
--------------
GEORGIA 5.3%
2,000 Americus Sumter Cnty, GA Hospital
Auth Rev Rfdg South GA Methodist Ser
A................................... 6.375 05/15/29 1,882,380
19,000 Atlanta, GA Urban Residential Fin
Auth Multi-Family Hsg Ser A
Renaissance on Peachtree Apts Proj
Ser 85.............................. 8.500 04/01/26 21,042,310
1,000 Atlanta, GA Urban Residential Fin
Auth Multi-Family Rev Proj Ser A.... 6.750 07/01/30 966,000
1,500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj........... 6.250 10/01/18 1,387,200
1,500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj........... 6.375 10/01/28 1,372,200
</TABLE>
See Notes to Financial Statements
16
<PAGE> 68
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$ 4,000 Fulton Cnty, GA Hsg Auth
Multi Family Hsg Rev................ 6.500% 02/01/28 $ 3,859,320
2,000 Fulton Cnty GA Residential Care Sr
Lien Rha Asstd Living A............. 7.000 07/01/29 1,892,580
30,050 Georgia Loc Govt Ctfs Partn Grantor
Trust Ser A (MBIA Insd) (b)......... 4.750 06/01/28 25,391,048
--------------
57,793,038
--------------
HAWAII 0.9%
3,000 Hawaii St Ser C (FSA Insd).......... 5.750 09/01/14 3,052,950
3,500 Hawaii St Ser C (FSA Insd).......... 5.875 09/01/16 3,565,940
2,360 Hawaii St Dept of Trans Spl Fac
Continental Airls Inc. (a).......... 5.625 11/15/27 2,072,717
3,000 Honolulu, HI Cty and Cnty Wastewtr
Sys Rev (FGIC Insd)................. * 07/01/14 1,296,180
--------------
9,987,787
--------------
IDAHO 1.2%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc
Rfdg (Inverse Fltg) (b)............. 6.650 02/15/21 8,891,360
4,300 Owyhee Cnty, ID Indl Dev Corp Indl
Dev Rev Envirosafe Svcs of ID
Inc................................. 8.250 11/01/02 4,413,821
--------------
13,305,181
--------------
ILLINOIS 12.4%
1,000 Bolingbrook IL Cap Apprec Ser B
(MBIA Insd)......................... * 01/01/34 122,450
2,500 Bolingbrook, IL Cap Apprec Ser B
(MBIA Insd)......................... * 01/01/29 417,125
1,850 Bridgeview, IL Tax Increment Rev
Rfdg................................ 9.000 01/01/11 2,063,546
25,800 Chicago, IL Brd Ed Cap Apprec Sch
Reform Ser B-1 (FGIC Insd).......... * 12/01/22 6,471,414
15,000 Chicago, IL Brd Ed Cap Apprec Sch
Reform Ser B-1 (FGIC Insd).......... * 12/01/26 2,929,800
36,500 Chicago, IL Brd Ed Cap Apprec Sch
Reform Ser B-1 (FGIC Insd).......... * 12/01/30 5,592,165
1,100 Chicago, IL Proj Ser A Rfdg (FGIC
Insd)............................... 5.125 01/01/29 969,991
3,000 Chicago, IL Proj Ser A Rfdg (FGIC
Insd)............................... 5.375 01/01/34 2,750,730
</TABLE>
See Notes to Financial Statements
17
<PAGE> 69
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,000 Chicago, IL Lakefront Millenium Pkg
Fac (MBIA Insd)..................... * 01/01/25 $ 2,007,000
7,560 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev (b)............................. 6.450% 05/01/18 7,730,554
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Ser A
(b)................................. 7.875 11/01/25 3,140,880
22,930 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc Proj Ser 84A
(b)................................. 8.850 05/01/18 24,473,189
2,565 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc Ser B (b)...... 8.950 05/01/18 2,738,881
3,650 Chicago, IL Rev Chatham Ridge
Tax Increment....................... 10.250 01/01/07 3,745,739
1,000 Chicago, IL Tax Increment........... 7.250 01/01/14 1,040,680
10,000 Chicago, IL Wastewtr Trans Rev Cap
Apprec Ser A Rfdg (MBIA Insd)....... * 01/01/22 2,654,500
300 Crestwood, IL Tax Increment Rev Bank
Qualified Rfdg...................... 6.000 12/01/99 300,798
1,285 Du Page Cnty, IL Cmnty High Sch Dist
No 099 Downers Grove (FSA Insd)..... * 12/01/11 656,931
1,500 Godfrey, IL Rev United Methodist Vlg
Ser A............................... 5.875 11/15/29 1,328,250
2,000 Hoopeston, IL Hospital Cap Impt Rev
Rfdg Hoopeston Comnty Mem Hosp...... 6.550 11/15/29 1,915,140
2,000 Huntley, IL Increment Alloc Rev
Huntley Redev Proj Ser A............ 8.500 12/01/15 2,243,920
2,629 Huntley, IL Spl Svc Area No 10 Spl
Tax Series A........................ 6.500 03/01/29 2,524,208
280 Huntley, IL Spl Svc Area No 10 Spl
Tax Ser A........................... 6.250 03/01/09 274,050
1,000 Huntley, IL Spl Svc Area No 7 Spl
Tax................................. 6.300 03/01/28 932,070
1,405 Illinois Dev Fin Auth Rev Cmnty Fac
Clinic Altgeld Proj................. 8.000 11/15/16 1,496,985
6,995 Illinois Dev Fin Auth Rev Mercy Hsg
Corp Proj Rfdg (Prerefunded @
08/01/04) (b)....................... 7.000 08/01/24 7,711,288
1,000 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj..................... 7.500 08/15/26 1,049,010
</TABLE>
See Notes to Financial Statements
18
<PAGE> 70
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,000 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Ser A Rfdg.............. 7.400% 08/15/23 $ 3,185,820
4,355 Illinois Hlth Fac Auth Rev Glenoaks
Med Cent Ser D (b).................. 9.500 11/15/15 4,717,728
1,000 Illinois Hlth Fac Auth Rev Lifelink
Corp Oblig Group Ser B (Prerefunded
@ 02/15/05) (b)..................... 8.000 02/15/25 1,154,800
4,800 Illinois Hlth Fac Auth Rev Midwest
Physician Group Ltd Proj
(Prerefunded @ 11/15/04) (b)........ 8.100 11/15/14 5,621,712
2,000 Illinois Hlth Facs Auth Rev......... 7.500 01/01/11 1,995,460
1,440 Illinois Hlth Facs Auth Rev Silver
Cross Hosp & Med Rfdg............... 5.500 08/15/19 1,321,776
4,175 Illinois Hlth Facs Auth Rev Silver
Cross Hosp & Med Rfdg............... 5.500 08/15/25 3,671,579
4,575 Illinois Hlth Facs Auth Rev West
Suburban Hosp Ser A Rfdg............ 5.750 07/01/20 4,206,072
8,790 Lake Cnty, IL Cmnty Unit Sch Dist No
60 Ser B (FSA Insd)................. * 12/01/18 2,856,750
895 Mill Creek Wtr Reclamation Dist IL
Sewage Rev.......................... 8.000 03/01/10 978,512
540 Mill Creek Wtr Reclamation Dist IL
Wtrwks Rev.......................... 8.000 03/01/10 590,387
1,500 Palatine, IL Tax Increment Rev
Rand/Dundee Cent Proj (Prerefunded @
01/01/07) (b)....................... 7.750 01/01/17 1,725,930
1,800 Peoria, IL Spl Tax Weaver Ridge Spl
Svc Area............................ 8.050 02/01/17 1,920,834
2,095 Regional Tran Auth IL Ser B (AMBAC
Insd) (b)........................... 8.000 06/01/17 2,652,857
11,000 Robbins, IL Res Recovery Rev........ 8.375 10/15/16 5,912,500
1,705 St Charles, IL Spl Svc Area No 21... 6.625 03/01/28 1,592,777
1,000 Sterling, IL Rev Hoosier Care Proj
Ser A............................... 7.125 06/01/34 961,600
470 Will Cnty, IL Forest Presv Dist Ser
B(FGIC Insd)........................ * 12/01/13 212,247
--------------
134,560,635
--------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 71
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA 1.4%
$ 825 Crawfordsville, IN Redev Comm Redev
Dist Tax Increment Rev.............. 7.000% 02/01/12 $ 819,184
2,000 East Chicago, IN Exempt Fac Inland
Steel Co Proj No 14................. 6.700 11/01/12 1,914,020
2,000 Indiana Hlth Fac Fin Auth Rev
Hoosier Care Proj Ser A............. 7.125 06/01/34 1,923,200
3,000 Indiana Hlth Fac Fin Auth Rev Metro
Hlth & IN Inc Proj.................. 6.400 12/01/33 2,706,480
990 Indiana Hlth Fac Fin Auth Rev Metro
Hlth IN Inc Proj.................... 6.300 12/01/23 902,167
4,000 Indiana St Dev Fin Auth Pollutn Ctl
Rev Inland Steel Co Proj No 13 Rfdg
(b)................................. 7.250 11/01/11 4,019,360
3,190 Kokomo, IN Sch Bldg Corp First Mtg
(AMBAC Insd)........................ 4.125 07/15/17 2,541,090
1,000 South Bend, IN Econ Dev Rev Ser A... 6.250 11/15/29 918,960
--------------
15,744,461
--------------
IOWA 0.1%
1,500 Cedar Rapids, IA Rev First Mtg
Cottage Grove....................... 5.875 07/01/28 1,360,515
--------------
KANSAS 0.3%
540 Kansas City, KS Crawford Cnty
Leavenworth Single Family Mtg Rev
(AMBAC Insd) (b).................... * 04/01/16 84,450
1,000 Lawrence, KS Coml Dev Rev Holiday
Inn Sr Ser A........................ 8.000 07/01/16 1,063,460
1,000 Manhattan, KS Coml Dev Rev Holiday
Inn Sr Ser A Rfdg................... 8.000 07/01/16 1,063,460
1,435 Missouri Str Hsg Dev Comm Mtg Hsg
Pioneer City Ctr Homes (a).......... 7.200 09/01/30 1,434,871
--------------
3,646,241
--------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 72
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KENTUCKY 0.4%
$ 2,300 Jefferson Cnty, KY Hosp Rev (MBIA
Insd) (Inverse Fltg)................ 8.900% 10/09/08 $ 2,567,375
900 Jefferson Cnty, KY Hosp Rev
(Prerefunded @ 10/29/02) (MBIA Insd)
(Inverse Fltg) (a).................. 8.930 10/09/08 1,023,750
1,000 Kenton Cnty, KY Airport Brd Spl Facs
Rev Mesaba Aviation Inc Proj Ser
A................................... 6.700 07/01/29 984,410
--------------
4,575,535
--------------
LOUISIANA 1.3%
5,755 Jefferson, LA Sales Tax Dist Spcl
Sales Tax Rev (FSA Insd)............ * 12/01/14 2,457,097
4,000 Louisiana Hsg Fin Agy Rev
Multi-Family Hsg Plantation Ser A... 7.125 01/01/28 3,837,880
1,000 Louisiana Pub Facs Auth Rev
Progressive Hlthcare................ 6.375 10/01/20 924,540
1,000 Louisiana Pub Facs Auth Rev
Progressive Hlthcare................ 6.375 10/01/28 900,140
3,918 Louisiana St Univ Agric & Mech
Progressive Univ Rev................ 5.750 10/30/18 3,586,858
1,000 Port New Orleans, LA Indl Dev Rev
Continental Grain Co Proj Rfdg...... 7.500 07/01/13 1,023,350
1,435 Webster Parish, LA Pollutn Ctl Rev
Intl Paper Co Proj Ser B Rfdg....... 5.200 03/01/13 1,348,398
--------------
14,078,263
--------------
MAINE 0.1%
25 Maine Hlth & Higher Edl Facs Auth
Rev Ser B (FSA Insd)................ 7.000 07/01/24 28,056
1,225 Maine Hlth & Higher Edl Facs Auth
Rev Ser B (Prerefunded @ 07/01/04)
(FSA Insd).......................... 7.000 07/01/24 1,374,732
--------------
1,402,788
--------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 73
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MARYLAND 1.1%
$ 2,000 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser B
Rfdg................................ 7.500% 06/01/15 $ 2,115,980
1,500 Frederick Cnty, MD Spl Olbig Urbana
Cmnty Dev Auth...................... 6.625 07/01/25 1,446,930
1,260 Maryland St Econ Dev Corp Rev Air
Cargo BWI LLC Proj.................. 6.500 07/01/24 1,252,931
1,015 Maryland St Econ Dev Corp Rev Air
Cargo BWI LLC Proj.................. 6.250 07/01/07 1,007,885
3,000 Montgomery Cnty, MD Econ Dev
Editorial Projs In Edl Ser A........ 6.400 09/01/28 2,729,040
3,000 Prince Georges Cnty, MD Spl Oblig
Spl Assmt Woodview Ser A............ 8.000 07/01/26 3,301,920
--------------
11,854,686
--------------
MASSACHUSETTS 3.3%
4,000 Massachusetts St Dev Fin Agy New
England Center For Children (b)..... 6.000 11/01/19 3,726,360
2,000 Massachusetts St Dev Fin Agy Rev
Hlthcare Facility Alliance Ser A.... 7.100 07/01/32 1,987,100
2,000 Massachusetts St Dev Fin Agy Rev
Hillcrest Ed Cent Inc............... 6.375 07/01/29 1,926,340
7,000 Massachusetts St Hlth & Edl Fac Auth
Rev New England Med Cent Hosp Ser G
(Embedded Swap) (MBIA Insd) (b)
(h)................................. 3.1/5.0 07/01/13 6,537,650
2,099 Massachusetts St Hsg Fin Agy Hsg Rev
Insd Rental Ser A Rfdg (AMBAC
Insd)............................... 6.650 07/01/19 2,201,814
780 Massachusetts St Indl Fin Agy First
Mtg Pilgrim Inc Proj................ 6.500 10/01/15 730,720
2,965 Massachusetts St Indl Fin Agy Rev
Grtr Lynn Mental Hlth............... 6.375 06/01/18 2,771,712
1,270 Massachusetts St Indl Fin Agy Rev
Grtr Lynn Mental Hlth............... 6.200 06/01/08 1,224,648
4,000 Massachusetts St Indl Fin Agy Rev
Cent For Autism (Prerefunded @
11/01/00)........................... 9.500 11/01/17 4,306,240
575 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............. 8.000 12/01/06 621,679
</TABLE>
See Notes to Financial Statements
22
<PAGE> 74
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 1,085 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............. 8.375% 12/01/13 $ 1,220,527
675 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............. 8.500 12/01/20 762,419
6,100 Massachusetts St Indl Fin Agy Rev
Swr Fac Res Ctl Composting.......... 9.250 06/01/10 6,243,045
2,000 Massachusetts St Indl Fin Agy
Trustees Deerfield Academy.......... 6.750 10/01/28 1,841,220
--------------
36,101,474
--------------
MICHIGAN 2.7%
2,000 Battle Creek, MI Downtown Dev Auth
Tax Increment Rev (Prerefunded @
05/01/04) (b)....................... 7.600 05/01/16 2,275,940
5,000 Detroit, MI City Sch Dist Ser B
(FGIC Insd)......................... 4.750 05/01/28 4,165,150
1,000 Detroit, MI Loc Dev Fin Auth Ser
C................................... 6.850 05/01/21 994,240
3,100 Detroit, MI Sewage Disposal Rev
(FGIC Insd)......................... 7.560 07/01/23 2,956,625
1,250 Detroit, MI Swg Disp Rev Ser A (MBIA
Insd)............................... 5.000 07/01/27 1,099,500
2,390 Meridian, MI Econ Dev Corp Ltd Oblig
Rev First Mtg Burcham Hills Ser A... 7.500 07/01/13 2,486,652
3,430 Meridian, MI Econ Dev Corp Ltd Oblig
Rev First Mtg Burcham Hills Ser A... 7.750 07/01/19 3,612,887
4,250 Michigan St Hosp Fin Auth Rev
Detroit Med Cent Oblig Ser A........ 5.250 08/15/28 3,407,862
3,000 Michigan St Hosp Fin Auth Rev
Detroit Med Cent Oblig Ser A........ 5.250 08/15/23 2,445,390
8,560 Michigan St Strategic Fd Ltd Oblig
Rev Great Lakes Pulp & Fiber Proj
(e)................................. 8.000 12/01/27 5,611,939
560 Saint Clair Cnty, MI Econ Dev Corp
Kmart Proj.......................... 9.500 02/01/06 564,794
--------------
29,620,979
--------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 75
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINNESOTA 0.7%
$ 1,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Pf Ser A............. 6.000% 10/01/28 $ 920,510
2,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser B........... 6.000 10/01/33 1,808,360
1,425 Columbia Heights, MN Multi-Family
Crest View Corp Proj................ 6.000 03/01/33 1,330,052
500 Dakota Cnty, MN Hsg & Redev......... 6.000 11/01/09 484,190
2,500 Dakota Cnty, MN Hsg & Redev......... 6.250 05/01/29 2,358,850
825 Little Canada, MN Fac Rev Hsg Alt
Dev Co Proj Ser A................... 6.100 12/01/17 804,598
--------------
7,706,560
--------------
MISSOURI 1.2%
615 Ferguson, MO Tax Increment Rev
Crossings at Halls Ferry Proj....... 7.250 04/01/07 609,932
3,095 Ferguson, MO Tax Increment Rev
Crossings at Halls Ferry Proj....... 7.625 04/01/17 3,059,717
675 Ferguson, MO Tax Increment Rev
Crossings at Halls Ferry Proj....... 7.625 04/01/18 667,103
930 Jefferson Cnty, MO Indl Dev Auth
Indl Rev Cedars Hlthcare Cent Proj
Ser A Rfdg.......................... 8.250 12/01/15 997,527
5,000 Saline Cnty, MO Indl Dev Auth Hlth
Facs Rev............................ 6.500 12/01/28 4,563,700
1,000 Sikeston, MO Elec Rev Rfdg (MBIA
Insd) (b)........................... 6.000 06/01/15 1,059,000
2,000 Valley Park, MO Indl Dev Auth Sr Hsg
Rev Cape Albeon Proj................ 6.150 12/01/33 1,857,900
--------------
12,814,879
--------------
NEBRASKA 0.3%
1,500 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized) (b)................. 9.508 10/17/23 1,620,000
1,300 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized) (b)................. 10.415 09/10/30 1,391,000
--------------
3,011,000
--------------
</TABLE>
See Notes to Financial Statements
24
<PAGE> 76
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEVADA 0.4%
$ 2,760 Clark Cnty, NV Trans Ser A (FGIC
Insd)............................... 4.500% 12/01/17 $ 2,314,922
1,945 Reno, NV Redev Agy Tax Alloc
Downtown Redev Proj Ser E Rfdg
(Prerefunded @ 09/01/03)............ 5.600 09/01/09 2,036,065
--------------
4,350,987
--------------
NEW HAMPSHIRE 1.1%
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage
Heights............................. 7.350 01/01/18 2,108,280
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage
Heights............................. 7.450 01/01/25 2,101,360
4,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Hosp Catholic Med Cent Rfdg
(b)................................. 8.250 07/01/13 4,086,920
3,340 New Hampshire Higher Edl & Hlth Fac
Auth Rev Vly Regl Hosp.............. 7.350 04/01/23 3,343,574
--------------
11,640,134
--------------
NEW JERSEY 3.0%
2,240 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig..................... 8.400 04/01/24 2,429,213
2,000 New Jersey Econ Dev Auth Assisted
Living Rev.......................... 6.750 08/01/30 1,872,500
1,000 New Jersey Econ Dev Auth Econ Dev
Rev................................. 6.375 04/01/18 1,005,320
1,820 New Jersey Econ Dev Auth Rev Kullman
Assoc Proj Ser A.................... 6.125 06/01/18 1,701,354
2,000 New Jersey Econ Dev Auth Rev Sr
Living Facs Esplandade.............. 7.000 06/01/39 1,907,460
500 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Ser A Rfdg............... 6.000 05/15/28 460,685
6,255 New Jersey Econ Dev Auth Rev First
Mtg Gross Rev Oakridge Manor Proj
Rfdg................................ 9.500 11/01/14 6,363,024
1,000 New Jersey Econ Dev Auth Rev First
Mtg Winchester Gardens Ser A........ 8.500 11/01/16 1,107,890
1,500 New Jersey Econ Dev Auth Rev First
Mtg Winchester Gardens Ser A........ 8.625 11/01/25 1,667,760
3,000 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A (Prerefunded @
05/15/06) (b)....................... 8.750 05/15/26 3,707,310
</TABLE>
See Notes to Financial Statements
25
<PAGE> 77
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 3,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc............... 6.400% 09/15/23 $ 2,983,170
1,650 New Jersey Hlthcare Fac Fin Auth Rev
Raritan Bay Med Cent Issue Rfdg..... 7.250 07/01/14 1,649,736
1,275 New Jersey St Edl Fac Auth Rev
Felician College of Lodi Ser D...... 7.375 11/01/22 1,340,318
4,000 New Jersey St Trans Trust Fund Auth
Trans Sys Ser A (a)................. 5.750 06/15/16 4,105,800
--------------
32,301,540
--------------
NEW MEXICO 1.3%
2,230 Albuquerque, NM Retirement Fac Rev
La Vida Liena Proj Ser A Rfdg
(Prerefunded @ 02/01/03) (b)........ 8.850 02/01/23 2,551,232
4,000 Albuquerque, NM Retirement Fac Rev
La Vida Liena Proj Ser B Rfdg....... 6.600 12/15/28 3,690,120
2,160 Bernalillo Cnty, NM Multi-Family Hsg
Brentwood Gardens Apt B1............ 6.600 10/15/28 2,063,491
3,600 Farmington, NM Pollutn Ctl Rev Pub
Svc Co San Juan Proj D Rfdg (b)..... 6.375 04/01/22 3,653,748
2,500 New Mexico St Hosp Equip Ln Memorial
Med Cent Inc........................ 5.500 06/01/28 2,293,050
--------------
14,251,641
--------------
NEW YORK 5.8%
1,000 Bethlehem, NY Indl Dev Agy Sr Hsg
Rev Van Allen Proj Ser A............ 6.875 06/01/39 956,200
2,400 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev................. 6.375 12/01/37 2,217,576
795 Clifton Springs, NY Hosp & Clinic
Ser B Rfdg & Impt................... 7.000 01/01/05 802,052
1,750 Huntington, NY Hsg Auth Sr Hsg Fac
Rev Gurwin Jewish Sr Residences Ser
A................................... 6.000 05/01/39 1,625,960
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev
Rev NY Institute of Technology
Rfdg................................ 7.500 03/01/26 1,593,675
1,000 Monroe Cnty, NY Indl Dev Agy Rev
Indl Dev Empire Sports Proj Ser A... 6.250 03/01/28 932,210
</TABLE>
See Notes to Financial Statements
26
<PAGE> 78
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,000 New York City Indl Dev Agy Field
Hotel Assoc Lp JFK Rfdg............. 6.000% 11/01/28 $ 1,891,360
3,000 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd) (b)........................... 6.250 11/15/06 3,259,560
1,500 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd) (b)........................... 6.375 11/15/07 1,641,840
2,000 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd) (b)........................... 6.500 11/15/09 2,200,400
5,000 New York City Ser A (b)............. 7.000 08/01/07 5,606,000
3,000 New York City Ser D Rfdg (b)........ 8.000 02/01/05 3,438,570
10,330 New York City Subser A1 (Embedded
Swap)............................... 5.720 08/01/12 10,379,687
6,120 New York City Tran Auth Ser A....... 5.625 01/01/13 6,216,329
5,000 New York St Dorm Auth Rev City Univ
Ser F (b)........................... 5.500 07/01/12 4,938,700
3,000 New York St Energy Resh & Dev Auth
Gas Fac Rev (MBIA Insd) (Inverse
Fltg)............................... 7.690 07/08/26 2,767,500
2,500 New York St Energy Resh & Dev Auth
Gas Fac Rev (Inverse Fltg).......... 7.889 04/01/20 2,784,375
1,000 New York St Energy Resh & Dev Auth
St Svc Contract Rev Western NY
Nuclear Svc Cent Ser B.............. 5.500 04/01/01 1,017,210
750 New York St Energy Resh & Dev Auth
St Svc Contract Rev Western NY
Nuclear Svc Cent Ser B.............. 5.250 04/01/02 764,152
5,000 New York St Thruway Auth Genl Rev
Ser E Rfdg.......................... 5.000 01/01/25 4,427,400
1,500 New York St Thruway Auth Hwy & Brdg
Tran Fund Ser A (Prerefunded @
04/01/04) (b)....................... 6.000 04/01/14 1,615,335
2,000 Saratoga Cnty, NY Indl Dev Agy Sr
Hsg Rev............................. 6.875 06/01/39 1,909,900
--------------
62,985,991
--------------
NORTH CAROLINA 0.7%
7,130 Eastern Band Cherokee Indians NC Spl
Oblig Rev Carolina Mirror Co Proj... 10.250 09/01/09 7,130,000
--------------
</TABLE>
See Notes to Financial Statements
27
<PAGE> 79
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH DAKOTA 0.2%
$ 1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly
Square Proj......................... 6.250% 12/01/34 $ 936,790
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly
Square Proj......................... 6.375 12/01/34 973,260
--------------
1,910,050
--------------
OHIO 2.6%
1,500 Akron Bath Copley, OH St Twp Hosp
Dist Rev Summa Hosp................. 5.375 11/15/24 1,314,060
3,750 Cleveland, OH Arpt Spl Rev
Continental Airls Inc Proj.......... 5.375 09/15/27 3,228,675
2,250 Cleveland, OH Arpt Spl Rev
Continental Airls Inc Rfdg (a)...... 5.700 12/01/19 2,071,553
1,500 Cuyahoga Cnty, OH Multi-Family Rev
Hsg Park Lane Apts Proj Ser A....... 8.250 07/01/28 1,545,000
2,760 Dayton, OH Spl Facs Rev Afco Cargo
Day LLC Proj........................ 6.300 04/01/22 2,648,054
2,000 East Liverpool, OH Hosp Rev East
Liverpool City Hosp Ser A
(Prerefunded @ 10/01/01) (b)........ 8.125 10/01/11 2,187,600
1,500 Hamilton Cnty, OH Sales Tax Hamilton
Cnty Football Proj Ser A (MBIA
Insd)............................... 4.750 12/01/27 1,249,140
2,000 Madison Cnty, OH Hosp Impt Rev
Madison Cnty Hosp Proj Rfdg......... 6.400 08/01/28 1,844,960
2,500 Ohio St Solid Waste Rev CSC Ltd
Proj................................ 8.500 08/01/22 2,501,150
3,700 Ohio St Solid Waste Rev Republic
Engineered Steels Proj.............. 8.250 10/01/14 3,745,510
1,000 Ohio St Solid Waste Rev Republic
Engineered Steels Proj.............. 9.000 06/01/21 1,053,690
4,490 Reynoldsburg, OH Hlthcare Fac Rev
Wesley Ridge Proj (GNMA
Collateralized)..................... 6.150 10/20/38 4,561,211
--------------
27,950,603
--------------
</TABLE>
See Notes to Financial Statements
28
<PAGE> 80
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OKLAHOMA 0.2%
$11,030 McAlester, OK Pub Wks Auth Util Sys
Rev (FSA Insd)...................... * 02/01/30 $ 1,686,156
1,000 Oklahoma Cnty, OK Fin Auth Epworth
Villa Proj Ser A Rfdg............... 7.000% 04/01/25 988,870
--------------
2,675,026
--------------
OREGON 1.0%
1,000 Clackamas Cnty, OR Hosp Fac Auth Rev
Sr Living Fac Marys Woods Ser A..... 6.375 05/15/20 976,940
1,245 Clatsop Care Cent Hlth Dist OR Rev
Sr Hsg.............................. 6.000 08/01/14 1,169,391
2,145 Clatsop Care Cent Hlth Dist OR Rev
Sr Hsg.............................. 6.875 08/01/28 1,981,680
4,000 Oregon St Hlth Hsg Edl & Cultural
Facs Auth........................... 7.250 06/01/28 3,891,400
3,000 Salem Keizer, OR Sch Dist No 24J.... 5.000 06/01/13 2,894,670
--------------
10,914,081
--------------
PENNSYLVANIA 8.2%
1,000 Allegheny Cnty, PA Indl Dev Auth
Lease Rev........................... 6.625 09/01/24 986,730
6,000 Beaver Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Collateral Toledo
Edison Co Proj Ser A
Rfdg (b)............................ 7.750 05/01/20 6,626,640
1,000 Berks Cnty, PA Muni Auth Rev
Phoebe Berks Vlg Inc Proj Rfdg
(Prerefunded @ 05/15/06) (b)........ 7.700 05/15/22 1,181,690
1,900 Bucks Cnty, PA Indl Dev Auth Rev
First Mtg Hlthcare Fac Chandler..... 6.200 05/01/19 1,775,911
4,000 Cambria Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Bethlehem Steel Corp
Proj Rfdg........................... 7.500 09/01/15 4,199,360
1,500 Cliff House Ctf Trust Var Sts
Variable Ctfs Partn Ser A........... 6.625 06/01/27 1,500,000
2,000 Cumberland Cnty, PA Indl Dev Auth
Rev First Mtg Woods Cedar Run Ser A
Rfdg................................ 6.500 11/01/28 1,799,080
3,000 Dauphin Cnty, PA Genl Auth Rev
Office & Pkg Riverfront Office...... 6.000 01/01/25 2,809,470
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel
& Conf Cent Hyatt Regency........... 6.200 01/01/29 4,668,400
</TABLE>
See Notes to Financial Statements
29
<PAGE> 81
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,500 Delaware Cnty, PA Auth First Mtg Rev
Riddle Vlg Proj..................... 7.000% 06/01/21 $ 1,516,470
2,890 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd).......................... * 09/01/21 794,779
1,000 Grove City, PA Area Hosp Auth Hlth
Fac Rev............................. 6.625 08/15/29 926,240
3,500 Harrisburg, PA Auth Wtr Rev (Inverse
Fltg) (FGIC Insd)................... 7.580 06/18/15 3,605,000
1,000 Lancaster Cnty, PA Hosp Auth Rev
Hlth Cent Saint Anne's Home......... 6.625 04/01/28 950,430
2,000 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Oblig Group............... 6.000 11/01/23 1,858,600
1,000 Lehigh Cnty, PA Indl Dev Auth Hlth
Fac Rev Lifepath Inc Proj........... 6.300 06/01/28 885,300
2,000 McKean Cnty, PA Hosp Auth Hosp Rev
Bradford Hosp Proj (Crossover Rfdg @
10/01/00)........................... 8.875 10/01/20 2,131,380
2,000 Montgomery Cnty, PA Higher Ed &
Hlth Auth Rev....................... 6.750 07/01/29 1,885,280
7,100 Montgomery Cnty, PA Indl Dev Auth
Rev First Mtg The Meadowood Corp
Proj Ser A (Prerefunded @ 12/01/00)
(b)................................. 10.000 12/01/19 7,715,144
500 Montgomery Cnty, PA Indl Dev Auth
Rev First Mtg The Meadowood Corp
Rfdg................................ 7.000 12/01/10 511,780
2,500 Montgomery Cnty, PA Indl Dev Auth
Rev First Mtg The Meadowood Corp
Rfdg................................ 7.250 12/01/15 2,581,925
6,000 Montgomery Cnty, PA Indl Dev Auth
Rev First Mtg The Meadowood Corp
Rfdg................................ 7.400 12/01/20 6,203,040
985 Montgomery Cnty, PA Indl Dev Auth
Rev Wordsworth Academy.............. 7.750 09/01/24 1,042,534
3,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D
(b)................................. 7.050 12/01/10 3,232,800
5,000 Pennsylvania St Higher Edl
Assistance Agy Student Ln Rev Rfdg
(Inverse Fltg) (AMBAC Insd)......... 9.267 09/01/26 5,818,750
1,000 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev (a).............. 4.500 07/15/21 822,550
</TABLE>
See Notes to Financial Statements
30
<PAGE> 82
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 5,000 Philadelphia, PA Auth For Indl Dev
Rev Long-Term Care Maplewood........ 8.000% 01/01/24 $ 5,338,000
2,500 Pittsburgh & Allegheny Cnty, PA Pub
Auditorium Auth Regl Asset Dist
Sales Tax Rev (AMBAC Insd).......... 5.000 02/01/24 2,215,500
13,000 Pittsburgh & Allegheny Cnty, PA
Public Auditorium Auth Excise Tax
Rev (AMBAC Insd).................... 4.500 02/01/29 10,315,240
1,500 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Rfdg............... 7.250 01/15/17 1,551,975
2,000 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Rfdg............... 7.350 01/15/22 2,082,940
--------------
89,532,938
--------------
RHODE ISLAND 0.2%
1,955 Providence, RI Redev Agy Ctfs Partn
Ser A............................... 8.000 09/01/24 2,073,688
--------------
SOUTH CAROLINA 1.0%
115 Charleston Cnty, SC Ctfs Partn Ser B
(MBIA Insd) (b)..................... 7.000 06/01/19 126,364
2,385 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)
(b)................................. 7.000 06/01/19 2,675,040
3,500 Charleston Cnty, SC Indl Rev Zeigler
Coal Hldgs Rfdg..................... 6.950 08/10/28 3,407,915
1,000 Oconee Cnty, SC Indl Rev Bond
Johnson Ctl Inc Ser 84 (Var Rate
Cpn)................................ 6.485 06/15/04 1,000,000
4,000 South Carolina St Hsg Fin & Dev Auth
Multi-Family Rev.................... 6.750 05/01/28 3,896,040
--------------
11,105,359
--------------
SOUTH DAKOTA 0.2%
805 Keystone, SD Econ Dev Rev Wtr
Quality Mgmt Corp Ser A............. 5.500 12/15/08 776,487
1,810 Keystone, SD Econ Dev Rev Wtr
Quality Mgmt Corp Ser A............. 6.000 12/15/18 1,699,065
--------------
2,475,552
--------------
</TABLE>
See Notes to Financial Statements
31
<PAGE> 83
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TENNESSEE 1.5%
$ 3,000 SCA Tax Exempt Trust Multi-Family
Mtg Memphis Hlth Edl Rev Bond
Receipt Ser A6 (FSA Insd) (b)....... 7.350% 01/01/30 $ 3,239,970
2,000 Springfield, TN Hlth & Edl Fac Brd
Hosp Rev Jesse Holman Jones Hosp
Proj (Prerefunded @ 04/01/06) (b)... 8.250 04/01/12 2,353,180
6,180 Sullivan Cnty, TN Hlth Edl & Hsg
Facs Board Rev...................... 8.410 11/01/19 6,906,706
1,160 Trenton, TN Hlth & Edl Facs Brd Rev
Rha/Trenton Mr Inc Proj Ser B
(d)................................. 10.000 11/01/20 150,800
3,195 Trenton, TN Hlth & Edl Facs Brd Rev
Rha/Trenton Mr Inc Proj Ser A...... 10.000 11/01/19 3,563,160
--------------
16,213,816
--------------
TEXAS 11.0%
1,000 Abia Dev Corp TX Arpt Facs Rev
Austin Belly Port Dev LLC Proj Ser
A................................... 6.250 10/01/08 970,070
2,000 Abia Dev Corp TX Arpt Facs Rev
Austin Belly Port Dev LLC Proj Ser
A................................... 6.500 10/01/23 1,899,180
1,500 Abilene, TX Hlth Facs Dev Sears
Methodist Retirement Ser A.......... 5.875 11/15/18 1,393,440
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev
High Plains Baptist Hosp (Inverse
Fltg) (FSA Insd) (b)................ 9.149 01/01/22 2,245,000
1,000 Atlanta, TX Hosp Auth Hosp Fac
Rev................................. 6.700 08/01/19 967,960
2,035 Atlanta, TX Hosp Auth Hosp Fac
Rev................................. 6.750 08/01/29 1,959,094
1,000 Austin, TX Bergstorm Landhost Entmt
Sr Ser A............................ 6.750 04/01/27 956,890
2,000 Bell Cnty, TX Indl Dev Corp Solid
Waste Disposal Rev.................. 7.600 12/01/17 1,903,200
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev
Rfdg Baptist Hlth Sys Ser A (MBIA
Insd) (b)........................... 6.000 11/15/12 1,055,340
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev
Rfdg Baptist Hlth Sys Ser A (MBIA
Insd)............................... 6.000 11/15/13 2,491,107
1,000 Brazos River Auth TX Rev Houston
Lighting & Power Co Proj Rfdg (AMBAC
Insd)............................... 5.050 11/01/18 910,080
</TABLE>
See Notes to Financial Statements
32
<PAGE> 84
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,000 Brazos River Auth TX Rev Houston
Inds Inc Proj Ser D Rfdg (MBIA Insd)
(b)................................. 4.900% 10/01/15 $ 4,559,200
665 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg................................ * 08/01/00 624,894
1,165 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg................................ * 08/01/01 1,015,344
335 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg................................ * 08/01/02 270,904
1,825 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg................................ * 08/01/11 720,364
775 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg................................ 8.750 08/01/11 777,209
2,670 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg................................ 8.750 08/01/12 2,677,503
6,000 Dallas Cnty, TX Util & Reclamation
Dist Ser B Rfdg (AMBAC Insd) (a).... 5.875 02/15/29 5,961,780
2,500 Garland, TX Indl Dev Auth Rev Bond
Ashland Oil Proj Ser 84 Rfdg (Var
Rate Cpn)........................... 8.920 04/01/04 2,502,950
1,635 Garland, TX Indpt Sch Dist.......... 4.000 02/15/15 1,317,319
3,275 Grapevine Colleyville Indpt Sch Dist
Tx Formerly Grapevine Tx Indpt Sch
District To 1979.................... * 08/15/14 1,413,359
5,000 Houston, TX Arpt Sys Rev Spl Fac
Continental Ser C................... 5.700 07/15/29 4,457,600
2,500 Houston, TX Arpt Sys Rev Spl Fac
Continental Airl Term Impt Ser B
(b)................................. 6.125 07/15/27 2,370,650
5,665 Houston, TX Wtr & Sewer Sys Rev
Capital Apprec Jr Lien Ser A (FSA
Insd)............................... * 12/01/23 1,357,561
880 Laredo, TX Ctfs Oblig Ser B (MBIA
Insd)............................... 4.500 02/15/17 739,966
2,655 Leander, TX Indpt Sch Dist Cap
Apprec Rfdg......................... * 08/15/18 877,876
4,820 Leander, TX Indpt Sch Dist Cap
Apprec Rfdg......................... * 08/15/21 1,315,282
3,990 Leander, TX Indpt Sch Dist Rfdg..... 4.750 08/15/12 3,728,495
17,760 Lower Co River Auth TX Rev Ser A
Rfdg (a)............................ 5.875 05/15/14 18,210,216
7,500 Lower Co River Auth TX Rev Ser A
Rfdg (a)............................ 5.875 05/15/15 7,653,900
1,500 Lubbock, TX Hlth Facs Dev Corp Rev
First Mtg Carillon Proj A........... 6.500 07/01/19 1,409,505
2,500 Matagorda Cnty, TX Navigation Dist
No 1 Houston Lighting Pwr Co Rfdg
(AMBAC Insd)........................ 5.125 11/01/28 2,214,950
3,355 Meadow Parc Dev Inc TX Multi-Family
Rev Hsg Meadow Parc Apts Proj....... 6.500 12/01/30 3,179,466
</TABLE>
See Notes to Financial Statements
33
<PAGE> 85
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,000 Nacogdoches, TX Indl Dev Auth Inc
Pollutn Ctl Rev..................... 5.300% 12/01/11 $ 972,760
1,180 Pottsboro, TX Indpt Sch Dist Cap
Apprec Rfdg......................... * 08/15/17 413,732
1,175 Pottsboro, TX Indpt Sch Dist Cap
Apprec Rfdg......................... * 08/15/20 339,974
1,175 Pottsboro, TX Indpt Sch Dist Cap
Apprec Rfdg......................... * 08/15/23 281,459
6,000 Rockwall, TX Indpt Sch Dist Cap
Apprec Rfdg......................... * 08/15/18 1,955,040
6,020 San Antonio, Tx Indpt Sch
Dist Rfdg (a)....................... 5.500 08/15/18 5,891,654
2,410 Texas Gen Svcs Comm Partn
Interests........................... 7.250 08/15/11 2,461,067
8,000 Texas St Dept Hsg & Cmnty Affairs
Home Mtg Rev (GNMA Collateralized)
(Inverse Fltg)...................... 6.900 07/02/24 8,513,120
2,985 Texas St Higher Edl Coordinating Brd
College Student Ln.................. * 10/01/25 2,999,835
2,000 Texas St Tpk Auth Dallas North
Thruway Rev Addison Arpt Toll Tunnel
Proj (FGIC Insd) (Prerefunded @
01/01/05) (b)....................... 6.750 01/01/15 2,228,460
2,000 Texas St Tpk Auth Dallas North
Thruway Rev Addison Arpt Toll Tunnel
Proj (FGIC Insd) (Prerefunded @
01/01/05) (b)....................... 6.600 01/01/23 2,214,600
5,000 West Side Calhoun Cnty, TX Navig
Dist Solid Waste Disp Union Carbide
Chem & Plastics (b)................. 8.200 03/15/21 5,284,350
--------------
119,663,705
--------------
UTAH 1.0%
1,000 Hildale, UT Elec Rev Gas Turbine
Elec Fac Proj....................... 7.800 09/01/15 950,340
1,165 Hildale, UT Elec Rev Gas Turbine
Elec Fac Proj....................... 8.000 09/01/20 1,103,476
1,000 Hildale, UT Elec Rev Gas Turbine
Elec Fac Proj....................... 7.800 09/01/25 942,030
4,000 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd) (b)...... 5.750 07/01/19 3,983,240
</TABLE>
See Notes to Financial Statements
34
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH (CONTINUED)
$ 240 Saint George, UT Indl Dev Rev Kmart
Corp Ser 1984A...................... 10.750% 10/15/08 $ 245,808
2,500 Tooele Cnty, UT Pollutn Ctl Rev Rfdg
Laidlaw Environmental Ser A......... 7.550 07/01/27 2,641,550
1,175 Utah St Hsg Fin Agy Single Family
Mtg Mezz A1 (AMBAC Insd) (b)........ 6.100 07/01/13 1,190,052
--------------
11,056,496
--------------
VERMONT 0.3%
1,000 Vermont Edl & Hlth Bldgs Fin Agy
Rev................................. 6.000 12/15/09 960,840
1,000 Vermont Edl & Hlth Bldgs Fin Agy
Rev................................. 6.125 12/15/14 949,660
1,015 Vermont Edl & Hlth Bldgs Fin Agy
Rev................................. 6.250 04/01/29 943,108
--------------
2,853,608
--------------
VIRGINIA 1.5%
5,000 Alexandria, VA Redev & Hsg Auth 3001
Park Cent Apts Ser A Rfdg........... 6.375 04/01/34 4,715,450
1,000 Dulles Town Cent Cmnty Dev Auth
Dulles Town Cent Proj............... 6.250 03/01/26 974,100
2,650 Fairfax Cnty, VA Park Auth Park Fac
Rev................................. 6.625 07/15/20 2,751,336
1,000 Greensville Cnty, VA Indl Dev
Wheeling Steel Proj Ser A........... 7.000 04/01/14 950,330
5,000 Peninsula Ports Auth VA Rev Port Fac
Zeigler Coal Rfdg................... 6.900 05/02/22 4,895,000
1,500 Pittsylvania Cnty, VA Indl Dev Auth
Rev Exempt Fac Ser A................ 7.450 01/01/09 1,594,050
--------------
15,880,266
--------------
WASHINGTON 0.7%
3,500 Spokane Cnty, WA Indl Dev Corp Solid
Waste Disp Rev...................... 7.600 03/01/27 3,691,380
2,000 Tacoma, WA Hsg Auth Rev Hsg
Wedgewood Homes Proj................ 6.000 04/01/28 1,862,700
5,500 Washington St Pub Pwr Supply Comp
Int Ser C Rfdg (MBIA Insd).......... * 07/01/17 1,952,335
--------------
7,506,415
--------------
</TABLE>
See Notes to Financial Statements
35
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN 1.7%
$ 800 Baldwin, WI Hosp Rev Mtg Ser A...... 6.125% 12/01/18 $ 752,712
2,590 Baldwin, WI Hosp Rev Mtg Ser A...... 6.375 12/01/28 2,412,222
1,000 Oconto Falls, WI Cmnty Dev Oconto
Falls Tissue Inc Proj............... 7.750 12/01/22 1,023,620
3,970 Wisconsin St Hlth & Edl Fac Auth Rev
Chippewa Vly Hosp Ser F Rfdg (b).... 9.500 11/15/12 4,306,339
2,070 Wisconsin St Hlth & Edl Fac Auth Rev
Eau Claire Manor (d)................ 9.625 06/01/13 1,985,482
1,115 Wisconsin St Hlth & Edl Fac Auth Rev
Spl Term Middleton Glen Inc Proj.... 5.750 10/01/18 1,018,831
2,485 Wisconsin St Hlth & Edl Fac Auth Rev
Spl Term Middleton Glen Inc Proj.... 5.750 10/01/28 2,222,410
1,200 Wisconsin St Hlth & Edl Facs Auth
Rev Spl Term Middleton Glen Inc
Proj................................ 5.900 10/01/28 1,096,392
3,000 Wisconsin St Hlth & Edl Milwaukee
Catholic Home Proj.................. 7.500 07/01/26 3,149,820
--------------
17,967,828
--------------
PUERTO RICO 0.9%
1,391 Centro de Recaudaciones de Ingresos
Muni Ctfs Partn PR.................. 6.850 10/17/03 1,415,849
10,000 Puerto Rico Comwlth Hwy & Tran Auth
Tran Rev Ser A...................... 4.750 07/01/38 8,248,300
--------------
9,664,149
--------------
</TABLE>
See Notes to Financial Statements
36
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 103.1%
(Cost $1,136,289,323)............................................. $1,122,491,681
SHORT-TERM INVESTMENTS 0.2%
(Cost $3,178,571)................................................. 2,186,786
--------------
TOTAL INVESTMENTS 103.3%
(Cost $1,139,467,894)............................................. 1,124,678,467
LIABILITIES IN EXCESS OF OTHER ASSETS (3.3%)....................... (35,420,521)
--------------
NET ASSETS 100.0%.................................................. $1,089,257,946
==============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option and open futures transactions.
(c) Interest is accruing less than the stated coupon.
(d) Non-Income producing security.
(e) Currently is a payment-in-kind security which will convert to a cash paying
security with a higher coupon at a predetermined date.
(f) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(g) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(h) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
GNMA--Government National Mortgage Association
See Notes to Financial Statements
37
<PAGE> 89
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,139,467,894)..................... $1,124,678,467
Receivables:
Interest.................................................. 21,837,970
Investments Sold.......................................... 10,573,684
Fund Shares Sold.......................................... 1,362,471
Other....................................................... 61,559
--------------
Total Assets.......................................... 1,158,514,151
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 56,343,428
Bank Borrowings........................................... 5,866,970
Fund Shares Repurchased................................... 2,600,836
Income Distributions...................................... 2,437,596
Distributor and Affiliates................................ 842,560
Investment Advisory Fee................................... 428,652
Variation Margin on Futures............................... 90,404
Accrued Expenses............................................ 445,555
Trustees' Deferred Compensation and Retirement Plans........ 192,392
Options at Market Value (Net premiums received of
$15,486).................................................. 7,812
--------------
Total Liabilities..................................... 69,256,205
--------------
NET ASSETS.................................................. $1,089,257,946
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,217,073,102
Accumulated Distributions in Excess of Net Investment
Income.................................................... (9,871,263)
Net Unrealized Depreciation................................. (13,964,340)
Accumulated Net Realized Loss............................... (103,979,553)
--------------
NET ASSETS.................................................. $1,089,257,946
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $745,232,686 and 53,578,756 shares of
beneficial interest issued and outstanding)........... $ 13.91
Maximum sales charge (4.75%* of offering price)......... .69
--------------
Maximum offering price to public........................ $ 14.60
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $282,513,282 and 20,318,857 shares of
beneficial interest issued and outstanding)........... $ 13.90
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $61,511,978 and 4,424,055 shares of
beneficial interest issued and outstanding)........... $ 13.90
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
38
<PAGE> 90
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 73,249,612
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,853,240, $2,940,698 and $687,347,
respectively)............................................. 5,481,285
Investment Advisory Fee..................................... 5,384,470
Shareholder Services........................................ 811,277
Legal....................................................... 374,025
Custody..................................................... 99,759
Trustees' Fees and Related Expenses......................... 50,182
Other....................................................... 918,034
------------
Total Operating Expenses................................ 13,119,032
Less Credit Earned on Overnight Cash Balances........... 30,267
------------
Net Operating Expenses.................................. 13,088,765
Interest Expense........................................ 654,836
------------
NET INVESTMENT INCOME....................................... $ 59,506,011
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $50,195)....................................... $ (9,086,136)
Options................................................... 408,941
Futures................................................... 296,003
------------
Net Realized Loss........................................... (8,381,192)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 68,326,173
------------
End of the Period:
Investments............................................. (14,789,427)
Options................................................. 7,674
Futures................................................. 817,413
------------
(13,964,340)
------------
Net Unrealized Depreciation During the Period............... (82,290,513)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(90,671,705)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(31,165,694)
============
</TABLE>
See Notes to Financial Statements
39
<PAGE> 91
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999, the Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................ $ 59,506,011 $ 42,155,106 $ 53,336,303
Net Realized Gain/Loss............... (8,381,192) (861,253) 391,354
Net Unrealized
Appreciation/Depreciation During
the Period......................... (82,290,513) 17,628,426 24,022,309
-------------- -------------- -------------
Change in Net Assets from
Operations......................... (31,165,694) 58,922,279 77,749,966
-------------- -------------- -------------
Distributions from Net Investment
Income............................. (59,506,011) (42,128,701) (53,336,303)
Distributions in Excess of Net
Investment Income.................. (851,426) -0- (664,960)
-------------- -------------- -------------
Total Distributions from and in
Excess of Net Investment Income*... (60,357,437) (42,128,701) (54,001,263)
-------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.............. (91,523,131) 16,793,578 23,748,703
-------------- -------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............ 277,570,061 205,313,493 198,765,477
Net Asset Value of Shares Issued
Through Dividend Reinvestment...... 28,001,367 18,455,824 23,168,036
Cost of Shares Repurchased........... (238,997,282) (100,827,970) (135,758,091)
-------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS....................... 66,574,146 122,941,347 86,175,422
-------------- -------------- -------------
TOTAL INCREASE/DECREASE IN NET
ASSETS............................. (24,948,985) 139,734,925 109,924,125
NET ASSETS:
Beginning of the Period.............. 1,114,206,931 974,472,006 864,547,881
-------------- -------------- -------------
End of the Period (Including
accumulated distributions in excess
of net investment income of
$9,871,263, $9,019,837 and
$9,046,242, respectively).......... $1,089,257,946 $1,114,206,931 $ 974,472,006
============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
*Distributions by Class
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares..................... $(43,068,954) $(30,895,725) $(41,926,549)
Class B Shares..................... (14,016,298) (9,369,462) (10,667,625)
Class C Shares..................... (3,272,185) (1,863,514) (1,407,089)
------------ ------------ ------------
$(60,357,437) $(42,128,701) $(54,001,263)
============ ============ ============
</TABLE>
See Notes to Financial Statements
40
<PAGE> 92
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class A Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................... $15.076 $14.845 $14.474 $14.984 $13.848 $15.629
------- ------- ------- ------- ------- -------
Net Investment
Income............... .807 .643 .895 .963 1.024 .956
Net Realized and
Unrealized
Gain/Loss............ (1.164) .217 .376 (.513) 1.072 (1.717)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.357) .860 1.271 .450 2.096 (.761)
Less Distributions from
and in Excess of Net
Investment Income...... .810 .629 .900 .960 .960 1.020
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $13.909 $15.076 $14.845 $14.474 $14.984 $13.848
======= ======= ======= ======= ======= =======
Total Return (a)......... (2.51%) 6.00%* 9.05% 3.21% 15.52% (4.93%)
Net Assets at End of the
Period (In millions)... $ 745.2 $ 771.4 $ 706.3 $ 671.9 $ 665.8 $ 603.0
Ratio of Expenses to
Average Net Assets
(b).................... .96% .92% .94% .99% .95% .87%
Ratio of Net Investment
Income to Average Net
Assets (b)............. 5.46% 5.66% 6.09% 6.60% 7.05% 6.48%
Portfolio Turnover....... 77% 66%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
41
<PAGE> 93
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class B Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................... $15.071 $14.844 $14.474 $14.983 $13.850 $15.621
------- ------- ------- ------- ------- -------
Net Investment Income.... .686 .545 .774 .843 .908 .841
Net Realized and
Unrealized Gain/Loss... (1.156) .229 .384 (.506) 1.071 (1.718)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.470) .774 1.158 .337 1.979 (.877)
Less Distributions from
and in Excess of Net
Investment Income...... .697 .547 .788 .846 .846 .894
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $13.904 $15.071 $14.844 $14.474 $14.983 $13.850
======= ======= ======= ======= ======= =======
Total Return (a)......... (3.25%) 5.35%* 8.23% 2.40% 14.62% (5.69%)
Net Assets at End of the
Period (In millions)... $ 282.5 $ 279.6 $ 229.6 $ 173.8 $ 137.9 $ 112.4
Ratio of Expenses to
Average Net
Assets (b)............. 1.73% 1.68% 1.71% 1.75% 1.70% 1.64%
Ratio of Net Investment
Income to Average Net
Assets (b)............. 4.70% 4.90% 5.30% 5.84% 6.25% 5.70%
Portfolio Turnover....... 77% 66%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
42
<PAGE> 94
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class C Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................... $15.069 $14.842 $14.474 $14.987 $13.846 $15.610
------- ------- ------- ------- ------- -------
Net Investment Income.... .686 .549 .778 .851 .910 .824
Net Realized and
Unrealized Gain/Loss... (1.154) .225 .378 (.518) 1.077 (1.694)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.468) .774 1.156 .333 1.987 (.870)
Less Distributions from
and in Excess of Net
Investment Income...... .697 .547 .788 .846 .846 .894
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $13.904 $15.069 $14.842 $14.474 $14.987 $13.846
======= ======= ======= ======= ======= =======
Total Return (a)......... (3.25%) 5.35%* 8.23% 2.33% 14.70% (5.62%)
Net Assets at End of the
Period (In millions)... $ 61.5 $ 63.2 $ 38.6 $ 18.8 $ 9.5 $ 7.6
Ratio of Expenses to
Average Net
Assets (b)............. 1.73% 1.68% 1.71% 1.75% 1.69% 1.64%
Ratio of Net Investment
Income to Average Net
Assets (b)............. 4.69% 4.90% 5.24% 5.84% 6.19% 5.71%
Portfolio Turnover....... 77% 66%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
43
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Tax Free High Income Fund (the "Fund") is organized as a series of
the Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income taxes primarily
through investment in a diversified portfolio of medium and lower grade
municipal securities. The Fund commenced investment operations on June 28, 1985.
The distribution of the Fund's Class B and Class C shares commenced on May 1,
1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
44
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
applicable security. Income and expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $92,206,265 which expires between September 30,
2002 and September 30, 2006. Net realized gains or losses may differ for
financial reporting and tax purposes primarily as a result of the capitalization
of reorganization and restructuring costs for tax purposes, post October losses
which are not recognized for tax purposes with the first day of the following
fiscal year, the deferral of losses related to wash sale transactions and gains
and losses recognized for tax purposes on open options and futures positions at
September 30, 1999.
At September 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $1,141,259,853, the aggregate gross unrealized
appreciation is $40,390,420 and the aggregate gross unrealized depreciation is
$56,971,806, resulting in net unrealized depreciation on long- and short-term
investments of $16,581,386.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of interest income under
generally accepted accounting principles and federal income tax purposes, for
those securities which the Fund has placed on non-accrual status, the amount of
distributable net investment income may differ between book and federal income
tax purposes for a particular period. These differences are temporary in nature,
but may result in book basis distributions in excess of net investment income
for certain periods.
F. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Trust's
custody fee was reduced by $30,267 as a result of credits earned on overnight
cash balances.
45
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
% PER
AVERAGE NET ASSETS ANNUM
- ------------------------------------------------------------------
<S> <C>
First $500 million...................................... .50 of 1%
Over $500 million....................................... .45 of 1%
</TABLE>
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $56,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $305,800 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $587,800. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
46
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $850,797,574, $300,435,113 and
$65,840,415 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................. 13,253,619 $ 192,139,108
Class B............................. 4,333,895 63,782,837
Class C............................. 1,466,836 21,648,116
----------- -------------
Total Sales........................... 19,054,350 $ 277,570,061
=========== =============
Dividend Reinvestment:
Class A............................. 1,403,007 $ 20,426,304
Class B............................. 394,154 5,741,611
Class C............................. 125,823 1,833,452
----------- -------------
Total Dividend Reinvestment........... 1,922,984 $ 28,001,367
=========== =============
Repurchases:
Class A............................. (12,242,352) $(176,483,940)
Class B............................. (2,963,915) (42,910,916)
Class C............................. (1,363,307) (19,602,426)
----------- -------------
Total Repurchases..................... (16,569,574) $(238,997,282)
=========== =============
</TABLE>
47
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $814,716,102, $273,821,581 and
$61,961,273 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................. 7,418,156 $ 110,301,687
Class B............................. 4,566,294 67,862,636
Class C............................. 1,827,970 27,149,170
---------- -------------
Total Sales........................... 13,812,420 $ 205,313,493
========== =============
Dividend Reinvestment:
Class A............................. 923,639 $ 13,739,535
Class B............................. 245,550 3,652,560
Class C............................. 71,508 1,063,729
---------- -------------
Total Dividend Reinvestment........... 1,240,697 $ 18,455,824
========== =============
Repurchases:
Class A............................. (4,753,839) $ (70,664,021)
Class B............................. (1,723,537) (25,610,245)
Class C............................. (306,853) (4,553,704)
---------- -------------
Total Repurchases..................... (6,784,229) $(100,827,970)
========== =============
</TABLE>
48
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $761,338,901, $227,916,630 and
$38,302,078 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................. 6,584,725 $ 95,897,790
Class B............................. 5,414,821 78,851,895
Class C............................. 1,645,028 24,015,792
---------- -------------
Total Sales........................... 13,644,574 $ 198,765,477
========== =============
Dividend Reinvestment:
Class A............................. 1,260,959 $ 18,367,805
Class B............................. 276,853 4,036,121
Class C............................. 52,358 764,110
---------- -------------
Total Dividend Reinvestment........... 1,590,170 $ 23,168,036
========== =============
Repurchases:
Class A............................. (6,688,927) $ (97,347,533)
Class B............................. (2,235,801) (32,600,924)
Class C............................. (397,427) (5,809,634)
---------- -------------
Total Repurchases..................... (9,322,155) $(135,758,091)
========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eight year following purchase.
The CDSC for Class B and C shares will be imposed on most redemptions made
within six years of the purchase for Class B and one year of the purchase for
Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 3.75% None
Third........................................ 3.50% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>
49
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
For the year ended September 30, 1999 Van Kampen, as distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $276,000 and CDSC on redeemed shares of approximately $665,800.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $995,004,442 and
$899,641,751, 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.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund'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 exercising a call option contract or taking
delivery of a security underlying a futures contract. In these instances, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
50
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Transactions in options for the year ended September 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1998............... 750 $ 9,550
Options Written and Purchased (Net)............. 5,215 451,135
Options Terminated in Closing Transactions
(Net)......................................... (2,300) (287,623)
Options Expired (Net)........................... (3,165) (157,576)
------ ---------
Outstanding at September 30, 1999............... 500 $ 15,486
====== =========
</TABLE>
The description and market value of the option contracts outstanding as of
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
MARKET
EXP. VALUE
MONTH/ OF
DESCRIPTION CONTRACTS STRIKE PRICE OPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BOND FUTURES
Dec. 1999 - Written Call............. 250 Dec/118 $(82,031)
Dec. 1999 - Written Put.............. 250 Dec/110 74,219
--- --------
500 $ (7,812)
=== ========
</TABLE>
B. 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
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. 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 potential risk of loss
associated with a futures contract could be in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
51
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended September 30, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998........................... 600
Futures Opened.............................................. 10,221
Futures Closed.............................................. (10,231)
-------
Outstanding at September 30, 1999........................... 590
=======
</TABLE>
The futures contracts outstanding as of September 30, 1999, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- U.S. Treasury Bond
Futures-Dec 1999 (Current notional value
$113,938 per contract)...................... 150 $ 44,099
Short Contracts -- Municipal Bond
Futures-Dec 1999 (Current notional value
$112,281 per contract).................... 440 773,314
--- --------
590 $817,413
=== ========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
52
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended September 30, 1999 are payments retained by Van Kampen
of approximately $2,660,900.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the fund complex, has entered into a $100 million revolving
credit agreement which expires November 10, 1999. The maximum amount available
to any single fund is $75 million. Interest is charged under the agreement at a
rate of .45% above the federal funds rate. The interest rate in effect at
September 30, 1999 was 6.14%. An annual facility fee of .06% is charged on the
unused portion of the credit facility.
The average daily balance of bank borrowings for the year ended September
30, 1999 was approximately $11,116,900 with an average interest rate of 5.89%.
At September 30, 1999, borrowings under this agreement represented .5% of the
Fund's total assets.
53
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Tax Free High Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Tax Free High Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Tax Free High Income Fund as of September 30, 1999, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
November 9, 1999
54
<PAGE> 106
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
55
<PAGE> 107
VAN KAMPEN TAX FREE HIGH INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For the year ended September 30, 1999, 99.6% of the income distributions made by
the Fund were exempt from federal income taxes. In January, 2000 the Fund will
provide tax information to the shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999.
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares and other pertinent
data. After February 28, 2000, the report must, if used with prospective
investors, be accompanied by a quarterly performance update.
56
<PAGE> 108
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 109
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 18
Statement of Operations.......................... 19
Statement of Changes in Net Assets............... 20
Financial Highlights............................. 21
Notes to Financial Statements.................... 24
Report of Independent Accountants................ 33
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 110
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 111
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 112
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... (3.44%) (4.20%) (4.15%)
One-year total return(2)................. (6.58%) (6.96%) (5.07%)
Five-year average annual total
return(2).............................. 5.56% 5.44% 5.47%
Ten-year average annual total
return(2)................................ 6.50% N/A N/A
Life-of-Fund average annual total
return(2)................................ 7.39% 4.20% 3.61%
Commencement date........................ 12/31/85 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.64% 4.00% 4.00%
Taxable-equivalent distribution
rate(4).................................. 8.00% 6.90% 6.90%
SEC Yield(5)............................. 4.56% 3.95% 3.99%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable-equivalent calculations reflect a combined federal and state income
tax rate of 42%, which takes into consideration the deductibility of individual
state taxes paid.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999.
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
No representation is made as to any insurer's ability to meet its commitments.
The insurance does not remove market risk since it does not apply to the value
of the securities in the Fund's portfolio, and the Fund's net asset value may
fluctuate depending on changes in interest rates and other factors affecting the
municipal credit market.
Income may subject certain individuals to the federal alternative minimum tax.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 113
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen California Insured Tax Free Fund vs. the Lehman Brothers
Municipal Bond Index (September 30, 1989 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Return = -6.58%
5 Year Avg. Annual = 5.56%
10 Year Avg. Annual = 6.50%
- ------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN CALIFORNIA INSURED TAX LEHMAN BROTHERS MUNICIPAL BOND
FREE FUND INDEX
--------------------------------- ------------------------------
<S> <C> <C>
Insured Tax Free Fund Municipal Bond Index
Sep 1989 9673.00 10000.00
9756.00 10122.00
9916.00 10299.00
10003.00 10384.00
9890.00 10335.00
10046.00 10427.00
10047.00 10430.00
9912.00 10355.00
10143.00 10581.00
10204.00 10674.00
10364.00 10831.00
10193.00 10874.00
Sep 1990 10175.00 10880.00
10365.00 10873.00
10623.00 11092.00
10747.00 11141.00
10790.00 11290.00
10902.00 11388.00
10876.00 11393.00
11037.00 11544.00
11144.00 11647.00
11061.00 11635.00
11225.00 11777.00
11425.00 11933.00
Sep 1991 11548.00 12088.00
11622.00 12197.00
11652.00 12231.00
11820.00 12494.00
11887.00 12522.00
11889.00 12526.00
11943.00 12531.00
12055.00 12643.00
12190.00 12792.00
12356.00 13007.00
12800.00 13397.00
12712.00 13266.00
Sep 1992 12729.00 13352.00
12510.00 13221.00
12833.00 13458.00
13012.00 13595.00
13176.00 13753.00
13876.00 14251.00
13652.00 14100.00
13818.00 14242.00
13891.00 14322.00
14193.00 14561.00
14131.00 14580.00
14596.00 14883.00
Sep 1993 14804.00 15053.00
14764.00 15081.00
14481.00 14949.00
14911.00 15264.00
15112.00 15438.00
14577.00 15038.00
13776.00 14426.00
13764.00 14549.00
13910.00 14675.00
13832.00 14586.00
14088.00 14853.00
14118.00 14905.00
Sep 1994 13853.00 14686.00
13561.00 14424.00
13285.00 14163.00
13607.00 14475.00
14093.00 14889.00
14537.00 15322.00
14645.00 15498.00
14649.00 15517.00
15152.00 16012.00
14900.00 15872.00
15010.00 16023.00
15191.00 16227.00
Sep 1995 15275.00 16329.00
15556.00 16566.00
15893.00 16841.00
16095.00 17002.00
16250.00 17132.00
16123.00 17015.00
15768.00 16797.00
15714.00 16750.00
15733.00 16744.00
15873.00 16926.00
16086.00 17080.00
16076.00 17077.00
Sep 1996 16310.00 17317.00
16526.00 17511.00
16866.00 17832.00
16771.00 17757.00
16722.00 17791.00
16856.00 17954.00
16625.00 17716.00
16779.00 17864.00
17060.00 18132.00
17256.00 18326.00
17813.00 18834.00
17510.00 18657.00
Sep 1997 17737.00 18879.00
17847.00 19000.00
17957.00 19112.00
18268.00 19391.00
18462.00 19591.00
18435.00 19597.00
18459.00 19614.00
18301.00 19526.00
18659.00 19834.00
18745.00 19912.00
18799.00 19962.00
19121.00 20271.00
Sep 1998 19434.00 20524.00
19355.00 20524.00
19432.00 20596.00
19425.00 20648.00
19638.00 20893.00
19547.00 20801.00
19572.00 20831.00
19586.00 20883.00
19420.00 20762.00
19060.00 20463.00
19070.00 20536.00
18821.00 20372.00
Sep 1999 18765.00 20380.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 114
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
We recently spoke with Joseph A. Piraro, the portfolio manager of the Van Kampen
California Insured Tax Free Fund, about the key events and economic forces that
shaped the markets during the past year. Mr. Piraro has managed the Fund since
1992 and worked in the investment industry since 1971. He is joined by Peter W.
Hegel, chief investment officer for fixed-income investments. The following
comments reflect their views on the Fund's performance during the 12 months
ended September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utilities, environment-related,
and health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
Municipal bond supply in California declined less than the nationwide
average, making it by far the largest-issuing state during the first nine months
of the year. California bonds were very attractive to investors throughout the
country because of the state's strong economic condition and the solid fiscal
management of many municipalities. In addition to benefiting the state's
economy, the strength of the technology industry also increased the demand for
municipal bonds by contributing to the rising number of high-income investors
seeking a tax-advantaged investment alternative. This increased demand helped to
balance the active supply conditions.
5
<PAGE> 115
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A We took advantage of the general market price declines to enhance the
current income potential and tax management of the Fund. We sold some of
our holdings at a capital loss to offset some of the gains we had earned
early in 1999, so that the Fund can try to avoid the need to distribute taxable
capital gains to shareholders this year. These bonds were replaced with
higher-yielding issues, increasing the Fund's income stream without sacrificing
credit quality. The new bonds also had better protection against bond calls.
This should allow the Fund to maintain its income stream for a longer period of
time if interest rates fall.
Another major strategy for the Fund was to increase its duration, or
sensitivity to interest-rate changes. We feel that this strategy will work well
in a declining interest-rate environment because it should allow the Fund to
participate more fully in a market rally. In the short term, however, the longer
duration negatively affected the Fund's total return as interest rates climbed.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A Because of the state's strong financial situation, we continued to be
attracted to tax district bonds, which represent the Fund's largest sector
at 25.2 percent. Since they are supported by state or local tax revenues,
these bonds were very attractive to investors because of the strong financial
conditions of the many state and local entities that back them. In addition, tax
districts remained one of the largest issuers of municipal bonds in the state,
which allowed us ample opportunities to find the securities that met our
purchasing criteria. Another heavy-supply sector that attracted us was
education, which has seen a dramatic increase in issuance since the passage of
Proposition 1A in November 1998. We were pleased with the opportunities we found
in that sector as well.
As we increased our education holdings, we reduced our position in the
housing sector, where the generally lower interest-rate environment means the
bonds could be repaid early (called) as more homeowners refinance their
mortgages. While housing bonds usually offer more yield because of their
susceptibility to calls, we did not feel that they offered enough yield to
compensate for the added call risk. For additional portfolio highlights, please
refer to page 9.
6
<PAGE> 116
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -3.44 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
The Fund provided shareholders with an attractive dividend throughout the
past year, although the dividend was reduced in July 1999. The generally lower
interest-rate environment over the past few years eventually reduced the Fund's
income stream, as we had to purchase current coupon bonds paying lower interest
rates than many of the older bonds in the portfolio. This led to a reduction in
the monthly dividend rate from $0.0735 per Class A share to $0.069. At its
current rate, the Fund's tax-exempt dividend translates to a distribution rate
of 4.64 percent(3), which is equivalent to a yield of 8.00 percent(4) for an
investor in the 42 percent combined federal and state income tax bracket. Please
refer to the chart and footnotes on page 3 for additional Fund performance
results. Past performance does guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive-yielding bonds and protecting the Fund from bond
calls as much as possible. We will also use our research capabilities to monitor
the health-care sector for attractive opportunities throughout the coming
months.
[SIG]
Joseph A. Piraro
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 117
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 118
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
South Orange County, CA Public Finance Authority Special Tax
Revenue Senior Lien......................................... 3.7%
San Joaquin Hills, CA Transportation Corridor Agency Toll
Road Revenue.............................................. 3.6%
Bakersfield, CA Certificates of Participation Convention
Center Expansion Project.................................. 3.2%
San Jose, CA Finance Authority Revenue Convention Project... 2.9%
Grossmont, CA Union High School District Certificates of
Participation............................................. 2.7%
</TABLE>
CREDIT QUALITY*
<TABLE>
<S> <C>
AAA........................ 100.0%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's.
DIVIDEND HISTORY FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 0.0735
Nov 1998 0.0735
Dec 1998 0.0735
Jan 1999 0.0735
Feb 1999 0.0735
Mar 1999 0.0735
Apr 1999 0.0735
May 1999 0.0735
Jun 1999 0.0735
Jul 1999 0.0690
Aug 1999 0.0690
Sep 1999 0.0690
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Tax District 25.20 16.10
Public Education 20.00 11.90
Public Building 13.60 11.50
General Purpose 9.10 9.60
Health Care 7.20 5.90
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 119
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 97.9%
$ 2,500 Alameda Corridor Tran Auth CA Rev Sr
Lien Ser A (MBIA Insd)............... 5.000% 10/01/29 $ 2,228,550
1,925 Alhambra, CA City Elem Sch Dist Cap
Apprec Ser A (FSA Insd).............. * 09/01/20 569,800
2,000 Anaheim, CA Pub Fin Auth Tax Alloc
Rev (Inverse Fltg) (MBIA Insd)....... 9.220 12/28/18 2,300,000
1,000 Antioch Area Pub Fac Fin Agy CA Spl
Tax Cmnty Fac Dist (FGIC Insd)....... 5.000 08/01/18 926,800
3,675 Bakersfield, CA Ctfs Partn Convention
Cent Expansion Proj (MBIA Insd)...... 5.800 04/01/17 3,720,460
3,000 Bakersfield, CA Ctfs Partn Convention
Cent Expansion Proj (MBIA Insd)...... 5.875 04/01/22 3,042,030
1,000 Banning, CA Ctfs Partn Admin Bldg
Proj Ser A Rfdg (MBIA Insd).......... 5.500 11/01/20 984,620
3,000 Bay Area Govt Assn CA Rev Tax Alloc
CA Redev Agy Pool Ser A2 (FSA Insd)
(b).................................. 6.400 12/15/14 3,248,130
1,000 Brea & Olinda, CA Uni Sch Dist Ctfs
Partn Sr High Sch Pgm Ser A Rfdg
(FSA Insd)........................... 6.000 08/01/09 1,060,840
1,125 California Cmnty College Fin Auth
Lease Rev Ser A (MBIA Insd).......... 4.625 10/01/19 972,709
2,000 California Hlth Fac Fin Auth Rev
Adventist Hlth Ser A Rfdg
(MBIA Insd)(b)....................... 6.500 03/01/14 2,090,940
1,625 California Hlth Fac Fin Auth Rev Insd
Sutter Hlth Ser A Rfdg (FSA Insd).... 5.250 08/15/27 1,507,383
2,000 California Hlth Fac Fin Auth Rev
Kaiser Permanente Ser A (FSA Insd)... 5.550 08/15/25 1,955,540
3,000 California Hsg Fin Agy Rev Cap Apprec
Home Mtg Ser K (MBIA Insd) (a)....... * 08/01/24 663,240
4,000 California Hsg Fin Agy Rev Home Mtg
Ser A (MBIA Insd).................... 5.850 08/01/16 4,100,800
1,000 California Hsg Fin Agy Rev Home Mtg
Ser A (MBIA Insd).................... * 02/01/16 393,410
15 California Hsg Fin Agy Rev Hsg Ser B
(MBIA Insd).......................... 8.625 08/01/15 15,302
</TABLE>
See Notes to Financial Statements
10
<PAGE> 120
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,110 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd)........ 8.100% 03/01/18 $ 1,130,335
1,050 California Spl Dist Assn Fin Corp
Ctfs Partn Spl Dists Fin Pgm Ser DD
(FSA Insd)........................... 5.625 01/01/27 1,042,661
1,250 California St (FGIC Insd)............ 6.250 09/01/12 1,386,625
240 California St (MBIA Insd)............ 6.000 10/01/14 250,776
1,000 California St (FGIC Insd)............ 4.500 12/01/21 838,340
820 California St Pub Wks Brd Lease Rev
CA Cmnty Colleges Ser D Rfdg
(AMBAC Insd)......................... 5.250 10/01/10 844,534
1,000 California St Univ Fresno Assn Inc
Rev Aux Residence Student Proj
(MBIA Insd).......................... 6.250 02/01/17 1,060,930
1,000 California Statewide Cmntys Dev Auth
Ctfs Partn San Diego St Univ Fndtn
Rfdg (AMBAC Insd).................... 5.250 03/01/22 939,190
1,570 California Statewide Cmntys Dev Auth
Rev Ctfs Partn Insd Children's Hosps
Rfdg (MBIA Insd)..................... 6.000 06/01/10 1,703,214
2,000 Capistrano, CA Uni Sch Dist Cmnty Fac
Dist Spl Tax (MBIA Insd)............. 5.000 09/01/18 1,857,680
2,000 Castaic Lake Wtr Agy CA Ctfs Partn
Wtr Sys Impt Proj Ser A Rfdg
(MBIA Insd).......................... 7.000 08/01/12 2,328,800
2,195 Castaic Lake Wtr Agy CA Rev Ctfs
Partn (AMBAC Insd)................... * 08/01/30 347,754
1,205 Channel Islands Beach, CA Cmnty Svcs
Dist Ctfs Partn (FSA Insd)........... 5.700 09/01/21 1,209,736
1,105 Chino, CA Ctfs Partn Redev Agy
(MBIA Insd).......................... 6.200 09/01/18 1,170,438
2,350 Chino, CA Uni Sch Dist Ctfs Partn
Master Lease Pgm (FSA Insd).......... 6.250 03/01/09 2,554,638
1,500 Chino, CA Uni Sch Dist Ctfs Partn
Master Lease Pgm (FSA Insd).......... 6.000 03/01/14 1,558,500
3,010 Clayton, CA Redev Agy Tax Alloc Rev
(AMBAC Insd)......................... 5.000 08/01/24 2,711,378
1,000 Clovis, CA Pub Fin Auth Refuse Disp
Rev Ldfill Improv Proj Rfdg
(AMBAC Insd)......................... 5.000 09/01/18 928,840
40 Colton, CA Jt Uni Sch Dist Cmnty Fac
Dist Spl Tax Southridge Vlg Rfdg
(FSA Insd)........................... 5.900 09/01/14 40,014
</TABLE>
See Notes to Financial Statements
11
<PAGE> 121
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 2,000 Colton, CA Pub Fin Auth Rev Tax Alloc
Ser A (MBIA Insd).................... 5.000% 08/01/18 $ 1,857,980
20 Concord, CA Redev Agy Tax Alloc Cent
Concord Redev Proj Ser 3
(BIGI Insd).......................... 8.000 07/01/18 20,394
1,550 Contra Costa, CA Wtr Auth Wtr
Treatment Rev Ser A Rfdg
(FGIC Insd).......................... 5.750 10/01/14 1,575,885
1,500 Corona, CA Pub Fin Auth Wtr Rev
(FGIC Insd).......................... 4.750 09/01/18 1,335,465
5,165 Corona, CA Redev Agy Tax Alloc Redev
Proj Area A Ser A Rfdg (FGIC Insd)... 6.250 09/01/13 5,506,768
1,150 El Centro, CA Redev Agy Tax El Centro
Redev Proj Rfdg (MBIA Insd).......... 5.500 11/01/26 1,122,262
1,000 El Monte, CA Ctfs Partn Dept Pub
Social Svcs Fac (AMBAC Insd)......... 4.750 06/01/30 845,840
2,000 Fairfield Suison, CA Swr Dist Swr Rev
Ser A Rfdg (MBIA Insd) (b)........... 6.250 05/01/16 2,078,440
1,000 Folsom, CA Pub Fin Auth Rev Rfdg
(AMBAC Insd)......................... 6.000 10/01/12 1,040,420
1,400 Folsom, CA Pub Fin Auth Rev Rfdg
(AMBAC Insd)......................... 6.000 10/01/19 1,449,714
2,000 Folsom, CA Spl Tax Cmnty Fac Dist No
2 Rfdg (Connie Lee Insd)............. 5.250 12/01/19 1,905,420
3,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev (MBIA Insd).............. * 01/15/17 1,089,390
3,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev (MBIA Insd).............. * 01/15/18 1,018,320
1,250 Fresno, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)......................... 4.750 09/01/18 1,112,888
1,575 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.800 02/01/15 1,650,915
520 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.800 08/01/15 545,589
555 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.800 08/01/16 580,241
590 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.900 08/01/17 620,338
</TABLE>
See Notes to Financial Statements
12
<PAGE> 122
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 630 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.900% 08/01/18 $ 660,410
675 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.900 08/01/19 705,213
720 Fresno, CA Uni Sch Dist Ser C Rfdg
(MBIA Insd) (a)...................... 5.900 08/01/20 751,284
1,745 Gilroy, CA Uni Sch Dist Ctfs Partn
Measure J Cap Projs Rfdg
(FSA Insd)........................... 5.875 09/01/06 1,879,801
1,810 Gilroy, CA Uni Sch Dist Ctfs Partn
Measure J Cap Projs Rfdg
(FSA Insd)........................... 6.250 09/01/12 1,925,677
725 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd)................... 5.750 02/01/18 746,982
815 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd)................... 5.800 02/01/20 840,086
1,000 Grossmont, CA Union High Sch Dist
Ctfs Partn (FSA Insd)................ 5.650 09/01/17 1,008,630
20,000 Grossmont, CA Union High Sch Dist
Ctfs Partn (MBIA Insd)............... * 11/15/21 4,587,400
4,000 Hayward, CA Ctfs Partn Civic Cent
Proj (MBIA Insd)..................... 5.250 08/01/26 3,735,560
1,250 Hemet, CA Uni Sch Dist Ctfs Partn
Nutrition Cent Proj (FSA Insd)....... 5.875 04/01/27 1,266,338
1,545 Imperial, CA Irrig Dist Elec Rev Sys
Rfdg (MBIA Insd)..................... 5.000 11/01/18 1,419,252
2,000 Inglewood, CA Redev Agy Tax Alloc
Merged Redev Proj Ser A Rfdg
(AMBAC Insd)......................... 5.250 05/01/23 1,887,660
1,500 Jurupa, CA Uni Sch Dist Ctfs Partn
(FSA Insd)........................... 5.625 09/01/24 1,469,025
1,000 Kern, CA Cmnty College Dist Ctfs Part
Rfdg (MBIA Insd)..................... 5.000 01/01/18 930,250
1,000 Lancaster, CA Redev Agy Lease Rev Pub
Cap Impt Proj Rfdg (AMBAC Insd)...... 5.000 12/01/28 892,510
1,225 Lincoln, CA Uni Sch Dist
(MBIA Insd).......................... 5.600 09/01/26 1,212,334
850 Loma Linda, CA Hosp Rev Loma Linda
Univ Med Cent Proj B Rfdg
(AMBAC Insd)......................... 7.000 12/01/15 871,998
</TABLE>
See Notes to Financial Statements
13
<PAGE> 123
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 2,000 Long Beach, CA Bond Fin Auth Lease
Rev Rainbow Harbor Refing Proj A
(AMBAC Insd)......................... 5.250% 05/01/24 $ 1,875,380
1,535 Long Beach, CA Redev Agy Tax Alloc
Sub Redev Proj Rfdg (AMBAC Insd)..... 5.125 04/01/20 1,409,084
3,000 Los Angeles Cnty, CA Ctfs Partn
Disney Pkg Proj Rfdg (AMBAC Insd).... 4.750 03/01/23 2,600,850
2,020 Los Angeles Cnty, CA Schs
Regionalized Business Svcs Ctfs Partn
(AMBAC Insd)......................... * 08/01/18 673,751
1,265 Los Angeles Cnty, CA Schs
Regionalized Business Svcs Ctfs Partn
(AMBAC Insd)......................... * 08/01/24 287,522
1,320 Los Angeles Cnty, CA Schs
Regionalized Business Svcs Ctfs Partn
(AMBAC Insd)......................... * 08/01/25 281,952
2,460 Los Angeles Cnty, CA Schs
Regionalized Business Svcs Ctfs Partn
(AMBAC Insd)......................... * 08/01/28 439,208
589 Los Angeles Cnty, CA Tran Comm Lease
Rev Dia RR Lease Ltd (FSA Insd)...... 7.375 12/15/06 623,521
2,380 Los Angeles, CA Mtg Rev Security 8
Asstd Proj Ser A Rfdg (MBIA Insd).... 6.100 07/01/25 2,413,082
500 M-S-R Pub Pwr Agy CA San Juan Proj
Rev Ser E (MBIA Insd)................ 6.000 07/01/22 509,420
2,000 Madera Cnty, CA Ctfs Partn Vly
Childrens Hosp Proj (MBIA Insd)...... 5.000 03/15/23 1,799,780
4,305 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)............ * 08/01/30 627,325
4,520 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)............ * 08/01/31 618,065
1,250 North City West, CA Sch Fac Fin Auth
Spl Tax Ser B Rfdg (FSA Insd)........ 5.750 09/01/15 1,279,250
1,640 North City West, CA Sch Fac Fin Auth
Spl Tax Ser B Rfdg (FSA Insd)........ 6.000 09/01/19 1,658,516
400 Northern CA Pwr Agy Pub Pwr Rev Hydro
Elec Proj 1 Ser A Rfdg (Prerefunded @
07/01/21) (AMBAC Insd)............... 7.500 07/01/23 489,984
1,220 Oceanside, CA Cmnty Dev Mtg North
River Club Ser A Rfdg (MBIA Insd).... 5.850 07/01/16 1,231,602
</TABLE>
See Notes to Financial Statements
14
<PAGE> 124
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,000 Pajaro Vly, CA Uni Sch Dist Ctfs
Partn Sch Fac Brdg Fdg Pgm
(FSA Insd)........................... 5.850% 09/01/32 $ 1,009,080
3,000 Palm Desert, CA Fin Auth Tax Alloc
Rev (Inverse Fltg) (MBIA Insd)....... 8.760 04/01/22 3,382,500
1,000 Palmdale, CA Wtr Dist Rev Ctfs Parn
Rfdg (FGIC Insd)..................... 5.000 10/01/18 926,510
2,380 Pasadena, CA Uni Sch Dist Ser B
(FGIC Insd).......................... 5.000 07/01/20 2,177,200
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg
(FSA Insd)........................... 6.100 03/01/16 1,046,210
1,000 Pinole, CA Redev Agy Tax Alloc Pinole
Vista Redev Proj A Rfdg
(MBIA Insd).......................... 5.000 08/01/17 935,470
1,360 Port Hueneme, CA Ctfs Partn Cap Impt
Pgm Rfdg (MBIA Insd)................. 6.000 04/01/19 1,431,522
3,000 Rancho Cucamonga, CA Redev Agy Tax
Alloc (FSA Insd)..................... 5.250 09/01/20 2,848,380
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac
Dist 883 Ser A Rfdg (AMBAC Insd)..... 6.000 09/01/17 1,705,788
1,000 Redding, CA Elec Sys Rev Ctfs Partn
(Inverse Fltg) (MBIA Insd)........... 9.004 07/01/22 1,150,000
1,000 Redlands, CA Redev Agy Tax Alloc
Redev Proj Ser A Rfdg (MBIA Insd).... 4.750 08/01/21 873,640
2,000 Rialto, CA Spl Tax Cmnty Fac Dist
87-1 Rfdg (FSA Insd)................. 5.625 09/01/18 2,006,840
3,000 Riverside Cnty, CA Ctfs Partn
Historic Courthouse Proj
(MBIA Insd).......................... 5.875 11/01/27 3,040,830
1,070 Riverside, CA Elec Rev Rfdg
(AMBAC Insd)......................... 5.000 10/01/18 993,720
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax
Alloc Rohnert Redev Proj
(MBIA Insd).......................... * 08/01/31 266,830
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax
Alloc Rohnert Redev Proj
(MBIA Insd).......................... * 08/01/33 236,434
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax
Alloc Rohnert Redev Proj
(MBIA Insd).......................... * 08/01/35 208,985
1,000 Roseville, CA Fin Auth Loc Agy Rev
Northeast Cmnty Fac Dist Bond Ser A
Rfdg (FSA Insd)...................... 5.000 09/01/21 910,060
2,000 Sacramento, CA Muni Util Dist Elec
Rev Ser A Rfdg (MBIA Insd)........... 5.750 08/15/13 2,025,420
</TABLE>
See Notes to Financial Statements
15
<PAGE> 125
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,000 Salinas, CA Santn Swr Sys Rev
(FGIC Insd).......................... 5.000% 08/01/20 $ 914,620
2,500 San Bernardino Cnty, CA Ctfs Partn
Ser B (Embedded Swap) (MBIA Insd).... 6.900 07/01/16 2,499,000
2,000 San Diego Cnty, CA Wtr Rev Ctfs Ser A
(FGIC Insd).......................... 4.750 05/01/18 1,782,800
1,000 San Diego, CA Indl Dev Rev San Diego
Gas & Elec Ser A (MBIA Insd)......... 6.400 09/01/18 1,055,560
5,000 San Diego, CA Uni Sch Dist Cap Apprec
Ser A (FGIC Insd).................... * 07/01/19 1,608,450
1,110 San Francisco, CA St Bldg Auth Lease
Rev (AMBAC Insd)..................... 5.250 12/01/16 1,084,759
1,000 San Gabriel, CA Uni Sch Dist Ctfs
Partn (FSA Insd)..................... 6.000 09/01/15 1,031,380
2,525 San Joaquin Cnty, CA Ctfs Partn Genl
Hosp Proj Rfdg (MBIA Insd)........... 5.000 09/01/18 2,312,294
1,045 San Joaquin Cnty, CA Ctfs Partn Genl
Hosp Proj Rfdg (MBIA Insd)........... 5.000 09/01/20 941,472
5,000 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Cap Apprec Ser A Rfdg
(MBIA Insd).......................... * 01/15/30 842,800
7,050 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Ser A Rfdg
(MBIA Insd).......................... 5.375 01/15/29 6,749,035
5,750 San Jose, CA Fin Auth Rev Convention
Proj Ser C (FSA Insd)................ 6.375 09/01/13 6,034,280
1,750 San Jose, CA Redev Agy Tax Alloc
Merged Area Redev Proj
(AMBAC Insd)......................... 5.000 08/01/31 1,548,732
5,080 San Marcos, CA Redev Agy Tax Alloc
(FSA Insd)........................... 5.375 08/01/25 4,874,311
5,250 San Mateo Cnty, CA Jt Pwrs Fin Auth
Lease Rev Cap Proj Ser A Rfdg
(FSA Insd)........................... 4.750 07/15/23 4,546,027
1,500 San Rafael, CA Redev Agency Tax Alloc
(AMBAC Insd)......................... 5.000 12/01/22 1,359,510
2,000 Santa Ana, CA Uni Sch Dist Ctfs Part
Fin Proj Ser A (FSA Insd)............ 5.000 04/01/18 1,859,560
2,000 Santa Clara Cnty, CA Fin Auth Lease
Rev Ser A Rfdg (AMBAC Insd).......... 5.750 11/15/13 2,114,100
</TABLE>
See Notes to Financial Statements
16
<PAGE> 126
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,000 Santa Clara, CA Redev Agy Tax Alloc
Bayshore North Proj Rfdg
(AMBAC Insd)......................... 7.000% 07/01/10 $ 1,138,760
1,000 Santa Fe Springs, CA Cmnty Dev Commn
Tax Alloc Cons Redev Proj Ser A Rfdg
(MBIA Insd).......................... 5.000 09/01/17 935,320
1,000 Shasta Lake, CA Ctfs Partn
(FSA Insd)........................... 6.000 04/01/16 1,025,770
3,735 South Orange Cnty, CA Pub Fin Auth
Spl Tax Rev Sr Lien Ser A Rfdg
(MBIA Insd).......................... 7.000 09/01/08 4,326,811
3,000 South Orange Cnty, CA Pub Fin Auth
Spl Tax Rev Sr Lien Ser A Rfdg
(MBIA Insd).......................... 7.000 09/01/09 3,501,690
570 Temecula Vly, CA Uni Sch Dist Ctfs
Partn Rfdg (FSA Insd)................ 6.000 09/01/18 576,435
2,000 Torrance, CA Hosp Rev Torrance Mem
Hosp Rfdg (MBIA Insd)................ 6.750 01/01/12 2,012,500
2,000 Westlands, CA Wtr Dist Rev Ctfs Partn
Ser A (AMBAC Insd)................... 5.000 03/01/29 1,784,360
------------
TOTAL LONG-TERM INVESTMENTS 97.9%
(Cost $208,961,590)................................................ 210,285,663
SHORT-TERM INVESTMENTS 2.6%
(Cost $5,600,000).................................................. 5,600,000
------------
TOTAL INVESTMENTS 100.5%
(Cost $214,561,590)................................................ 215,885,663
LIABILITIES IN EXCESS OF OTHER ASSETS (0.5%)........................ (1,172,073)
------------
NET ASSETS 100.0%................................................... $214,713,590
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
17
<PAGE> 127
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $214,561,590)....................... $215,885,663
Cash........................................................ 58,828
Receivables:
Investment sold........................................... 3,285,179
Interest.................................................. 2,379,319
Fund Shares Sold.......................................... 301,129
Other....................................................... 27,267
------------
Total Assets.......................................... 221,937,385
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 6,143,187
Income Distributions...................................... 329,466
Fund Shares Repurchased................................... 264,194
Distributor and Affiliates................................ 166,770
Investment Advisory Fee................................... 83,944
Trustees' Deferred Compensation and Retirement Plans........ 174,272
Accrued Expenses............................................ 61,962
------------
Total Liabilities..................................... 7,223,795
------------
NET ASSETS.................................................. $214,713,590
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $215,294,918
Net Unrealized Appreciation................................. 1,324,073
Accumulated Distributions in Excess of Net Investment
Income.................................................... (276,952)
Accumulated Net Realized Loss............................... (1,628,449)
------------
NET ASSETS.................................................. $214,713,590
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $161,956,847 and 9,374,835 shares of
beneficial interest issued and outstanding)............. $ 17.28
Maximum sales charge (3.25%* of offering price)......... .58
------------
Maximum offering price to public........................ $ 17.86
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $45,317,715 and 2,625,524 shares of
beneficial interest issued and outstanding)............. $ 17.26
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $7,439,028 and 431,087 shares of
beneficial interest issued and outstanding)............. $ 17.26
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
18
<PAGE> 128
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................... $ 11,476,894
----------------
EXPENSES:
Investment Advisory Fee..................................... 998,839
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $387,011, $448,739 and $66,026,
respectively)............................................. 901,776
Shareholder Services........................................ 164,414
Trustees' Fees and Related Expenses......................... 37,645
Legal....................................................... 29,842
Custody..................................................... 15,707
Insurance................................................... 2,786
Other....................................................... 197,365
----------------
Total Expenses.......................................... 2,348,374
Less Credits Earned on Cash Balances.................... 9,415
----------------
Net Expenses............................................ 2,338,959
----------------
NET INVESTMENT INCOME....................................... $ 9,137,935
================
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 361,015
Futures................................................... 198,623
----------------
Net Realized Gain........................................... 559,638
----------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 19,038,988
End of the Period:
Investments............................................. 1,324,073
----------------
Net Unrealized Depreciation During the Period............... (17,714,915)
----------------
NET REALIZED AND UNREALIZED LOSS............................ $ (17,155,277)
================
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (8,017,342)
================
See Notes to Financial Statements
19
<PAGE> 129
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999, the Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............... $ 9,137,935 $ 6,106,945 $ 8,171,627
Net Realized Gain................... 559,638 1,695,395 1,186,738
Net Unrealized
Appreciation/Depreciation During
the Period........................ (17,714,915) 3,409,163 4,996,359
------------- ------------ ------------
Change in Net Assets from
Operations........................ (8,017,342) 11,211,503 14,354,724
------------- ------------ ------------
Distributions from Net Investment
Income............................ (9,390,470) (6,340,558) (7,894,819)
Distributions in Excess of Net
Investment Income................. (276,952) -0- -0-
------------- ------------ ------------
Total Distributions from and in
Excess of Net Investment
Income*........................... (9,667,422) (6,340,558) (7,894,819)
------------- ------------ ------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............. (17,684,764) 4,870,945 6,459,905
------------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........... 169,414,699 29,485,437 21,168,004
Net Asset Value of Shares Issued
Through Dividend Reinvestment..... 5,772,779 3,827,238 4,809,591
Cost of Shares Repurchased.......... (138,683,257) (17,753,835) (30,260,768)
------------- ------------ ------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS.............. 36,504,221 15,558,840 (4,283,173)
------------- ------------ ------------
TOTAL INCREASE IN NET ASSETS........ 18,819,457 20,429,785 2,176,732
NET ASSETS:
Beginning of the Period............. 195,894,133 175,464,348 173,287,616
------------- ------------ ------------
End of the Period (Including
accumulated undistributed net
investment income of $(276,952),
$252,535 and $486,148,
respectively)..................... $ 214,713,590 $195,894,133 $175,464,348
============= ============ ============
<CAPTION>
* DISTRIBUTIONS BY CLASS
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares.................... $ (7,590,523) $ (5,158,867) $ (6,593,552)
Class B Shares.................... (1,810,361) (1,050,450) (1,190,355)
Class C Shares.................... (266,538) (131,241) (110,912)
------------- ------------ ------------
$ (9,667,422) $ (6,340,558) $ (7,894,819)
============= ============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 130
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Year Ended Nine Months Ended -------------------------------------
Class A Shares September 30, 1999 September 30, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $18.768 $18.294 $17.605 $17.736 $15.802 $18.286
------- ------- ------- ------- ------- -------
Net Investment
Income............... .824 .638 .880 .857 .884 .912
Net Realized and
Unrealized
Gain/Loss............ (1.447) .498 .658 (.145) 1.938 (2.484)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... (.623) 1.136 1.538 .712 2.822 (1.572)
Less Distributions from
and in Excess of Net
Investment Income.... .869 .662 .849 .843 .888 .912
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $17.276 $18.768 $18.294 $17.605 $17.736 $15.802
======= ======= ======= ======= ======= =======
Total Return* (a)...... (3.44%) 6.38%** 8.93% 4.20% 18.28% (8.75%)
Net Assets at End of
the Period (In
millions)............ $ 162.0 $ 151.0 $ 140.7 $ 142.5 $ 147.6 $ 130.3
Ratio of Expenses to
Average Net
Assets*.............. .92% .88% .96% 1.02% .89% .78%
Ratio of Net Investment
Income to Average Net
Assets*.............. 4.52% 4.66% 4.96% 4.94% 5.23% 5.46%
Portfolio Turnover..... 44% 21%** 46% 35% 42% 56%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to
Average Net Assets... N/A N/A N/A 1.03% 1.05% 1.08%
Ratio of Net Investment
Income to Average
Net Assets........... N/A N/A N/A 4.94% 5.07% 5.16%
</TABLE>
** Non-Annualized.
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
21
<PAGE> 131
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Year Ended Nine Months Ended -------------------------------------
Class B Shares September 30, 1999 September 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $18.758 $18.289 $17.603 $17.736 $15.805 $18.266
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .684 .526 .741 .720 .766 .785
Net Realized and
Unrealized
Gain/Loss........... (1.447) .506 .662 (.142) 1.926 (2.482)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.......... (.763) 1.032 1.403 .578 2.692 (1.697)
Less Distributions
from and in Excess
of Net Investment
Income.............. .735 .563 .717 .711 .761 .764
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period....... $17.260 $18.758 $18.289 $17.603 $17.736 $15.805
======= ======= ======= ======= ======= =======
Total Return* (a)..... (4.20%) 5.76%** 8.19% 3.35% 17.33% (9.39%)
Net Assets at End of
the Period (In
millions)........... $ 45.3 $ 40.1 $ 31.0 $ 28.6 $ 24.6 $ 17.1
Ratio of Expenses to
Average Net
Assets*............. 1.68% 1.64% 1.72% 1.79% 1.61% 1.52%
Ratio of Net
Investment Income to
Average Net
Assets*............. 3.76% 3.89% 4.18% 4.17% 4.51% 4.71%
Portfolio Turnover.... 44% 21%** 46% 35% 42% 56%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to
Average Net
Assets.............. N/A N/A......... N/A 1.79% 1.77% 1.82%
Ratio of Net
Investment Income to
Average Net
Assets.............. N/A N/A......... N/A 4.16% 4.35% 4.41%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
22
<PAGE> 132
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Year Ended Nine Months Ended -------------------------------------
Class C Shares September 30, 1999 September 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
the Period........... $18.754 $18.286 $17.602 $17.736 $15.798 $18.257
------- ------- ------- ------- ------- -------
Net Investment
Income............. .694 .529 .727 .722 .758 .773
Net Realized and
Unrealized
Gain/Loss.......... (1.457) .502 .674 (.145) 1.941 (2.468)
------- ------- ------- ------- ------- -------
Total from Investment
Operations......... (.763) 1.031 1.401 .577 2.699 (1.695)
Less Distributions
from and in Excess
of Net Investment
Income............. .735 .563 .717 .711 .761 .764
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $17.256 $18.754 $18.286 $17.602 $17.736 $15.798
======= ======= ======= ======= ======= =======
Total Return* (a).... (4.15%) 5.70** 8.19% 3.35% 17.40% (9.40%)
Net Assets at End of
the Period (In
millions).......... $ 7.4 $ 4.8 $ 3.8 $ 2.2 $ 1.8 $ 2.8
Ratio of Expenses to
Average Net
Assets*............ 1.69% 1.63% 1.71% 1.79% 1.60% 1.51%
Ratio of Net
Investment Income
to Average Net
Assets*............ 3.75% 3.87% 4.15% 4.16% 4.50% 4.71%
Portfolio Turnover... 44% 21%** 46% 35% 42% 56%
* If certain expenses had not been
reimbursed by Van Kampen, Total
Return would have been lower
and the ratios would have been
as follows:
Ratio of Expenses to
Average Net
Assets............. N/A N/A N/A 1.80% 1.75% 1.82%
Ratio of Net
Investment Income
to Average Net
Assets............. N/A N/A N/A 4.16% 4.34% 4.39%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A--Not Applicable
See Notes to Financial Statements
23
<PAGE> 133
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen California Insured Tax Free Fund (the "Fund") is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide California investors with a high level of current income exempt from
federal and California income taxes, with liquidity and safety of principal,
primarily through investment in a diversified portfolio of insured California
municipal securities. The Fund commenced investment operations on December 13,
1985. The distribution of the Fund's Class B shares and Class C shares commenced
on May 1, 1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund 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
Fund will maintain, in a segregated account with its custodian, assets having an
aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made.
24
<PAGE> 134
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Income and expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund'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, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the Federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $1,628,449, which will expire between September
30, 2002 and September 30, 2003.
At September 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $214,561,590; the aggregate gross unrealized
appreciation is $6,588,201 and the aggregate gross unrealized depreciation is
$5,264,128, resulting in net unrealized appreciation on long- and short-term
investments of $1,324,073.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
F. INSURANCE EXPENSE--The Fund typically invests in insured bonds. Any portfolio
securities not specifically covered by a primary insurance policy are insured
secondarily through the Fund's portfolio insurance policy. Insurance premiums
are based on the daily balances of uninsured bonds in the portfolio of
investments and are charged to expense on an accrual basis. The insurance policy
guarantees the timely payment of principal and interest on the securities in the
Fund's portfolio.
25
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
G. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Trust's
custody fee was reduced by $9,415 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $100 million.................................... .500 of 1%
Next $150 million..................................... .450 of 1%
Next $250 million..................................... .425 of 1%
Over $500 million..................................... .400 of 1%
</TABLE>
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $19,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $99,500 representing Van Kampen Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $116,800. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
26
<PAGE> 136
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $159,907,170, $47,220,345 and
$8,167,403 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 8,206,388 $ 147,459,959
Class B.................................... 905,506 16,519,855
Class C.................................... 298,867 5,434,885
---------- -------------
Total Sales.................................. 9,410,761 $ 169,414,699
========== =============
Dividend Reinvestment:
Class A.................................... 243,776 $ 4,426,154
Class B.................................... 65,547 1,188,606
Class C.................................... 8,719 158,019
---------- -------------
Total Dividend Reinvestment.................. 318,042 $ 5,772,779
========== =============
Repurchases:
Class A.................................... (7,118,589) $(127,545,738)
Class B.................................... (486,135) (8,765,169)
Class C.................................... (131,471) (2,372,350)
---------- -------------
Total Repurchases............................ (7,736,195) $(138,683,257)
========== =============
</TABLE>
27
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $135,566,795, $38,277,053 and
$4,946,849 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 896,618 $ 16,459,740
Class B..................................... 595,781 10,920,471
Class C..................................... 114,887 2,105,226
--------- ------------
Total Sales................................... 1,607,286 $ 29,485,437
========= ============
Dividend Reinvestment:
Class A..................................... 167,488 $ 3,075,115
Class B..................................... 37,047 680,216
Class C..................................... 3,916 71,907
--------- ------------
Total Dividend Reinvestment................... 208,451 $ 3,827,238
========= ============
Repurchases:
Class A..................................... (709,317) $(13,003,362)
Class B..................................... (188,629) (3,456,135)
Class C..................................... (70,739) (1,294,338)
--------- ------------
Total Repurchases............................. (968,685) $(17,753,835)
========= ============
</TABLE>
28
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $129,035,302, $30,132,501 and
$4,064,054 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 692,287 $ 12,283,098
Class B..................................... 403,552 7,140,419
Class C..................................... 97,375 1,744,487
---------- ------------
Total Sales................................... 1,193,214 $ 21,168,004
========== ============
Dividend Reinvestment:
Class A..................................... 224,209 $ 3,981,636
Class B..................................... 43,062 765,183
Class C..................................... 3,529 62,772
---------- ------------
Total Dividend Reinvestment................... 270,800 $ 4,809,591
========== ============
Repurchases:
Class A..................................... (1,319,813) $(23,254,943)
Class B..................................... (375,548) (6,651,902)
Class C..................................... (20,021) (353,923)
---------- ------------
Total Repurchases............................. (1,715,382) $(30,260,768)
========== ============
</TABLE>
29
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Classes B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the year ended September 30, 1999, 9,117 Class B shares automatically
converted to Class A shares. The CDSC will be imposed on most redemptions made
within four years of the purchase for Class B and one year of the purchase for
Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-----------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................... 3.00% 1.00%
Second.......................................... 2.50% None
Third........................................... 2.00% None
Fourth.......................................... 1.00% None
Fifth and Thereafter............................ None None
</TABLE>
For the year ended September 30, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $40,000 and CDSC on redeemed shares of approximately $100,000.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $127,975,270 and
$92,194,777, 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.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying
30
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
a futures contract. In this instance the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. 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).
Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... -0-
Futures Opened............................................ 580
Futures Closed............................................ (580)
----
Outstanding at September 30, 1999......................... -0-
====
</TABLE>
B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
31
<PAGE> 141
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 1999, are payments retained by Van Kampen of
approximately $388,000.
32
<PAGE> 142
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen California Insured Tax Free Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen California Insured Tax Free Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen California Insured Tax Free Fund as of September 30, 1999, the results of
its operations for the year then ended, the changes in its net assets for the
year then ended, for the nine-month period ended September 30, 1998, and for the
year ended December 31, 1997, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
KPMG LLP SIG
Chicago, Illinois
November 11, 1999
33
<PAGE> 143
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
34
<PAGE> 144
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For the year ended September 30, 1999, 100% of the income distributions made
by the Fund were exempt from federal income taxes. In January, 2000 the Fund
will provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in
the Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 29, 2000, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
35
<PAGE> 145
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
36
<PAGE> 146
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 40
Statement of Operations.......................... 41
Statement of Changes in Net Assets............... 42
Financial Highlights............................. 43
Notes to Financial Statements.................... 46
Report of Independent Accountants................ 56
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 147
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 148
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 149
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... (4.25%) (4.95%) (4.90%)
One-year total return(2)................. (8.81%) (8.58%) (5.80%)
Five-year average annual total
return(2)................................ 4.57% 4.56% 4.79%
Life-of-Fund average annual total
return(2)................................ 5.99% 4.45% 3.39%
Commencement date....................... 08/01/90 08/24/92 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 5.56% 5.05% 5.06%
Taxable-equivalent distribution
rate(4).................................. 8.69% 7.89% 7.91%
SEC Yield(5)............................. 4.94% 4.41% 4.43%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999.
Income may subject certain individuals to the federal alternative minimum tax.
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
Investments in lower-rated, higher-yielding municipal securities involve a
higher degree of risk. Investments in derivative securities will subject the
Fund to greater risk.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 150
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Municipal Income Fund vs. the Lehman Brothers Municipal Bond
Index (August 1, 1990 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- --------------------------------
Fund's Total Return
1 Year Total Return = -8.81%
5 Year Avg. Annual = 4.57%
Inception Avg. Annual = 5.99%
- --------------------------------
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUNICIPAL BOND
VAN KAMPEN MUNICIPAL INCOME FUND INDEX
-------------------------------- ------------------------------
<S> <C> <C>
Aug 1990 9454.00 10006.00
9489.00 10187.00
9674.00 10392.00
9771.00 10438.00
9868.00 10577.00
9974.00 10669.00
9996.00 10674.00
10152.00 10816.00
10301.00 10912.00
10303.00 10901.00
10476.00 11034.00
10605.00 11180.00
Sep 1991 10771.00 11325.00
10865.00 11427.00
10931.00 11459.00
11137.00 11705.00
11203.00 11732.00
11218.00 11736.00
11300.00 11740.00
11418.00 11845.00
11566.00 11985.00
11768.00 12186.00
12247.00 12552.00
11960.00 12427.00
Sep 1992 12018.00 12509.00
11829.00 12387.00
12068.00 12609.00
12215.00 12737.00
12324.00 12885.00
12818.00 13351.00
12702.00 13210.00
12833.00 13343.00
12933.00 13418.00
13123.00 13642.00
13121.00 13660.00
13376.00 13944.00
Sep 1993 13508.00 14103.00
13540.00 14130.00
13362.00 14005.00
13706.00 14301.00
13862.00 14464.00
13498.00 14089.00
12765.00 13516.00
12794.00 13631.00
13004.00 13749.00
12929.00 13665.00
13107.00 13915.00
13154.00 13964.00
Sep 1994 12981.00 13759.00
12771.00 13514.00
12489.00 13269.00
12833.00 13561.00
13214.00 13949.00
13597.00 14355.00
13736.00 14520.00
13666.00 14538.00
13936.00 15001.00
13856.00 14871.00
13887.00 15012.00
14076.00 15203.00
Sep 1995 14136.00 15299.00
14337.00 15520.00
14614.00 15778.00
14836.00 15930.00
14896.00 16051.00
14804.00 15941.00
14605.00 15737.00
14550.00 15693.00
14631.00 15687.00
14723.00 15858.00
14834.00 16002.00
14877.00 15999.00
Sep 1996 15079.00 16223.00
15262.00 16406.00
15516.00 16707.00
15439.00 16637.00
15453.00 16668.00
15578.00 16821.00
15436.00 16598.00
15559.00 16737.00
15735.00 16988.00
15953.00 17170.00
16421.00 17646.00
16192.00 17480.00
Sep 1997 16392.00 17688.00
16519.00 17801.00
16594.00 17906.00
16849.00 18167.00
16978.00 18355.00
17011.00 18360.00
17033.00 18377.00
16893.00 18294.00
17187.00 18583.00
17264.00 18655.00
17298.00 18702.00
17596.00 18992.00
Sep 1998 17796.00 19229.00
17685.00 19229.00
17697.00 19297.00
17720.00 19345.00
17878.00 19575.00
17765.00 19489.00
17755.00 19516.00
17801.00 19565.00
17698.00 19452.00
17341.00 19171.00
17377.00 19240.00
17109.00 19086.00
Sep 1999 17040.00 19094.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 151
PORTFOLIO MANAGEMENT REVIEW
MUNICIPAL INCOME FUND
We recently spoke with David C. Johnson, the portfolio manager of the Van Kampen
Municipal Income Fund, about the key events and economic forces that shaped the
markets during the past year. Mr. Johnson has managed the Fund since 1990 and
worked in the investment industry since 1981. He is joined by Peter W. Hegel,
chief investment officer for fixed-income investments. The following comments
reflect their views on the Fund's performance during the 12 months ended
September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE
REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utilities, environment-related,
and health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market. With the exception of the health-care
sector, overall credit quality remained high, and we witnessed a number of
credit upgrades as tax revenues kept municipal finances strong. In addition,
municipal bond yields remained very attractive compared with Treasury bonds,
especially when considering the tax advantages of municipals. At the end of the
reporting period, AAA-rated municipals were offering yields that were about 90
percent of comparable Treasury yields, making municipals very attractive for
investors in higher income tax brackets.
5
<PAGE> 152
Another positive effect was that credit spreads--the difference in yields
between higher- and lower-quality bonds--widened toward the end of the reporting
period. We have considerable experience in researching and selecting those
lower-quality bonds that we feel have been undervalued, so this gave us a much
wider range from which to choose. While we are always looking for bonds in this
area that might benefit the Fund, the widening of credit spreads meant that the
Fund received better yields from these bonds than we had earlier in the
reporting period.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN
THESE CONDITIONS?
A The widening of credit spreads gave us the opportunity to increase the
proportion of higher-yielding bonds in the portfolio, which helped to
support the Fund's dividend. Higher-yielding bonds were very attractive
during the last several months because the demand for these bonds dissipated as
interest rates rose, requiring issuers to provide more attractive yields. The
purchase of higher-yielding bonds also served as a defensive strategy for the
Fund because they have tended to suffer less than higher-quality bonds when
rates increase.
Another major strategy for the Fund has been to increase its duration, or
sensitivity to interest rate changes. We did so by purchasing longer-duration
securities such as zero coupon and deep-discount bonds. We feel that this
strategy will work well in a declining interest-rate environment because it
should allow the Fund to participate more fully in a market rally. In the short
term, however, the longer duration negatively affected the Fund's total return
as interest rates climbed.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE
TO YOU?
A One of the most attractive sectors during the past year has been
transportation because we've seen such heavy issuance in that area.
Because transportation projects are visible ways for voters to see their
tax dollars at work, they tend to be well-funded when the economy is strong. As
a result, we've had more issues to choose from and were able to add to our
position in transportation. At the end of September, this represented one of the
Fund's largest sectors, at 9.3 percent of the portfolio's long-term investments.
As we increased our transportation exposure, we reduced our positions in
health care and utilities. Both of these sectors have been under pressure as a
result of changing industry conditions, so we looked for value in other areas.
Although many health-care bonds remain attractive, the challenges imposed by
managed care and changing Medicare reimbursement policies have led us to focus
on other sectors in recent months. In the utility sector, we were pleased with
the credit improvements among some of our holdings, so we sold them at a profit
because we felt that they had reached their peak. For additional portfolio
highlights, please refer to page 9.
6
<PAGE> 153
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -4.25 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
On the positive side, the Fund's dividend remained unchanged over the past
12 months even though many other municipal bond funds experienced dividend
decreases. The Fund's monthly tax-exempt dividend of $0.0705 per Class A share
translates to a distribution rate of 5.56 percent(3), which is equivalent to a
yield of 8.69 percent(4) for an investor in the 36 percent federal income tax
bracket. Please refer to the chart and footnotes on page 3 for additional Fund
performance results. Past performance does not guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE
MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive higher-yielding bonds and protecting the Fund from
bond calls as much as possible. We will also use our research capabilities to
monitor the health-care sector for attractive opportunities throughout the
coming months.
[SIG]
David C. Johnson
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 154
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 155
PORTFOLIO HIGHLIGHTS
VAN KAMPEN MUNICIPAL INCOME FUND
TOP FIVE STATES AS OF SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
Illinois.................. 13.3%
Texas..................... 10.0%
California................ 8.9%
New York.................. 7.2%
Pennsylvania.............. 6.3%
</TABLE>
CREDIT QUALITY*
AS OF SEPTEMBER 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of September 30, 1999 47.0% 7.5% 8.6% 12.5% 1.2%
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1999 23.2%
</TABLE>
AS OF SEPTEMBER 30, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BB/Ba
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of September 30, 1998 44.4% 5.4% 13.0% 14.4% 0.7%
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1998 22.1%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 0.0705
Nov 1998 0.0705
Dec 1998 0.0705
Jan 1999 0.0705
Feb 1999 0.0705
Mar 1999 0.0705
Apr 1999 0.0705
May 1999 0.0705
Jun 1999 0.0705
Jul 1999 0.0705
Aug 1999 0.0705
Sep 1999 0.0705
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Health Care 15.00 15.70
Industrial Revenue 11.90 11.60
Public Building 11.20 11.20
Transportation 9.30 7.80
General Purpose 7.70 9.40
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 156
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 108.4%
ALABAMA 1.9%
$ 2,100 Alabama St Indl Dev Auth Rev UNR-ROHN
Inc Expansion Proj................... 7.500% 09/15/11 $ 2,217,306
2,930 Alabama Wtr Pollutn Ctl Auth
Revolving Fd Ln Ser A (AMBAC Insd)
(b).................................. 6.750 08/15/17 3,151,801
350 Bessemer, AL Indl Dev Brd ROHN Inc
Proj................................. 9.000 09/15/01 362,982
1,750 Bessemer, AL Indl Dev Brd ROHN Inc
Proj................................. 9.500 09/15/11 2,082,447
240 Mobile, AL Indl Dev Brd Solid Waste
Disp Rev Mobile Energy Svcs Co Proj
Rfdg................................. 6.950 01/01/20 83,181
1,000 Montgomery, AL Med Clinic Brd Jackson
Hosp & Clinic (AMBAC Insd)........... 5.875 03/01/16 1,008,530
2,000 West Jefferson Cnty, AL Amusement &
Pub Pk Auth First Mtg Visionland
Proj................................. 6.375 02/01/29 1,666,940
5,150 West Jefferson Cnty, AL Amusement &
Pub Pk Auth First Mtg Visionland Proj
(Prerefunded @ 12/01/06)............. 8.000 12/01/26 6,228,255
------------
16,801,442
------------
ALASKA 0.8%
10 Alaska Energy Auth Pwr Rev Bradley
Lake Proj Ser 1 (BIGI Insd).......... 6.250 07/01/21 10,017
1,000 Alaska Indl Dev & Expt Auth Pwr Rev
Upper Lynn Canal Regl Pwr............ 5.700 01/01/12 930,300
1,800 Alaska Indl Dev & Expt Auth Pwr Rev
Upper Lynn Canal Regl Pwr............ 5.875 01/01/32 1,612,170
1,650 Juneau, AK City & Borough
Nonrecourse Rev...................... 6.875 12/01/25 1,614,542
3,265 North Slope Borough, AK Cap Apprec
Ser A (MBIA Insd).................... * 06/30/10 1,850,928
1,000 Valdez, AK Marine Term Rev Sohio
Pipeline Rfdg........................ 7.125 12/01/25 1,071,860
------------
7,089,817
------------
ARIZONA 2.2%
1,000 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev Rfdg............ 6.500 07/01/09 1,044,210
1,000 Peoria, AZ Indl Dev Auth Rev Sierra
Winds Life Ser A Rfdg................ 6.500 08/15/31 950,440
</TABLE>
See Notes to Financial Statements
10
<PAGE> 157
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$ 590 Pima Cnty, AZ Indl Dev Auth Single
Family Mtg Rev (GNMA
Collateralized)...................... 6.625% 11/01/14 $ 606,555
5,220 Pinal Cnty, AZ Sch Dist No 8
Mammoth Ser A (b).................... 9.500 07/01/10 5,534,401
500 Scottsdale, AZ Indl Dev Auth Rev
First Mtg Westminster Vlg Ser A
Rfdg................................. 8.250 06/01/15 545,095
1,875 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)......................... 6.000 09/01/12 1,932,112
1,750 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)......................... 6.125 09/01/17 1,774,553
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev
Lockheed Aermod Cent Inc............. 8.700 09/01/19 7,372,750
------------
19,760,116
------------
ARKANSAS 0.9%
5,090 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt
Ser A (d)............................ 7.500 01/31/06 4,886,400
5,470 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt
Ser B (d)(g)......................... 7.500 01/31/06 1,641,000
1,835 Jackson Cnty, AR Hlthcare Fac Brd
First Mtg Hosp Rev Newport Hosp &
Clinic Inc........................... 7.375 11/01/11 1,832,651
------------
8,360,051
------------
CALIFORNIA 9.7%
7,195 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Sub Pub Impt Proj C
(FSA Insd)........................... * 09/01/21 2,017,838
4,900 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Sub Pub Impt Proj C
(FSA Insd)........................... * 09/01/25 1,078,784
5,000 Anaheim, CA Pub Fin Auth Lease Rev
Cap Apprec Sub Pub Impt Proj C
(FSA Insd)........................... * 09/01/26 1,038,350
5,000 Anaheim, CA Pub Fin Auth Lease Rev
Sub Cap Apprec Pub Impt Proj Ser C
(FSA Insd)........................... * 09/01/32 723,800
4,990 California Edl Fac Auth Rev College
of Osteopathic Med Pacific
(Prerefunded @ 06/01/03)............. 7.500 06/01/18 5,526,226
2,880 California Edl Fac Auth Rev Univ of
La Verne............................. 6.300 04/01/09 2,979,159
9,650 California St (FGIC Insd)............ 4.500 12/01/24 7,960,575
</TABLE>
See Notes to Financial Statements
11
<PAGE> 158
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 4,210 Campbell, CA Union Sch Dist Rfdg
(FGIC Insd).......................... * 08/01/19 $ 1,347,874
4,225 Delano, CA Ctfs Partn Ser A
(Prerefunded @ 01/01/03) (b)......... 9.250% 01/01/22 4,921,153
2,660 Escondido, CA Jt Pwrs Fin Auth Lease
Rev (AMBAC Insd)..................... * 09/01/10 1,459,781
5,875 Escondido, CA Jt Pwrs Fin Auth Lease
Rev (AMBAC Insd)..................... * 09/01/11 2,996,191
3,890 Escondido, CA Jt Pwrs Fin Auth Lease
Rev (AMBAC Insd)..................... * 09/01/13 1,718,952
5,430 Escondido, CA Jt Pwrs Fin Auth Lease
Rev (AMBAC Insd)..................... * 09/01/14 2,226,354
875 Fairfield, CA Hsg Auth Mtg Rev
Creekside Estates Proj Rfdg
(Prerefunded @ 08/01/02)............. 7.875 02/01/15 978,066
3,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev (MBIA Insd).............. * 01/15/17 1,089,390
21,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev.......................... * 01/15/24 4,583,460
3,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev.......................... * 01/15/27 1,594,530
15,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev.......................... * 01/15/30 2,228,250
54,635 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev.......................... * 01/15/32 7,133,692
15,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev.......................... * 01/15/36 1,506,000
15,000 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev.......................... * 01/15/38 1,326,300
2,825 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev Cap Apprec
(AMBAC Insd)......................... * 09/01/15 1,159,126
1,155 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev Cap Apprec
(AMBAC Insd)......................... * 09/01/19 364,472
1,265 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev Cap Apprec
(AMBAC Insd)......................... * 09/01/22 330,342
1,380 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev Cap Apprec
(AMBAC Insd)......................... * 09/01/25 300,012
3,500 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev Cap Apprec
(AMBAC Insd)......................... * 09/01/25 718,130
900 Monterey, CA Regl Wastewtr Fin Auth
Wastewtr Contract Rev (FSA Insd)..... * 06/01/10 521,253
800 Monterey, CA Regl Wastewtr Fin Auth
Wastewtr Contract Rev (FSA Insd)..... * 06/01/11 434,248
</TABLE>
See Notes to Financial Statements
12
<PAGE> 159
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 700 Monterey, CA Regl Wastewtr Fin Auth
Wastewtr Contract Rev (FSA Insd)..... * 06/01/12 $ 356,160
700 Monterey, CA Regl Wastewtr Fin Auth
Wastewtr Contract Rev (FSA Insd)..... * 06/01/13 333,200
700 Monterey, CA Regl Wastewtr Fin Auth
Wastewtr Contract Rev (FSA Insd)..... * 06/01/14 311,115
5,000 Murrieta Vly, CA Uni Sch Dist Ser A
(FGIC Insd).......................... * 09/01/20 1,492,050
5,255 Murrieta Vly, CA Uni Sch Dist Ser A
(FGIC Insd).......................... * 09/01/22 1,387,635
1,650 Riverside Cnty, CA Air Force Vlg West
Inc Ser A Rfdg (Prerefunded @
06/15/02)............................ 8.125% 06/15/20 1,847,241
9,000 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev Riverside Cnty Hosp
Proj (MBIA Insd)..................... * 06/01/21 2,539,440
3,300 Sacramento, CA City Fin Auth Rev Sr
Convention Cent Hotel Ser A.......... 6.250 01/01/30 3,146,220
25,000 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Ser A Rfdg
(MBIA Insd).......................... * 01/15/32 3,734,750
29,535 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Cap Apprec Ser A Rfdg
(MBIA Insd).......................... * 01/15/25 6,712,124
11,155 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Cap Apprec Ser A Rfdg
(MBIA Insd).......................... * 01/15/26 2,390,851
13,880 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Cap Apprec Ser A Rfdg
(MBIA Insd).......................... * 01/15/28 2,645,944
------------
87,159,038
------------
COLORADO 4.6%
2,840 Adams Cnty, CO Single Family Mtg Rev
Ser A (b)............................ 8.875 08/01/11 3,694,897
3,985 Adams Cnty, CO Single Family Mtg Rev
Ser A (b)............................ 8.875 08/01/12 5,275,104
300 Berry Creek Metro Dist CO Rfdg &
Impt................................. 8.250 12/01/11 316,170
200 Berry Creek Metro Dist CO Rfdg & Impt
(Prerefunded @ 12/01/01)............. 8.250 12/01/11 218,766
987 Bowles Metro Dist CO (Prerefunded @
12/01/05)............................ 7.750 12/01/15 1,136,530
2,000 Denver, CO City & Cnty Arpt Rev
Ser A (b)............................ 7.000 11/15/99 2,006,820
4,570 Denver, CO City & Cnty Arpt Rev
Ser A (b)............................ 8.000 11/15/25 4,813,764
</TABLE>
See Notes to Financial Statements
13
<PAGE> 160
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 6,200 Denver, CO City & Cnty Spl Fac Arpt
Rev United Airls Proj Ser A.......... 6.875% 10/01/32 $ 6,376,328
6,290 E-470 Pub Hwy Auth CO Rev Cap Apprec
Sr Ser B Rfdg (MBIA Insd)............ * 09/01/22 1,629,802
1,000 Edgewater, CO Redev Auth Tax
Increment Rev........................ 6.750 12/01/08 1,088,010
1,320 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd).......... * 12/15/14 593,446
1,420 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd).......... * 12/15/15 601,796
1,420 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd).......... * 12/15/16 564,223
1,330 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd).......... * 12/15/18 464,622
3,690 Jefferson Cnty, CO Residential
Mtg Rev..... ........................ 11.500 09/01/12 5,761,566
5,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig Co Rfdg
(LOC: Meridian Assoc East)........... 7.500 12/01/11 5,303,900
1,960 Northern Metro Dist CO Adams
Cnty Rfdg............................ 6.500 12/01/16 2,011,822
------------
41,857,566
------------
CONNECTICUT 1.6%
3,005 Connecticut St Hlth & Edl Fac Auth
Rev Nursing Home Pgm AHF/Hartford
(Prerefunded @ 11/01/04) (b)......... 7.125 11/01/14 3,400,188
495 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A -- Private
Placement (a)........................ 6.500 09/01/06 547,549
2,530 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A -- Private
Placement (a)........................ 6.400 09/01/11 2,645,140
2,470 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A -- Private
Placement (Prerefunded @ 09/01/07)
(a).................................. 6.400 09/01/11 2,755,903
4,000 Mashantucket Western Pequot Tribe CT
Spl Rev Ser B, 144A -- Private
Placement (a)........................ 5.750 09/01/18 3,794,480
1,500 Mashantucket Western Pequot Tribe CT
Spl Rev Ser B, 144A -- Private
Placement (a)........................ 5.750 09/01/27 1,396,770
------------
14,540,030
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 161
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DISTRICT OF COLUMBIA 0.6%
$ 2,500 District of Columbia Rev Natl Pub
Radio Ser A (b)...................... 7.700% 01/01/23 $ 2,644,050
3,000 Washington Dist of Columbia
Convention Cent Auth Dedicated Tax
Rev (AMBAC Insd)..................... 5.250 10/01/12 2,943,240
------------
5,587,290
------------
FLORIDA 5.1%
275 Atlantic Beach, FL Rev Fleet Landing
Proj Ser A Rfdg & Impt............... 7.500 10/01/02 280,841
500 Atlantic Beach, FL Rev Fleet Landing
Proj Ser A Rfdg & Impt............... 7.875 10/01/08 543,355
1,490 Broward Cnty, FL Res Recovery Rev
Waste Energy North Proj.............. 7.950 12/01/08 1,542,299
1,950 Broward Cnty, FL Res Recovery Rev
Waste Energy South Proj.............. 7.950 12/01/08 2,018,445
2,500 Cocoa, FL Wtr & Swr Rev Rfdg
(FGIC Insd).......................... 4.500 10/01/22 2,042,150
9,000 Dade Cnty, FL Gtd Entitlement Rev Cap
Apprec Ser A Rfdg (MBIA Insd)........ * 02/01/18 3,014,820
1,800 Florida Hsg Fin Corp Rev Hsg Beacon
Hill Apts Ser C...................... 6.610 07/01/38 1,722,564
3,000 Florida Hsg Fin Corp Rev Hsg Cypress
Trace Apts Ser G..................... 6.600 07/01/38 2,880,480
2,000 Florida Hsg Fin Corp Rev Hsg
Westchase Apts Ser B................. 6.610 07/01/38 1,920,400
560 Florida St Brd Edl Cap Outlay Pub Edl
Ser A Rfdg........................... 7.250 06/01/23 581,437
590 Florida St Brd Edl Cap Outlay Pub Edl
Ser A Rfdg (Prerefunded @
06/01/00)............................ 7.250 06/01/23 615,405
4,845 Hillsborough Cnty, FL Edl Fac Univ
Tampa Proj Rfdg...................... 5.750 04/01/18 4,713,361
2,875 Martin Cnty, FL Indl Dev Auth Indl
Dev Rev Indiantown Cogeneration Proj
Ser A Rfdg........................... 7.875 12/15/25 2,981,835
1,500 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran
Twr Rfdg............................. 8.750 07/01/26 1,671,915
595 Orange Cnty, FL Tourist Dev Tax Rev
(AMBAC Insd)......................... 6.000 10/01/16 602,396
</TABLE>
See Notes to Financial Statements
15
<PAGE> 162
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 405 Orange Cnty, FL Tourist Dev Tax Rev
(Prerefunded @ 10/01/00)
(AMBAC Insd)......................... 6.000% 10/01/16 $ 413,946
7,000 Orlando, FL Util Comm Wtr & Elect
Rev.................................. 5.600 10/06/17 6,952,960
4,095 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Kobernick/Meadow Pk
(Prerefunded @ 07/01/02)............. 10.000 07/01/22 4,720,225
5,000 Sarasota Cnty, FL Pub Hosp Brd Miles
Sarasota Mem Hosp Proj Ser A
(Embedded Cap) (MBIA Insd)........... 6.688 10/01/21 4,712,500
980 Tampa Palms, FL Open Space & Tran
Cmnty Dev Dist Rev Cap Impt
Area 7 Proj.......................... 7.500 05/01/18 1,012,732
835 Tampa Palms, FL Open Space & Tran
Cmnty Dev Dist Rev Cap Impt
Area 7 Proj.......................... 8.500 05/01/17 894,661
------------
45,838,727
------------
GEORGIA 3.9%
3,000 Atlanta, GA Arpt Fac Rev (b)......... 6.250 01/01/21 3,070,800
2,000 Atlanta, GA Urban Residential Fin
Auth Multi-Family Rev Proj Ser A..... 6.750 07/01/30 1,932,000
2,000 Fulton Cnty, GA Hsg Auth Multi-Family
Hsg Rev.............................. 6.500 02/01/28 1,929,660
2,000 George L Smith II GA Wrld Congress
Cent Auth Rev Domed Stadium Proj Rfdg
(MBIA Insd) (c)...................... 5.500 07/01/20 1,875,020
20,000 Georgia Loc Govt Ctfs Partn Grantor
Tr Ser A (MBIA Insd)................. 4.750 06/01/28 16,899,200
1,500 Georgia Muni Elec Auth Pwr Rev Ser X
(MBIA Insd).......................... 6.500 01/01/20 1,655,370
9,070 Municipal Elec Auth GA Proj One Sub
Ser A (MBIA Insd).................... 4.500 01/01/19 7,578,348
------------
34,940,398
------------
HAWAII 2.6%
3,220 Hawaii St Ser CT (FSA Insd).......... 5.750 09/01/14 3,276,833
5,500 Hawaii St Ser CT (FSA Insd).......... 5.875 09/01/16 5,603,620
4,055 Hawaii St Arpts Sys Rev Ser 1993
(MBIA Insd).......................... 6.350 07/01/07 4,356,327
2,350 Hawaii St Dept Trans Spl Fac Rev
Continental Airls Inc................ 9.700 06/01/20 2,460,591
2,365 Hawaii St Dept Trans Spl Fac Rev
Continental Airls Inc................ 5.625 11/15/27 2,077,109
</TABLE>
See Notes to Financial Statements
16
<PAGE> 163
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HAWAII (CONTINUED)
$ 1,475 Hawaii St Harbor Cap Impt Rev
(FGIC Insd).......................... 6.350% 07/01/07 $ 1,587,247
1,560 Hawaii St Harbor Cap Impt Rev
(FGIC Insd).......................... 6.400 07/01/08 1,681,384
500 Hawaii St Harbor Cap Impt Rev
(MBIA Insd).......................... 7.000 07/01/17 518,785
4,500 Honolulu, HI City & Cnty Wastewtr Sys
Rev (FGIC Insd)...................... * 07/01/15 1,822,770
------------
23,384,666
------------
ILLINOIS 14.5%
4,180 Bedford Park, IL Tax Increment Rev Sr
Lien Bedford City Sq Proj (b)........ 9.250 02/01/12 4,587,132
1,710 Bolingbrook, IL Cap Apprec Ser C Rfdg
(MBIA Insd).......................... * 01/01/29 301,114
1,350 Bridgeview, IL Tax Increment
Rev Rfdg............................. 9.000 01/01/11 1,505,831
6,375 Broadview, IL Tax Increment
Rev Sr Lien.......................... 8.250 07/01/13 7,366,376
3,000 Chicago, IL Lakefront Millenium Pkg
Fac (MBIA Insd)...................... * 01/01/19 2,013,480
13,600 Chicago, IL Brd Edl Cap Apprec Sch
Reform B 1 (FGIC Insd)............... * 12/01/22 3,411,288
7,500 Chicago, IL Brd Edl Cap Apprec Sch
Reform B 1 (FGIC Insd)............... * 12/01/29 1,221,075
6,800 Chicago, IL Brd Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/19 2,059,788
5,000 Chicago, IL Brd Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/20 1,424,550
6,375 Chicago, IL Brd Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/21 1,701,041
5,000 Chicago, IL Brd Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/27 919,150
1,000 Chicago, IL Gas Supply Rev Ser A..... 8.100 05/01/20 1,040,960
1,000 Chicago, IL Metro Wtr Reclamation
Dist Gtr Chicago..................... 7.000 01/01/11 1,151,320
10,000 Chicago, IL O'Hare Intl Arpt Rev
Second Lien Genl Arpt Rfdg
(AMBAC Insd) (c)..................... 5.500 01/01/15 9,752,300
6,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Proj Ser B.......... 5.200 04/01/11 5,591,100
</TABLE>
See Notes to Financial Statements
17
<PAGE> 164
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 4,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc (b)............. 8.500% 05/01/18 $ 4,155,760
4,660 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc Ser B........... 8.950 05/01/18 4,975,901
1,945 Chicago, IL Single Family Mtg Rev Ser
A (GNMA Collateralized).............. 7.000 09/01/27 2,084,204
450 Chicago, IL Tax Increment Alloc Santn
Drain & Ship Canal Ser A............. 7.375 01/01/05 463,437
1,000 Chicago, IL Tax Increment Alloc Santn
Drain & Ship Canal Ser A............. 7.750 01/01/14 1,056,980
1,000 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC Insd)... 8.750 01/01/07 1,227,020
2,265 Cook Cnty, IL Cons High Sch Dist No
200 Oak Park (FSA Insd).............. * 12/01/07 1,499,838
2,265 Cook Cnty, IL Cons High Sch Dist No
200 Oak Park (FSA Insd).............. * 12/01/08 1,413,360
2,265 Cook Cnty, IL Cons High Sch Dist No
200 Oak Park (FSA Insd).............. * 12/01/09 1,333,224
2,265 Cook Cnty, IL Cons High Sch Dist No
200 Oak Park (FSA Insd).............. * 12/01/10 1,251,820
2,265 Cook Cnty, IL Cons High Sch Dist No
200 Oak Park (FSA Insd).............. * 12/01/11 1,173,111
1,000 Crestwood, IL Tax Increment
Rev Rfdg............................. 7.250 12/01/08 1,044,680
1,100 Hodgkins, IL Tax Increment........... 9.500 12/01/09 1,222,364
1,500 Hodgkins, IL Tax Increment
Ser A Rfdg........................... 7.625 12/01/13 1,608,540
1,450 Hoopeston, IL Hosp Cap Impt Rev
Hoopeston Cmnty Mem Hosp Rfdg........ 6.550 11/15/29 1,388,477
1,500 Huntley, IL Increment Alloc Rev
Huntley Redev Proj Ser A............. 8.500 12/01/15 1,682,940
1,000 Huntley, IL Spl Svc Area No 10 Spl
Tax Ser A............................ 6.500 03/01/29 960,140
1,000 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A............ 6.500 09/01/09 1,030,560
505 Illinois Dev Fin Auth Rev Cmnty Fac
Clinic Altgeld Proj.................. 8.000 11/15/06 538,921
</TABLE>
See Notes to Financial Statements
18
<PAGE> 165
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,000 Illinois Edl Fac Auth Rev Lake Forest
College (Prerefunded @ 10/01/01) (FSA
Insd)................................ 6.750% 10/01/21 $ 1,068,090
1,000 Illinois Edl Fac Auth Rev
Northwestern Univ Ser 1985
(Prerefunded @ 12/01/01)............. 6.900 12/01/21 1,074,710
1,000 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj...................... 7.500 08/15/26 1,049,010
1,440 Illinois Hlth Fac Auth Rev Silver
Cross Hosp & Med Rfdg................ 5.500 08/15/19 1,321,776
4,150 Illinois Hlth Fac Auth Rev Silver
Cross Hosp & Med Rfdg................ 5.500 08/15/25 3,649,593
2,000 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Proj B (Prerefunded @
10/01/02)............................ 9.000 10/01/22 2,285,160
4,100 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Proj Ser A (Prerefunded @
10/01/02)............................ 9.500 10/01/22 4,731,523
1,500 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Ser A Rfdg............... 7.400 08/15/23 1,592,910
485 Illinois Hlth Fac Auth Rev Glenoaks
Med Cent Ser D....................... 9.500 11/15/15 525,396
1,000 Illinois Hlth Fac Auth Rev Mem Hosp
(Prerefunded @ 05/01/02)............. 7.250 05/01/22 1,085,610
1,000 Illinois Hlth Fac Auth Rev
Northwestern Mem Hosp (b)............ 6.750 08/15/11 1,059,250
2,600 Illinois Hlth Fac Auth Rev Utd Med
Cent (Prerefunded @ 07/01/03) (b).... 8.375 07/01/12 2,932,956
650 Illinois Hsg Dev Auth Residential Mtg
Rev (Inverse Fltg)................... 9.359 02/13/18 703,625
1,450 McLean & Woodford Cntys, IL Cmty Unit
Sch Dist No 005 Normal............... 4.500 01/01/16 1,224,061
750 Metropolitan Pier & Exposition Auth
IL Dedicated St Tax Rev (FGIC
Insd)................................ 5.250 12/15/28 680,978
895 Mill Creek Wtr Reclamation Dist IL
Sew Rev.............................. 8.000 03/01/10 978,512
540 Mill Creek Wtr Reclamation Dist IL
Wtrwrks Rev.......................... 8.000 03/01/10 590,387
1,000 Palatine, IL Tax Increment Rev
Rand/Dundee Cent Proj (Prerefunded @
01/01/07)............................ 7.750 01/01/17 1,150,620
2,425 Regional Tran Auth IL Rfdg (FSA
Insd)................................ 5.750 06/01/16 2,475,755
</TABLE>
See Notes to Financial Statements
19
<PAGE> 166
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,800 Regional Tran Auth IL Ser A (AMBAC
Insd)................................ 8.000% 06/01/17 $ 3,545,584
7,500 Robbins, IL Res Recovery Rev......... 8.375 10/15/16 4,031,250
3,000 Robbins, IL Res Recovery Rev
Recreation Robbins Res Partn Ser B... 8.375 10/15/16 1,612,500
745 Round Lake Beach, IL Tax Increment
Rev Rfdg............................. 7.200 12/01/04 789,566
500 Round Lake Beach, IL Tax Increment
Rev Rfdg............................. 7.500 12/01/13 535,250
1,525 Saint Charles, IL Indl Dev Rev
Tri-City Cent Proj................... 7.500 11/01/13 1,555,713
7,185 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)................................ * 10/01/20 1,976,737
7,910 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)................................ * 10/01/25 1,573,378
8,260 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)................................ * 10/01/27 1,445,170
8,655 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)................................ * 10/01/29 1,335,467
1,000 Southern IL Univ Rev Cap Apprec Hsg &
Aux Ser A (MBIA Insd)................ * 04/01/18 335,530
5,500 Southern IL Univ Rev Cap Apprec Hsg &
Aux Ser A (MBIA Insd)................ * 04/01/22 1,437,755
2,000 Southern IL Univ Rev Cap Apprec Hsg &
Aux Ser A (MBIA Insd)................ * 04/01/24 461,840
1,100 Southern IL Univ Rev Cap Apprec Hsg &
Aux Ser A (MBIA Insd)................ * 04/01/28 198,198
1,240 Southern IL Univ Rev Hsg & Aux Fac
Sys Ser A (MBIA Insd)................ 5.800 04/01/10 1,286,488
3,370 Will Cnty, IL Comnty Unit Sch Dist No
365 U Vly View Ser B (FSA Insd)...... * 11/01/18 1,092,453
2,370 Will Cnty, IL Fst Presv Dist Ser B
(FGIC Insd).......................... * 12/01/14 999,998
4,270 Will Cnty, IL Fst Presv Dist Ser B
(FGIC Insd).......................... * 12/01/15 1,688,742
------------
130,239,323
------------
INDIANA 2.6%
1,000 East Chicago, IN Exempt Fac Inland
Steel Co Proj No 14.................. 6.700 11/01/12 957,010
2,750 Elkhart Cnty, IN Hosp Auth Rev
Elkhart Genl Hosp Inc (Prerefunded @
07/01/02)............................ 7.000 07/01/12 2,986,115
1,650 Indiana Bond Bank Spl Pgm Hendricks
Redev Ser B (LOC: Canadian Imperial
Bank Insd)........................... 6.125 02/01/17 1,683,907
</TABLE>
See Notes to Financial Statements
20
<PAGE> 167
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 3,125 Indiana Bond Bank Spl Pgm Hendricks
Redev Ser B (LOC: Canadian Imperial
Bank Insd)........................... 6.200% 02/01/23 $ 3,196,875
2,000 Indiana Hlth Fac Fin Auth Rev Hoosier
Care Proj Ser A...................... 7.125 06/01/34 1,923,200
990 Indiana Hlth Fac Fin Auth Rev Metro
Hlth/IN Inc Proj..................... 6.300 12/01/23 902,167
2,000 Indiana Hlth Fac Fin Auth Rev Metro
Hlth/IN Inc Proj..................... 6.400 12/01/33 1,804,320
7,920 Indiana St Dev Fin Auth Environmental
USX Corp Proj Rfdg & Impt (b)........ 6.250 07/15/30 7,724,772
550 Indianapolis, IN Loc Pub Impt Bond
Bank Ser D........................... 6.750 02/01/14 617,930
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/11 55,730
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/12 51,528
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/13 45,942
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/14 40,905
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/15 37,820
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/16 36,314
225 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B.................. * 06/30/17 55,960
1,500 Wells Cnty, IN Hosp Auth Rev
Caylor-Nickel Med Cent Inc Rfdg...... 8.500 04/15/03 1,610,790
------------
23,731,285
------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 168
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
IOWA 0.7%
$ 2,045 Iowa Fin Auth Hosp Fac Rev Trinity
Regl Hosp Proj (FSA Insd)............ 6.000% 07/01/07 $ 2,174,244
2,500 Iowa Fin Auth Hosp Fac Rev Trinity
Regl Hosp Proj (FSA Insd)............ 5.750 07/01/17 2,479,175
2,000 Iowa Fin Auth Multi-Family Rev Hsg
Hamlet Apts Proj A Rfdg (GNMA
Collateralized)...................... 6.150 05/01/32 2,040,480
------------
6,693,899
------------
KANSAS 0.1%
1,000 Newton, KS Hosp Rev Newton Hlthcare
Corp Ser A (Prerefunded @
11/15/04)............................ 7.750 11/15/24 1,148,130
------------
KENTUCKY 1.4%
1,000 Bowling Green, KY Indl Dev Rev Coltec
Inds Inc Rfdg........................ 6.550 03/01/09 1,013,110
10,950 Jefferson Cnty, KY Cap Proj Corp Rev
Muni Multi-Lease Ser A............... * 08/15/14 3,919,662
2,800 Jefferson Cnty, KY Hosp Rev (Inverse
Fltg) (MBIA Insd).................... 8.901 10/09/08 3,125,500
1,200 Jefferson Cnty, KY Hosp Rev (Inverse
Fltg) (Prerefunded @ 10/29/02) (MBIA
Insd)................................ 8.931 10/09/08 1,365,000
1,250 Kentucky Econ Dev Fin Auth Med Cent
Rev Ashland Hosp Corp Ser A Rfdg &
Impt (FSA Insd)...................... 6.125 02/01/12 1,315,600
935 Kentucky Hsg Corp Hsg Rev Ser D
(FHA/VA Gtd)......................... 7.450 01/01/23 971,755
1,000 Kentucky St Tpk Auth Toll Rd Rev Ser
A.................................... 5.500 07/01/07 1,001,650
------------
12,712,277
------------
LOUISIANA 1.1%
500 Hodge, LA Util Rev Stone Container
Corp Ser 1990........................ 9.000 03/01/10 515,255
5,755 Jefferson, LA Sales Tax Dist Spl
Sales Tax Rev (FSA Insd)............. * 12/01/15 2,304,820
1,990 Lafayette, LA Econ Dev Auth Indl Dev
Rev Advanced Polymer Proj Ser 1985... 10.000 11/15/04 2,418,029
1,000 Lake Charles, LA Harbor & Terminal
Dist Port Fac Rev Trunkline Rfdg..... 7.750 08/15/22 1,101,160
</TABLE>
See Notes to Financial Statements
22
<PAGE> 169
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$ 380 Louisiana Pub Fac Auth Rev Indl Dev
Beverly Enterprises Inc Rfdg......... 8.250% 09/01/08 $ 406,516
1,000 New Orleans, LA Rfdg (FGIC Insd)..... 5.500 12/01/21 981,700
700 Port New Orleans, LA Indl Dev Rev
Avondale Inds Inc Proj Rfdg.......... 8.250 06/01/04 741,356
1,400 West Feliciana Parish, LA Pollutn Ctl
Rev Gulf States Util Co Proj Ser A... 7.500 05/01/15 1,492,694
------------
9,961,530
------------
MARYLAND 0.3%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser A
Rfdg................................. 7.550 06/01/17 1,578,150
1,650 Maryland St Econ Dev Corp Student Hsg
Rev.................................. 5.750 06/01/29 1,516,267
------------
3,094,417
------------
MASSACHUSETTS 2.4%
1,000 Boston, MA Rev Boston City Hosp Ser A
(FHA Gtd) (Prerefunded @ 08/15/00)... 7.625 02/15/21 1,050,440
1,315 Massachusetts Edl Ln Auth Rev Edl Ln
Rev Muni Forwards Issue E Ser A
(AMBAC Insd)......................... 7.000 01/01/10 1,379,948
1,000 Massachusetts St Dev Fin Agy Rev
Hillcrest Educ Cent Inc.............. 6.375 07/01/29 963,170
1,000 Massachusetts St Dev Fin Agy Rev
HlthCare Fac Alliance Ser A.......... 7.100 07/01/32 993,550
6,200 Massachusetts St Hlth & Edl Fac Auth
Rev New England Med Cent Hosp Ser G
(Embedded Swap) (MBIA Insd) (f)...... 3.100/ 07/01/13 5,790,490
5.000
1,500 Massachusetts St Indl Fin Agy
Hillcrest Edl Cent Inc Proj.......... 8.450 07/01/18 1,716,645
5,000 Massachusetts St Indl Fin Agy Rev
First Mtg Reeds Landing Proj......... 8.625 10/01/23 5,452,900
970 Massachusetts St Indl Fin Agy Rev Gtr
Lynn Mental Hlth Assoc Proj
(Prerefunded @ 06/01/04)............. 8.800 06/01/14 1,213,130
</TABLE>
See Notes to Financial Statements
23
<PAGE> 170
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 1,000 Massachusetts St Indl Fin Agy Rev Wtr
Treatment American Hingham........... 6.600% 12/01/15 $ 1,040,290
2,000 Plymouth Cnty, MA Ctfs Partn Ser A
(Prerefunded @ 10/01/02)............. 7.000 04/01/22 2,186,400
------------
21,786,963
------------
MICHIGAN 2.2%
3,500 Detroit, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @
07/01/06) (b)........................ 6.200 07/01/17 3,831,345
1,000 Detroit, MI Loc Dev Fin Auth Ser C... 6.850 05/01/21 994,240
650 Grand Traverse Cnty, MI Hosp Fin Auth
Hosp Rev Ser A Rfdg (AMBAC Insd)..... 6.250 07/01/12 686,160
1,350 Grand Traverse Cnty, MI Hosp Fin Auth
Hosp Rev Ser A Rfdg (Prerefunded @
07/01/02) (AMBAC Insd)............... 6.250 07/01/12 1,441,381
1,500 Grand Valley, MI St Univ Rev Gen
(FGIC Insd).......................... 5.500 02/01/18 1,490,460
1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmty Hlth Cent............. 5.250 05/15/26 1,178,142
3,615 Michigan St House of Representatives
Ctfs Partn (AMBAC Insd).............. * 08/15/24 837,559
7,522 Michigan St Strategic Fd Ltd Oblig
Rev Great Lakes Pulp & Fiber
Proj (e)............................. 8.000 12/01/27 4,929,679
4,500 Michigan St Strategic Fd Solid Waste
Disp Rev Genesee Pwr Station Proj.... 7.500 01/01/21 4,714,380
------------
20,103,346
------------
MINNESOTA 0.1%
1,000 North Saint Paul, MN Multi-Family Rev
Hsg Cottages North Saint Paul Rfdg... 9.250 02/01/22 1,049,380
------------
MISSISSIPPI 0.7%
5,000 Lowndes Cnty, MS Solid Waste Disp &
Pollutn Ctl Rev Weyerhaeuser Co Rfdg
(Inverse Fltg)....................... 6.700 04/01/22 5,438,850
1,140 Ridgeland, MS Urban Renewal Rev The
Orchard Ltd Proj Ser A Rfdg.......... 7.750 12/01/15 1,198,186
------------
6,637,036
------------
</TABLE>
See Notes to Financial Statements
24
<PAGE> 171
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI 1.7%
$ 1,000 Kansas City, MO Multi-Family Hsg Rev
Vlg Green Apts Proj.................. 6.250% 04/01/30 $ 958,070
2,835 Kansas City, MO Port Auth Fac
Riverfront Park Proj Ser A (b)....... 5.750 10/01/06 2,939,838
2,000 Lees Summit, MO Indl Dev Auth Hlth
Fac Rev John Knox Vlg Proj Rfdg &
Impt................................. 7.125 08/15/12 2,085,460
1,145 Missouri St Econ Dev Export &
Infrastructure Brd Med Office Fac Rev
(MBIA Insd).......................... 7.250 06/01/04 1,224,612
3,920 Missouri St Econ Dev Export &
Infrastructure Brd Med Office Fac Rev
(Prerefunded @ 06/01/04) (MBIA
Insd) (b)............................ 7.250 06/01/14 4,430,502
2,165 Saint Louis Cnty, MO Indl Dev Auth
Nursing Home Rev Mary Queen & Mother
Proj Rfdg (GNMA Collateralized)...... 7.125 03/20/23 2,269,396
805 Saint Louis, MO Tax Increment Rev
Scullin Redev Area Ser A............. 10.000 08/01/10 970,943
------------
14,878,821
------------
NEBRASKA 0.6%
850 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized)...................... 9.314 09/15/24 914,812
800 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized)...................... 10.415 09/10/30 856,000
3,100 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized)...................... 9.508 10/17/23 3,348,000
------------
5,118,812
------------
NEW HAMPSHIRE 0.8%
1,555 New Hampshire Higher Edl & Hlth Fac
Auth Rev............................. 8.800 06/01/09 1,776,090
1,985 New Hampshire Higher Edl & Hlth Fac
Auth Rev Daniel Webster College Issue
Rfdg (Prerefunded @ 07/01/04)........ 7.625 07/01/16 2,257,263
1,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev New London Hosp Assn Proj... 7.500 06/01/05 1,075,740
</TABLE>
See Notes to Financial Statements
25
<PAGE> 172
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE (CONTINUED)
$ 955 New Hampshire St Business Fin Auth
Elec Fac Rev Plymouth Cogeneration... 7.750% 06/01/14 $ 982,408
1,000 New Hampshire St Tpk Sys Rev Ser A
Rfdg (FGIC Insd)..................... 6.750 11/01/11 1,105,680
------------
7,197,181
------------
NEW JERSEY 6.2%
400 Atlantic City, NJ Brd Edl Sch
(Prerefunded @ 12/01/02)
(AMBAC Insd)......................... 6.125 12/01/11 429,080
250 Camden Cnty, NJ Impt Auth Lease Rev
Cnty Gtd (Prerefunded @ 10/01/04)
(MBIA Insd).......................... 6.150 10/01/14 272,768
2,000 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig...................... 8.400 04/01/24 2,168,940
500 Essex Cnty, NJ Impt Auth Lease Cnty
Jail Proj A (MBIA Insd).............. 5.600 12/01/16 501,915
250 Essex Cnty, NJ Impt Auth Lease Jail &
Youth House Proj (Prerefunded @
12/01/04) (AMBAC Insd)............... 6.600 12/01/07 278,382
370 Essex Cnty, NJ Ser A1 Rfdg
(AMBAC Insd)......................... 5.375 09/01/10 376,664
250 Hudson Cnty, NJ Ctfs Partn
Correctional Fac Rfdg (MBIA Insd).... 6.600 12/01/21 263,885
250 Lacey Muni Util Auth NJ Wtr Rev
(Prerefunded @ 12/01/04)
(MBIA Insd).......................... 6.250 12/01/24 274,383
6,130 Middlesex Cnty, NJ Util Auth Swr Rev
Ser A Rfdg (MBIA Insd)............... 6.250 08/15/10 6,647,924
500 Millburn Twp, NJ Brd Ed.............. 5.350 07/15/12 508,070
500 New Jersey Econ Dev Auth Dist Heating
& Cooling Rev Trigen Trenton Ser A... 6.200 12/01/10 505,555
2,000 New Jersey Econ Dev Auth Holt Hauling
& Warehsg Rev Ser G Rfdg............. 8.400 12/15/15 2,123,000
300 New Jersey Econ Dev Auth Mkt
Transition Fac Rev Sr Lien Ser A
(MBIA Insd).......................... 5.800 07/01/09 314,775
210 New Jersey Econ Dev Auth Pollutn Ctl
Rev Pub Svcs Elec & Gas Co Proj A
(MBIA Insd).......................... 6.400 05/01/32 222,986
1,900 New Jersey Econ Dev Auth Rev First
Mtg Winchester Gardens Ser A......... 8.500 11/01/16 2,104,991
</TABLE>
See Notes to Financial Statements
26
<PAGE> 173
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 350 New Jersey Econ Dev Auth Rev RWJ
Hlthcare Corp (FSA Insd)............. 6.250% 07/01/14 $ 370,975
1,000 New Jersey Econ Dev Auth Rev United
Methodist Homes...................... 7.500 07/01/20 1,151,350
1,000 New Jersey Econ Dev Auth Rev United
Methodist Homes Oblig Ser A
(Prerefunded @ 07/01/05)............. 7.500 07/01/25 1,151,350
2,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj........... 6.250 09/15/19 1,967,480
2,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj........... 6.400 09/15/23 1,988,780
50 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj........... 6.250 09/15/29 48,647
300 New Jersey Econ Dev Auth Wtr Fac Rev
Hackensack Wtr Co Proj B Rfdg
(MBIA Insd).......................... 5.900 03/01/24 303,285
170 New Jersey Hlthcare Fac Fin Auth Rev
(AMBAC Insd)......................... 6.250 07/01/21 175,884
230 New Jersey Hlthcare Fac Fin Auth Rev
(Prerefunded @ 07/01/04)
(AMBAC Insd)......................... 6.250 07/01/21 250,702
490 New Jersey Hlthcare Fac Fin Auth Rev
Atlantic City Med Cent Ser C Rfdg.... 6.800 07/01/11 521,188
700 New Jersey Hlthcare Fac Fin Auth Rev
Christ Hosp Group Issue
(Connie Lee Insd)... ................ 7.000 07/01/04 770,140
400 New Jersey Hlthcare Fac Fin Auth Rev
Christ Hosp Group Issue
(Connie Lee Insd).................... 7.000 07/01/06 449,348
250 New Jersey Hlthcare Fac Fin Auth Rev
Genl Hosp Cent at Passaic
(FSA Insd)........................... 6.000 07/01/06 268,973
250 New Jersey Hlthcare Fac Fin Auth Rev
Genl Hosp Cent at Passaic
(FSA Insd)........................... 6.750 07/01/19 280,562
500 New Jersey Hlthcare Fac Fin Auth Rev
Southern Ocean Cnty Hosp Ser A....... 6.125 07/01/13 496,325
400 New Jersey Sports & Exposition Auth
Convention Cent Luxury Tax Rev Ser A
Rfdg (MBIA Insd)..................... 6.250 07/01/20 427,832
200 New Jersey St Edl Fac Auth Rev
Caldwell College Ser A............... 7.250 07/01/25 208,562
</TABLE>
See Notes to Financial Statements
27
<PAGE> 174
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 250 New Jersey St Edl Fac Auth Rev
Glassboro St College Ser A
(Prerefunded @ 07/01/01)
(MBIA Insd).......................... 6.700% 07/01/21 $ 265,588
270 New Jersey St Hsg & Mtg Fin Agy Rev
Home Buyer Ser K (MBIA Insd)......... 6.375 10/01/26 279,760
500 New Jersey St Hsg & Mtg Fin Agy Rev
Home Buyer Ser O (MBIA Insd)......... 6.300 10/01/23 515,505
500 New Jersey St Hsg & Mtg Fin Agy Rev
Home Buyer Ser S (MBIA Insd)......... 6.000 10/01/21 505,770
3,480 New Jersey St Tpk Auth Tpk Rev Ser C
Rfdg (MBIA Insd) (b)................. 6.500 01/01/16 3,875,084
4,000 New Jersey St Tran Tr Fd Auth Tran
Sys Ser A (c)........................ 5.500 06/15/11 4,116,280
5,000 New Jersey St Tran Tr Fd Auth Tran
Sys Ser A (c)........................ 5.625 06/15/14 5,084,750
6,660 New Jersey St Tran Tr Fd Auth Tran
Sys Ser A (c)........................ 5.750 06/15/15 6,871,988
6,000 New Jersey St Tran Tr Fd Auth Tran
Sys Ser A (c)........................ 5.750 06/15/20 6,090,480
300 Union City, NJ (FSA Insd)............ 6.375 11/01/10 333,549
------------
55,763,455
------------
NEW MEXICO 0.3%
2,600 Albuquerque, NM Retirement Fac Rev La
Vida Llena Proj Ser B Rfdg........... 6.600 12/15/28 2,398,578
------------
NEW YORK 7.8%
1,000 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev Woodcrest Estates
Fac A................................ 6.375 12/01/37 923,990
1,810 Clifton Springs, NY Hosp & Clinic
Hosp Rev Rfdg........................ 8.000 01/01/20 1,931,487
6,500 Metropolitan Tran Auth NY Commuter
Fac Rev (MBIA Insd) (c).............. 5.000 07/01/16 5,995,990
5,000 Metropolitan Tran Auth NY Svcs
Contract Tran Fac Ser 5 Rfdg......... 7.000 07/01/12 5,277,800
1,000 New York City Indl Dev Agy Field
Hotel Assoc Lp JFK Rfdg.............. 6.000 11/01/28 945,680
</TABLE>
See Notes to Financial Statements
28
<PAGE> 175
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,000 New York City Indl Dev Agy Laguardia
Assoc Lp Proj Rfdg................... 6.000% 11/01/28 $ 945,680
1,000 New York City Indl Dev Agy Civic Fac
Marymount Manhattan College Proj..... 7.000 07/01/23 1,040,290
4,100 New York City Muni Wtr Fin Auth Wtr &
Swr Sys Rev Ser B (b)................ 5.000 06/15/17 3,691,312
5,000 New York City Ser A (b).............. 7.000 08/01/07 5,606,000
4,055 New York City Ser C (b).............. 6.500 08/01/04 4,309,695
945 New York City Ser C
(Prerefunded @ 08/01/02)............. 6.500 08/01/04 1,013,579
640 New York City Ser C Subser C1
(Prerefunded @ 08/01/02)............. 7.500 08/01/20 703,904
2,000 New York City Ser D Rfdg (b)......... 8.000 02/01/05 2,292,380
2,200 New York City Ser E (b).............. 5.700 08/01/08 2,273,282
5,745 New York City Tran Auth Metro Ser A
(AMBAC Insd)......................... 5.625 01/01/14 5,792,109
5,000 New York St Dorm Auth Rev City Univ
Ser F (b)............................ 5.500 07/01/12 4,938,700
2,750 New York St Dorm Auth Rev Court Fac
Lease Ser A.......................... 5.500 05/15/10 2,751,787
2,295 New York St Dorm Auth Rev Mental Hlth
Svcs Fac Ser A....................... 5.750 02/15/11 2,344,021
2,285 New York St Dorm Auth Rev Mental Hlth
Svcs Fac Ser A....................... 5.750 02/15/12 2,320,395
2,500 New York St Energy Resh & Dev Auth
Gas Fac Rev (Inverse Fltg)........... 7.889 04/01/20 2,784,375
3,000 New York St Energy Resh & Dev Auth
Gas Fac Rev Brooklyn Union Gas Co Ser
B (Inverse Fltg)..................... 9.564 07/01/26 3,641,250
2,000 New York St Energy Resh & Dev Auth
Pollutn Ctl Rev Niagara Mohawk Pwr
Corp Ser A Rfdg (FGIC Insd).......... 7.200 07/01/29 2,220,280
185 New York St Med Care Fac Fin Agy Rev
Mental Hlth Svcs Fac Ser A........... 7.750 08/15/11 196,204
175 New York St Med Care Fac Fin Agy Rev
Mental Hlth Svcs Fac Ser C........... 7.300 02/15/21 186,217
2,400 New York St Urban Dev Corp Rev
Correctional Cap Fac Rfdg............ 5.625 01/01/07 2,461,104
</TABLE>
See Notes to Financial Statements
29
<PAGE> 176
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,000 Peekskill, NY Indl Dev Agy Sr Drum
Hill Sr Living Proj.................. 6.375% 10/01/28 $ 926,330
1,200 Port Auth NY & NJ Cons 95th Ser...... 6.125 07/15/22 1,234,728
1,500 Suffolk Cnty, NY Indl Dev Agy Indl
Dev Rev Spellman High Voltage Fac Ser
A.................................... 6.375 12/01/17 1,420,590
------------
70,169,159
------------
OHIO 1.7%
1,235 Cleveland Cuyahoga Cnty, OH Port Auth
Rev Dev Port Cleveland Bond Fd Ser
A.................................... 5.750 05/15/20 1,153,700
755 Cleveland Cuyahoga Cnty, OH Port Auth
Rev Dev Port Cleveland Bond
Fd Ser A............................. 5.800 05/15/27 708,152
500 Cleveland, OH Pkg Fac Rev Impt
(Prerefunded @ 09/15/02)............. 8.000 09/15/12 558,360
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev
Jennings Hall........................ 7.300 11/15/23 1,042,100
295 Fairfield, OH Econ Dev Rev Beverly
Enterprises Inc Proj Rfdg............ 8.500 01/01/03 307,479
1,750 Franklin Cnty, OH Hlthcare Friendship
Vlg Dublin, OH Rfdg.................. 5.625 11/01/22 1,616,755
1,000 Madison Cnty, OH Hosp Impt Rev
Madison Cnty Hosp Proj Rfdg.......... 6.400 08/01/28 922,480
1,000 Ohio St Air Quality Dev Auth Rev JMG
Funding Ltd Partn Proj Rfdg
(AMBAC Insd)......................... 6.375 04/01/29 1,035,900
2,000 Ohio St Solid Waste Rev CSC Ltd
Poj.................................. 8.500 08/01/22 2,000,920
4,000 Ohio St Solid Waste Rev Rep
Engineered Steels Proj............... 8.250 10/01/14 4,049,200
2,000 Ohio St Solid Waste Rev Rep
Engineered Steels Proj............... 9.000 06/01/21 2,107,380
------------
15,502,426
------------
</TABLE>
See Notes to Financial Statements
30
<PAGE> 177
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OKLAHOMA 0.6%
$ 1,980 McAlester, OK Pub Wks Auth Rev Rfdg &
Impt (FSA Insd)...................... 5.250% 12/01/22 $ 2,042,925
1,780 Oklahoma Hsg Fin Agy Single Family
Rev Mtg Class B
(GNMA Collateralized)................ 7.997 08/01/18 1,924,322
1,000 Tulsa, OK Muni Arpt Tran Rev American
Airls Inc............................ 7.600 12/01/30 1,052,370
------------
5,019,617
------------
OREGON 0.5%
2,000 Oregon St Econ Dev Rev Georgia
Pacific Corp......................... 6.350 08/01/25 2,028,680
2,000 Oregon St Hlth Hsg Edl & Cultural
Facs Auth............................ 7.250 06/01/28 1,945,700
475 Salem, OR Hosp Fac Auth Rev Cap
Manor Inc............................ 7.500 12/01/24 497,116
------------
4,471,496
------------
PENNSYLVANIA 6.8%
500 Chartiers Vly, PA Indl & Coml Dev
Auth First Mtg Rev................... 7.250 12/01/11 512,705
5,000 Chester Cnty, PA Hlth & Edl Fac Auth
Hlth Sys Rev (AMBAC Insd)............ 5.650 05/15/20 4,880,800
1,000 Cliff House Ctf Trust Var Sts Ctfs
Partn Ser A.......................... 6.625 06/01/27 1,000,000
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel
& Conf Cent Hyatt Regency (b)........ 6.200 01/01/29 4,668,400
1,400 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd)........................... * 09/01/25 301,168
2,500 Harrisburg, PA Auth Wtr Rev
(Inverse Fltg) (FGIC Insd)........... 7.580 06/15/18 2,575,000
1,320 Harrisburg, PA Cap Apprec Nts Ser D
Rfdg (AMBAC Insd).................... * 09/15/16 498,128
1,535 Harrisburg, PA Cap Apprec Nts Ser D
Rfdg (AMBAC Insd).................... * 09/15/19 478,168
1,000 Lebanon Cnty, PA Hlth Fac Auth Hlth
Cent Rev United Church of Christ
Homes Rfdg........................... 6.750 10/01/10 1,000,290
1,000 Lehigh Cnty, PA Indl Dev Auth
Lifepath Inc Proj.................... 6.100 06/01/18 901,610
875 Lehigh Cnty, PA Indl Dev Auth
Rev Rfdg............................. 8.000 08/01/12 909,248
1,230 Luzerne Cnty, PA Indl Dev Auth First
Mtg Gross Rev Rfdg................... 7.875 12/01/13 1,303,099
</TABLE>
See Notes to Financial Statements
31
<PAGE> 178
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,500 McKean Cnty, PA Hosp Auth Hosp Rev
Bradford Hosp Proj
(Crossover Rfdg @ 10/01/00).......... 8.875% 10/01/20 $ 1,598,535
1,000 Montgomery Cnty, PA Higher Edl & Hlth
Auth Rev............................. 6.750 07/01/29 942,640
3,000 Montgomery Cnty, PA Higher Edl & Hlth
Auth Hosp Rev (Embedded Swap)
(AMBAC Insd)......................... 7.130 06/01/12 3,192,060
1,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev................. 6.300 01/01/13 960,440
5,000 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Rfdg (Inverse
Fltg) (AMBAC Insd)................... 9.267 09/01/26 5,818,750
3,500 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev................... 4.500 07/15/21 2,878,925
3,150 Philadelphia, PA Auth For Indl Dev
Rev Coml Dev RMK Rfdg................ 7.750 12/01/17 3,408,394
685 Philadelphia, PA Hosp & Higher Edl
Fac Auth Hosp Rev.................... 7.250 03/01/24 695,090
25,000 Pittsburgh & Allegheny Cnty PA Pub
Auditorium Auth Excise Tax Rev
(AMBAC Insd)......................... 4.500 02/01/29 19,837,000
1,450 Ridley Park, PA Hosp Auth Rev Taylor
Hosp Ser A Rfdg Hosp Auth Rev Ser
1993A................................ 6.000 12/01/13 1,532,157
1,000 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Allied Svcs Rehab
Hosp Ser A........................... 7.375 07/15/08 1,065,780
500 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Moses Taylor Hosp
Proj (Prerefunded @ 07/01/01)........ 8.250 07/01/09 542,765
------------
61,501,152
------------
RHODE ISLAND 0.6%
1,950 Providence, RI Redev Agy Ctfs Partn
Ser A................................ 8.000 09/01/24 2,068,385
2,345 Rhode Island Hsg & Mtg Fin Corp
Rental Hsg Pgm Ser B (FHA Gtd)....... 7.950 10/01/30 2,397,575
555 West Warwick, RI Ser A............... 7.300 07/15/08 600,321
------------
5,066,281
------------
</TABLE>
See Notes to Financial Statements
32
<PAGE> 179
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA 1.6%
$ 2,000 Charleston Cnty, SC Indl Rev Zeigler
Coal Hldg............................ 6.950% 08/10/28 $ 1,947,380
1,070 Piedmont Muni Pwr Agy SC Elec Rev.... 5.000 01/01/25 892,851
11,420 South Carolina Tran Infrastructure
Bank Rev............................. * 10/01/15 11,204,390
------------
14,044,621
------------
SOUTH DAKOTA 0.4%
2,500 South Dakota St Hlth & Edl Fac Auth
Rev.................................. 5.650 04/01/22 2,271,100
1,000 South Dakota St Hlth & Edl Fac Auth
Rev Huron Regl Med Cent.............. 7.250 04/01/20 1,070,480
------------
3,341,580
------------
TENNESSEE 0.3%
2,000 Springfield, TN Hlth & Edl Jesse
Holman Jones Hosp Proj (Prerefunded @
04/01/06)............................ 8.500 04/01/24 2,439,180
------------
TEXAS 10.8%
1,000 Abia Dev Corp TX Arpt Fac Rev Austin
Belly Port Dev Proj A................ 6.500 10/01/23 949,590
1,000 Austin, TX Arpt Sys Rev Prior Lien
Ser A (MBIA Insd).................... 6.125 11/15/25 1,013,950
5,730 Austin, TX Rev Sub Ser A Rfdg
(MBIA Insd).......................... * 05/15/16 2,204,159
1,000 Austin-Bergstorm Landhost Enterprises
Inc TX Arpt Hotel Sr Ser A........... 6.750 04/01/27 956,890
500 Baytown, TX Ppty Mgmt & Dev Corp Ser
A (FNMA Collateralized).............. 6.100 08/15/21 504,925
130 Bell Cnty, TX Hlth Fac Dev Corp Rev
Hosp Proj............................ 9.250 07/01/08 134,195
2,000 Bell Cnty, TX Indl Dev Corp Solid
Waste Disposal Rev................... 7.600 12/01/17 1,903,200
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp
Rev Saint Luke's Lutheran Hosp....... 7.000 05/01/21 580,930
1,500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp
Rev Saint Luke's Lutheran Hosp
(Prerefunded @ 05/01/03) (b)......... 7.900 05/01/18 1,662,315
242 Bexar Cnty, TX Hsg Fin Corp Rev Ser A
(GNMA Collateralized)................ 8.200 04/01/22 249,587
3,350 Brazos River Auth TX Rev Houston Inds
Inc Proj Ser D Rfdg (MBIA Insd)...... 4.900 10/01/15 3,054,664
</TABLE>
See Notes to Financial Statements
33
<PAGE> 180
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,675 Cedar Hill, TX Indpt Sch Dist Cap
Apprec Rfdg.......................... * 08/15/15 $ 664,355
625 Clear Creek, TX Indpt Sch Dist
(Prerefunded @ 02/01/01) (b)......... 6.250% 02/01/11 642,294
250 Coastal Wtr Auth TX Conveyance Sys
Rev (AMBAC Insd)..................... 6.250 12/15/17 261,218
5,000 Dallas Cnty, TX Util & Reclamation
Dist Ser B Rfdg (AMBAC Insd) (c)..... 5.875 02/15/29 4,968,150
940 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev American Airls Inc..... 7.500 11/01/25 980,467
250 El Paso, TX Hsg Auth Multi-Family Rev
Ser A................................ 6.250 12/01/09 257,235
75 Galveston, TX Ppty Fin Auth Single
Family Mtg Rev Ser A................. 8.500 09/01/11 79,130
7,350 Grapevine Colleyville Indpt Sch Dist
TX................................... * 08/15/11 3,881,314
250 Guadalupe Blanco River Auth TX Indl
Dev Corp Pollutn Ctl Rev............. 6.350 07/01/22 261,078
1,250 Harris Cnty, TX Hlth Fac Dev Corp Mem
Hosp Sys Proj Rfdg................... 7.125 06/01/15 1,361,587
250 Harris Cnty, TX Muni Util Dist No 120
(Prerefunded @ 08/01/01)............. 8.000 08/01/14 266,415
375 Harris Cnty, TX Sch Hlthcare Corp Sys
Rev (Prerefunded @ 07/01/01)......... 7.100 07/01/21 400,298
1,250 Irving, TX Indpt Sch Dist
(PFS Gtd)............................ * 02/15/17 457,450
1,000 Irving, TX Indpt Sch Dist Cap Apprec
Ser A Rfdg (PFS Gtd)................. * 02/15/18 342,930
5,045 Leander, TX Indpt Sch Dist Cap Apprec
Rfdg (PFS Gtd)....................... * 08/15/19 1,567,078
250 Lockhart, TX Correctional Fac Fin
Corp Rev (Prerefunded @ 04/01/01)
(MBIA Insd).......................... 6.625 04/01/12 259,055
15,000 Lower Co River Auth TX Rev Ser A Rfdg
(FSA Insd)........................... 5.875 05/15/14 15,380,250
7,500 Lower Co River Auth TX Rev Ser A Rfdg
(FSA Insd)........................... 5.875 05/15/15 7,653,900
6,500 Lower Co River Auth TX Rev Ser A Rfdg
(FSA Insd)........................... 5.875 05/15/16 6,602,180
</TABLE>
See Notes to Financial Statements
34
<PAGE> 181
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,000 Montgomery Cnty, TX Muni Util Dist No
47 Wtrwks & Swr (AMBAC Insd)........... 4.750% 10/01/24 $ 1,677,220
3,500 North Central TX Hlth Fac Dev Corp
Rev Presbyterian Hlthcare Sys Ser C
(Inverse Fltg)
(Prerefunded @ 06/19/01) (MBIA Insd)... 9.295 06/22/21 3,893,750
750 Northwest Harris Cnty, TX Muni Util
Dist No 23 (Prerefunded @
04/01/01).............................. 8.100 10/01/15 792,202
3,560 Rockwall, TX Ind Sch Dist Cap Apprec
Rfdg (PSF Gtd)......................... * 08/15/20 1,021,720
2,600 Rockwall, TX Ind Sch Dist Cap Apprec
Rfdg (PSF Gtd)......................... * 08/15/24 579,566
250 San Antonio, TX Hlth Fac Dev Corp Rev
Encore Nursing Cent Partn.............. 8.250 12/01/19 268,400
250 Tarrant Cnty, TX Hlth Fac Dev Corp
Hosp Rev Rfdg & Impt................... 7.000 05/15/28 262,800
250 Tarrant Cnty, TX Hlth Fac Dev Corp
Hosp Rev Rfdg & Impt
(Prerefunded @ 05/15/03)............... 7.000 05/15/28 274,885
2,000 Tarrant Cnty, TX Hlth Facs Dev Corp
Rev (MBIA Insd)........................ 6.000 01/01/37 2,009,780
227 Texas Genl Svcs Cmnty Partn Interests
Office Bldg & Land Acquisition
Proj................................... 7.000 08/01/09 232,511
500 Texas Genl Svcs Cmnty Partn Interests
Office Bldg & Land Acquisition
Proj................................... 7.000 08/01/19 510,975
500 Texas Genl Svcs Cmnty Partn Interests
Office Bldg & Land Acquisition
Proj................................... 7.000 08/01/24 510,975
858 Texas Genl Svcs Cmnty Partn Lease
Purchase Ctfs.......................... 7.500 02/15/13 876,106
95 Texas Hsg Agy Single Family Mtg Rev
Ser A Rfdg............................. 7.150 09/01/12 99,228
5,430 Texas St College Student Ln............ 5.000 08/01/23 4,843,397
6,000 Texas St Dept Hsg & Cmnty Affairs
Home Mtg Rev Coll Ser C Rfdg
(Inverse Fltg) (GNMA Collateralized)... 9.612 07/02/24 6,765,000
175 Texas St Higher Edl Brd College
Sr Lien................................ 7.700 10/01/25 183,453
</TABLE>
See Notes to Financial Statements
35
<PAGE> 182
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 4,025 Texas St Higher Edl Coordinating Brd
College Student Ln................... * 10/01/25 $ 4,045,004
1,000 Texas St Veterans Hsg Assist......... 6.800% 12/01/10 1,043,000
990 Texas St Veterans Hsg Assist
(MBIA Insd).......................... 6.800 12/01/23 1,039,579
5,100 Uvalde, TX Cons Indpt Sch Dist....... 4.500 08/01/22 4,146,963
2,250 West Side Calhoun Cnty, TX Navig Dist
Solid Waste Disp Union Carbide Chem &
Plastics............................. 8.200 03/15/21 2,377,957
3,245 Wylie, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Gtd)....................... * 08/15/26 636,961
------------
97,592,221
------------
UTAH 2.1%
3,025 Bountiful, UT Hosp Rev South Davis
Cmnty Hosp Proj
(Prerefunded @ 06/15/04)............. 9.500 12/15/18 3,716,938
1,340 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj............................. 7.800 09/01/15 1,273,456
1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj............................. 8.000 09/01/20 947,190
1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj............................. 7.800 09/01/25 942,030
11,000 Salt Lake City, UT Hosp Rev IHC Hosp
Inc Rfdg............................. 7.050 02/15/12 11,693,880
310 Utah St Hsg Fin Agy Single Family Mtg
Sr Ser A1 (FHA Gtd).................. 7.100 07/01/14 312,006
420 Utah St Hsg Fin Agy Single Family Mtg
Sr Ser A2 (FHA Gtd).................. 7.200 01/01/27 422,801
------------
19,308,301
------------
VIRGINIA 2.7%
4,000 Alexandria, VA Redev & Hsg Auth 3001
Pk Cent Apts Ser A Rfdg (b).......... 6.375 04/01/34 3,772,360
3,850 Charles City Cnty, VA Indl Dev Auth
Solid Waste Disp Fac Rev Waste Mgmt
VA Inc Proj Rfdg..................... 4.875 02/01/09 3,508,775
2,000 Fairfax Cnty, VA Pk Auth Pk Fac
Rev.................................. 6.625 07/15/14 2,082,460
3,500 Fredericksburg, VA Indl Dev Auth Hosp
Fac Rev (Prerefunded @ 08/15/01)
(FGIC Insd).......................... 6.600 08/15/23 3,703,700
2,080 Loudoun Cnty, VA Ctfs Partn
(FSA Insd)........................... 6.800 03/01/14 2,261,438
1,000 Loudoun Cnty, VA Ctfs Partn
(FSA Insd)........................... 6.900 03/01/19 1,089,320
</TABLE>
See Notes to Financial Statements
36
<PAGE> 183
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA (CONTINUED)
$ 3,000 Peninsula Ports Auth VA Rev Port Fac
Zeigler Coal Rfdg.................... 6.900% 05/02/22 $ 2,937,000
5,000 Roanoke, VA Indl Dev Auth Hosp Rev
Roanoke Mem Hosp Ser B Rfdg
(MBIA Insd).......................... 4.700 07/01/20 5,188,800
------------
24,543,853
------------
WASHINGTON 1.1%
5,550 Chelan Cnty, WA Pub Util Dist Cap
Apprec Rfdg A (MBIA Insd)............ * 06/01/28 992,507
10,000 Chelan Cnty, WA Pub Util Dist No 1
Columbia River Rock 1S Hydro Elec Sys
Rev Ser A Rfdg (MBIA Insd)........... * 06/01/29 1,683,100
1,250 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev (FGIC Insd).... 7.125 07/01/16 1,453,063
2,555 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev Ser C Rfdg
(FSA Insd)........................... 5.375 07/01/15 2,473,061
3,750 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg
(FSA Insd)........................... 5.375 07/01/15 3,629,737
------------
10,231,468
------------
WEST VIRGINIA 0.6%
4,000 West VA St Hosp Fin Auth Hosp Rev
Bears & Bulls WV Univ Med Corp Rfdg
(MBIA Insd).......................... 6.100 01/01/18 4,058,480
1,500 West VA St Hosp Fin Auth Hosp Rev
Hosp Rev Bulls (MBIA Insd)........... 8.700 01/01/18 1,608,600
------------
5,667,080
------------
WISCONSIN 0.8%
750 Jefferson, WI Swr Sys Wtrwrks & Elec
Sys Mtg Rev
(Prerefunded @ 07/01/01)............. 7.400 07/01/16 789,885
1,000 Oconto Falls, WI Cmnty Dev Oconto
Falls Tissue Inc Proj................ 7.750 12/01/22 1,023,620
2,000 Southeast WI Professional Baseball Pk
Dist Sales Tax Rev (MBIA Insd) (b)... * 12/15/27 373,900
3,500 Southeast WI Professional Baseball Pk
Dist Sales Tax Rev (MBIA Insd) (b)... * 12/15/28 616,210
3,500 Southeast WI Professional Baseball Pk
Dist Sales Tax Rev (MBIA Insd) (b)... * 12/15/29 580,300
</TABLE>
See Notes to Financial Statements
37
<PAGE> 184
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 1,150 Wisconsin Hsg & Econ Dev Auth Home
Ownership Rev Rfdg (Inverse Fltg).... 9.753% 10/25/22 $ 1,243,437
540 Wisconsin St Hlth & Edl Fac Auth Rev
Hess Mem Hosp Assn................... 7.200 11/01/05 552,053
2,000 Wisconsin St Hlth & Edl Milwaukee
Catholic Home Proj................... 7.500 07/01/26 2,099,880
------------
7,279,285
------------
GUAM 0.0%
250 Guam Govt Ser A...................... 5.750 09/01/04 252,492
------------
MARIANA ISLANDS 0.2%
500 Northern Mariana Islands Pub Sch Sys
Proj Ser A........................... 5.125 10/01/06 514,510
500 Northern Mariana Islands Pub Sch Sys
Proj Ser A........................... 5.125 10/01/07 512,865
500 Northern Mariana Islands Pub Sch Sys
Proj Ser A........................... 5.125 10/01/08 510,480
------------
1,537,855
------------
PUERTO RICO 0.2%
200 Puerto Rico Comwlth Hwy & Tran Auth
Hwy Rev Ser V Rfdg................... 6.625 07/01/12 212,224
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser
T (Prerefunded @ 07/01/04)........... 6.375 07/01/24 276,777
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser
U Rfdg............................... 6.000 07/01/14 257,160
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser
Z Rfdg............................... 5.500 07/01/14 249,853
310 Puerto Rico Hsg Bank & Fin Agy Single
Family Mtg Rev
(GNMA Collateralized)................ 6.250 04/01/29 314,982
300 Puerto Rico Pub Bldgs Auth Gtd Pub
Edl & Hlth Fac Ser M Rfdg
(FSA Insd)........................... 5.750 07/01/15 305,625
------------
1,616,621
------------
TOTAL INVESTMENTS 108.4%
(Cost $971,829,318)................................................ 977,418,262
LIABILITIES IN EXCESS OF OTHER ASSETS (8.4%)........................ (75,833,298)
------------
NET ASSETS 100.0%................................................... $901,584,964
============
</TABLE>
See Notes to Financial Statements
38
<PAGE> 185
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may not be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open futures and open options transactions.
(c) Securities purchased on a when issued or delayed delivery basis.
(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(e) Currently is a payment-in-kind security which will convert to a cash paying
security at a predetermined date.
(f) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(g) Interest is accruing less than the stated coupon.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
See Notes to Financial Statements
39
<PAGE> 186
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $971,829,318)....................... $ 977,418,262
Receivables:
Interest.................................................. 15,441,251
Investments Sold.......................................... 12,962,551
Fund Shares Sold.......................................... 347,725
Other....................................................... 52,638
--------------
Total Assets.......................................... 1,006,222,427
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 79,484,892
Bank Borrowings........................................... 20,233,410
Income Distributions...................................... 1,739,548
Fund Shares Repurchased................................... 1,101,692
Distributor and Affiliates................................ 922,552
Investment Advisory Fee................................... 354,766
Variation Margin on Futures............................... 55,873
Accrued Expenses............................................ 507,248
Trustees' Deferred Compensation and Retirement Plans........ 229,670
Options at Market Value (Net premiums received of
$15,486).................................................. 7,812
--------------
Total Liabilities..................................... 104,637,463
--------------
NET ASSETS.................................................. $ 901,584,964
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 911,713,769
Net Unrealized Appreciation................................. 6,301,745
Accumulated Undistributed Net Investment Income............. 691,607
Accumulated Net Realized Loss............................... (17,122,157)
--------------
NET ASSETS.................................................. $ 901,584,964
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $777,523,133 and 53,609,969 shares of
beneficial interest issued and outstanding)........... $ 14.50
Maximum sales charge (4.75%* of offering price)......... .72
--------------
Maximum offering price to public........................ $ 15.22
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $106,559,134 and 7,354,016 shares of
beneficial interest issued and outstanding)........... $ 14.49
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $17,502,697 and 1,209,052 shares of
beneficial interest issued and outstanding)........... $ 14.48
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
40
<PAGE> 187
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 61,364,894
------------
EXPENSES:
Investment Advisory Fee..................................... 4,580,681
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,915,857, $1,508,645 and $163,812)........ 3,588,314
Shareholder Services........................................ 786,700
Legal....................................................... 79,650
Custody..................................................... 91,966
Trustees' Fees and Related Expenses......................... 55,542
Other....................................................... 712,375
------------
Total Operating Expenses................................ 9,895,228
Less Credits Earned on Overnight Cash Balances.......... 31,223
------------
Net Operating Expenses.................................. 9,864,005
Interest Expense........................................ 1,462,202
------------
NET INVESTMENT INCOME....................................... $ 50,038,687
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (2,353,389)
Options................................................... (813,569)
Futures................................................... (2,707,560)
------------
Net Realized Loss........................................... (5,874,518)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 90,902,720
------------
End of the Period:
Investments............................................. 5,588,944
Options................................................. 7,674
Futures................................................. 705,127
------------
6,301,745
------------
Net Unrealized Depreciation During the Period............... (84,600,975)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(90,475,493)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(40,436,806)
============
</TABLE>
See Notes to Financial Statements
41
<PAGE> 188
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999, Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......... $ 50,038,687 $ 40,753,662 $ 53,413,395
Net Realized Gain/Loss......... (5,874,518) 6,553,399 10,327,114
Net Unrealized
Appreciation/Depreciation
During the Period............ (84,600,975) 6,332,209 23,723,238
------------- -------------- -------------
Change in Net Assets from
Operations................... (40,436,806) 53,639,270 87,463,747
------------- -------------- -------------
Distributions from Net
Investment Income:
Class A Shares............... (43,701,298) (31,284,803) (43,085,857)
Class B Shares............... (7,150,083) (7,203,055) (9,834,294)
Class C Shares............... (777,748) (518,861) (604,662)
------------- -------------- -------------
Total Distributions........ (51,629,129) (39,006,719) (53,524,813)
------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES........ (92,065,935) 14,632,551 33,938,934
------------- -------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...... 753,276,652 531,715,930 535,028,913
Net Asset Value of Shares
Issued Through Dividend
Reinvestment................. 27,273,773 19,893,086 27,237,798
Cost of Shares Repurchased..... (789,074,743) (556,676,605) (619,837,342)
------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS......... (8,524,318) (5,067,589) (57,570,631)
------------- -------------- -------------
TOTAL INCREASE/DECREASE IN NET
ASSETS....................... (100,590,253) 9,564,962 (23,631,697)
NET ASSETS:
Beginning of the Period........ 1,002,175,217 992,610,255 1,016,241,952
------------- -------------- -------------
End of the Period (Including
accumulated undistributed net
investment income of
$691,607, $2,282,049 and
$535,106, respectively)...... $ 901,584,964 $1,002,175,217 $ 992,610,255
============= ============== =============
</TABLE>
See Notes to Financial Statements
42
<PAGE> 189
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class A Shares 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................... $ 15.991 $15.767 $15.267 $15.549 $14.261 $16.164
----------------- ------- ------- ------- ------- -------
Net Investment Income.... .819 .664 .852 .898 .874 .886
Net Realized and
Unrealized Gain/Loss... (1.461) .195 .500 (.298) 1.296 (1.907)
----------------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.642) .859 1.352 .600 2.170 (1.021)
Less Distributions from
Net Investment
Income................. .846 .635 .852 .882 .882 .882
----------------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $ 14.503 $15.991 $15.767 $15.267 $15.549 $14.261
================= ======= ======= ======= ======= =======
Total Return (a)......... (4.25%) 5.62%* 9.14% 4.07% 15.61% (6.37%)
Net Assets at End of the
Period (In millions)... $777.5 $ 788.7 $ 766.2 $ 792.3 $ 839.7 $ 495.8
Ratio of Operating
Expenses to Average Net
Assets (b)............. .88% .84% .89% .94% .99% .99%
Ratio of Interest Expense
to Average Net
Assets................. .17% .03% N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets (b)............. 5.34% 5.63% 5.54% 5.93% 5.86% 5.93%
Portfolio Turnover....... 116% 89%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
43
<PAGE> 190
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class B Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.................. $15.982 $15.764 $15.267 $15.549 $14.261 $16.139
------- ------- ------- ------- ------- -------
Net Investment Income... .713 .572 .734 .783 .762 .780
Net Realized and
Unrealized
Gain/Loss............. (1.473) .195 .501 (.297) 1.294 (1.890)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ (.760) .767 1.235 .486 2.056 (1.110)
Less Distributions from
Net Investment
Income................ .732 .549 .738 .768 .768 .768
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $14.490 $15.982 $15.764 $15.267 $15.549 $14.261
======= ======= ======= ======= ======= =======
Total Return (a)........ (4.95%) 5.05%* 8.27% 3.29% 14.74% (6.96%)
Net Assets at End of the
Period (In
millions)............. $106.6 $197.9 $211.2 $211.0 $216.6 $158.7
Ratio of Operating
Expenses to Average
Net Assets (b)........ 1.63% 1.62% 1.65% 1.70% 1.73% 1.70%
Ratio of Interest
Expense to Average Net
Assets................ .17% .03% N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets (b)............ 4.57% 4.85% 4.78% 5.17% 5.09% 5.22%
Portfolio Turnover...... 116% 89%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(c) Based on average shares outstanding.
* Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
44
<PAGE> 191
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended Year Ended December 31,
September 30, September 30, -------------------------------------
Class C Shares 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................... $ 15.964 $15.747 $15.254 $15.545 $14.262 $16.141
----------------- ------- ------- ------- ------- -------
Net Investment Income.... .699 .570 .730 .782 .771 .783
Net Realized and
Unrealized Gain/Loss... (1.455) .196 .501 (.305) 1.280 (1.894)
----------------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.756) .766 1.231 .477 2.051 (1.111)
Less Distributions from
Net Investment
Income................. .732 .549 .738 .768 .768 .768
----------------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $ 14.476 $15.964 $15.747 $15.254 $15.545 $14.262
================= ======= ======= ======= ======= =======
Total Return (a)......... (4.90%) 4.99%* 8.34% 3.16% 14.74% (6.97%)
Net Assets at End of the
Period (In millions)... $ 17.5 $ 15.5 $ 15.3 $ 12.9 $ 11.2 $ 3.9
Ratio of Operating
Expenses to Average Net
Assets (b)............. 1.63% 1.62% 1.66% 1.70% 1.72% 1.74%
Ratio of Interest Expense
to Average net
Assets................. .17% .03% N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets (b)............. 4.55% 4.86% 4.75% 5.17% 5.24% 5.19%
Portfolio Turnover....... 116% 89%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
45
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Income Fund (the "Fund") is organized as a series of the
Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide a high
level of current income exempt from federal income tax, consistent with
preservation of capital. The Fund commenced investment operations on August 1,
1990. The distribution of the Fund's Class B and Class C shares commenced on
August 24, 1992 and August 13, 1993, respectively. In July, 1998, the Fund's
Board of Trustees approved a change in the Fund's fiscal year end from December
31 to September 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
46
<PAGE> 193
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Income and expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $9,418,021 which will expire on September 30,
2003. Net realized gains or losses may differ for financial reporting and tax
reporting purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following fiscal year,
the deferral of losses relating to wash sale transactions and gains and losses
recognized for tax purposes on open options and futures positions at September
30, 1999.
At September 30, 1999, for federal income tax purposes, cost of long-term
investments is $971,994,218; the aggregate gross unrealized appreciation is
$39,621,864 and the aggregate gross unrealized depreciation is $34,197,821,
resulting in net unrealized appreciation on long-term investments of $5,424,043.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
F. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Fund's
custody fee was reduced by $31,223 as a result of credits earned on overnight
cash balances.
47
<PAGE> 194
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
First $500 million................................. .50 of 1%
Over $500 million.................................. .45 of 1%
</TABLE>
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $49,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $291,800 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $553,700. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
48
<PAGE> 195
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $784,371,726, $109,009,485 and
$18,332,558 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 46,553,762 $ 718,745,672
Class B.................................. 1,694,567 26,081,104
Class C.................................. 554,621 8,449,876
----------- -------------
Total Sales................................ 48,802,950 $ 753,276,652
=========== =============
Dividend Reinvestment:
Class A.................................. 1,513,632 $ 23,151,168
Class B.................................. 240,540 3,697,605
Class C.................................. 27,857 425,000
----------- -------------
Total Dividend Reinvestment................ 1,782,029 $ 27,273,773
=========== =============
Repurchases:
Class A.................................. (43,778,916) $(676,460,122)
Class B.................................. (6,966,979) (107,374,098)
Class C.................................. (345,002) (5,240,523)
----------- -------------
Total Repurchases.......................... (51,090,897) $(789,074,743)
=========== =============
</TABLE>
49
<PAGE> 196
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $718,935,008, $186,604,874 and
$14,698,205 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 32,662,126 $ 513,944,856
Class B................................... 929,950 14,649,977
Class C................................... 198,389 3,121,097
----------- -------------
Total Sales................................. 33,790,465 $ 531,715,930
=========== =============
Dividend Reinvestment:
Class A................................... 1,003,395 $ 15,819,172
Class B................................... 239,468 3,773,374
Class C................................... 19,090 300,540
----------- -------------
Total Dividend Reinvestment................. 1,261,953 $ 19,893,086
=========== =============
Repurchases:
Class A................................... (32,937,857) $(518,889,151)
Class B................................... (2,179,386) (34,392,429)
Class C................................... (216,155) (3,395,025)
----------- -------------
Total Repurchases........................... (35,333,398) $(556,676,605)
=========== =============
</TABLE>
At December 31, 1997, capital aggregated $708,060,131, $202,573,952 and
$14,671,593 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 33,152,701 $ 506,790,274
Class B................................... 1,551,226 23,205,097
Class C................................... 328,583 5,033,542
----------- -------------
Total Sales................................. 35,032,510 $ 535,028,913
=========== =============
</TABLE>
50
<PAGE> 197
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Dividend Reinvestment:
Class A................................... 1,410,217 $ 21,710,873
Class B................................... 338,503 5,210,731
Class C................................... 20,537 316,194
----------- -------------
Total Dividend Reinvestment................. 1,769,257 $ 27,237,798
=========== =============
Repurchases:
Class A................................... (37,868,614) $(580,864,995)
Class B................................... (2,313,649) (35,527,835)
Class C................................... (225,699) (3,444,512)
----------- -------------
Total Repurchases........................... (40,407,962) $(619,837,342)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the year ended September 30, 1999, 5,171,230 Class B shares automatically
converted to Class A shares. The CDSC will be imposed on most redemptions made
within six years of the purchase for Class B and one year of the purchase for
Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 3.75% None
Third........................................ 3.50% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>
For the year ended September 30, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $157,400 and CDSC on redeemed shares of approximately $229,000.
Sales charges do not represent expenses of the Fund.
51
<PAGE> 198
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
On December 19, 1997, the Fund acquired all of the assets and liabilities of
the Van Kampen American Capital New Jersey Tax Free Income Fund (the "NJ Fund"),
through a tax free reorganization approved by NJ Fund shareholders on December
18, 1997. The Fund issued 468,278, 621,329 and 62,562 shares of Classes A, B and
C valued at $7,384,748, $9,798,388 and $985,356, respectively, in exchange for
NJ Fund's net assets. Included in these net assets was a capital loss
carryforward of $203,930 which is included in accumulated net realized gain/loss
and cumulative book and tax basis differences related to expenses not yet
deductible for tax purposes of $15,721 which is a component of undistributed net
investment income. Shares issued in connection with this reorganization are
included in common share sales for the year ended December 31, 1997. Combined
net assets on the day of acquisition were $1,013,024,339.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $1,199,470,177 and
$1,181,081,187, 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.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund'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 exercising a call option contract or taking
delivery of a security underlying a futures contract. In these instances the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a
52
<PAGE> 199
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
specified period. These contracts are generally used by the Fund to manage the
portfolio's effective maturity and duration.
Transactions in options for the year ended September 30, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1998............... 2,250 $ 6,775
Options Written and Purchased (Net)............. 5,875 (569,838)
Options Terminated in Closing Transactions
(Net)......................................... (3,500) 120,535
Options Expired (Net)........................... (4,125) 458,014
------ ---------
Outstanding at September 30, 1999............... 500 $ 15,486
====== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
September 30, 1999, and the description and market value are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS STRIKE PRICE OPTIONS
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Futures
December 1999--Written Call.... 250 Dec./118 $(82,031)
December 1999--Purchased
Puts......................... 250 Dec./110 74,219
--- --------
500 $ (7,812)
=== ========
</TABLE>
B. 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
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. 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 potential risk of loss
associated with a futures contract could be in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
53
<PAGE> 200
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended September 30, 1999 were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... 1,660
Futures Opened............................................ 18,957
Futures Closed............................................ (20,092)
-------
Outstanding at September 30, 1999......................... 525
=======
</TABLE>
The futures contracts outstanding at September 30, 1999, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DESCRIPTION CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--U.S. Treasury Bond Futures
Dec 1999 (Current notional value $113,937
per contract)............................. 150 $ 44,099
Short Contracts--Municipal Bond Index Futures
Dec 1999 (Current notional value $112,281
per contract)............................. 375 661,028
--- --------
525 $705,127
=== ========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short-term interest rates which it
pays on its preferred shares.
54
<PAGE> 201
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended September 30, 1999, are payments retained by Van Kampen
of approximately $1,287,900.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the fund complex, has entered into a $100 million revolving
credit agreement which expires November 10, 1999. The maximum amount available
to any single fund is $75 million. Interest is charged under the agreement at a
rate of .45% above the federal funds rate. The interest rate in effect at
September 30, 1999 was 6.138%. An annual facility fee of .06% is charged on the
unused portion of the credit facility.
The average daily balance of bank borrowings for the year ended September
30, 1999 was approximately $26,722,421 with an average interest rate of 5.47%.
At September 30, 1999, borrowings under this agreement represented 2.0% of the
Fund's total assets.
55
<PAGE> 202
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Income Fund as of September 30, 1999, the results of its
operations for the year then ended, the changes in its net assets for the year
then ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
November 9, 1999
56
<PAGE> 203
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
57
<PAGE> 204
VAN KAMPEN MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For the year ended September 30, 1999, 99.49% of the Income distributions
made by the Fund were exempt from federal income taxes. In January, 2000 the
Fund will provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1999
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 29, 2000, the report, if used by
prospective investors, must be accompanied by a monthly performance update.
58
<PAGE> 205
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
59
<PAGE> 206
VAN KAMPEN FUNDS
YOUR NOTES:
60
<PAGE> 207
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 23
Report of Independent Accountants................ 30
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 208
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 209
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 210
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... (0.10%) (0.81%) (0.81%)
One-year total return(2)................. (3.34%) (3.67%) (1.77%)
Five-year average annual total
return(2)................................ 5.39% 5.32% 5.34%
Life-of-Fund average annual total
return(2).............................. 5.19% 5.03% 4.08%
Commencement date........................ 05/28/93 05/28/93 10/19/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.89% 4.29% 4.29%
Taxable-equivalent distribution
rate(4).................................. 7.64% 6.70% 6.70%
SEC Yield(5)............................. 3.51% 2.85% 2.90%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (3.25% for A shares) or contingent deferred
sales charge for early withdrawal (3% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999.
A portion of the interest income may be taxable for investors subject to the
federal alternative minimum tax (AMT).
Investing in high-yield, lower-rated securities involves certain risks, which
may include the potential for greater sensitivity to general economic downturns
and greater market price volatility.
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
The share value of the Fund will generally fluctuate more than the value of
short-term investments particularly if there is a rise in short-term rates.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 211
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Intermediate Term Municipal Income Fund vs. the Lehman Brothers
Municipal Bond Index (May 28, 1993 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Return = -3.34%
5 Year Avg. Annual = 5.39%
Inception Avg. Annual = 5.19%
- ------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN INT TERM MUNI INCOME LEHMAN BROTHERS MUNI BOND INDEX
------------------------------- -------------------------------
<S> <C> <C>
9671.00 10000.00
9851.00 10167.00
9853.00 10180.20
10136.00 10392.00
9/30/93 10259.00 10510.40
10292.00 10530.40
10223.00 10437.70
10421.00 10658.00
10556.00 10779.50
10363.00 10500.30
10002.00 10072.90
10077.00 10158.50
10173.00 10246.90
10186.00 10184.40
10333.00 10370.80
10375.00 10407.10
9/30/94 10257.00 10254.10
10075.00 10071.60
9850.00 9889.29
10075.00 10106.90
10345.00 10395.90
10626.00 10698.40
10724.00 10821.50
10756.00 10834.40
11074.00 11180.10
10996.00 11082.80
11084.00 11188.10
11205.00 11330.20
9/30/95 11294.00 11401.50
11405.00 11566.90
11517.00 11758.90
11618.00 11871.80
11697.00 11962.00
11674.00 11880.70
11525.00 11728.60
11513.00 11695.70
11547.00 11691.10
11615.00 11818.50
11719.00 11926.00
11730.00 11923.70
9/30/96 11858.00 12090.60
11975.00 12227.20
12151.00 12451.00
12115.00 12398.70
12126.00 12422.20
12233.00 12536.50
12124.00 12369.80
12196.00 12473.70
12340.00 12660.80
12448.00 12796.30
12727.00 13150.70
12665.00 13027.10
9/30/97 12787.00 13182.10
12872.00 13266.50
12933.00 13344.80
13094.00 13539.60
13194.00 13679.10
13219.00 13683.20
13270.00 13695.50
13220.00 13633.90
13423.00 13849.30
13461.00 13903.30
13487.00 13938.00
13654.00 14154.10
9/30/98 13796.00 14331.00
13796.00 14331.00
13836.00 14381.20
13875.00 14417.10
14019.00 14588.70
13980.00 14524.50
13997.00 14544.80
14041.00 14581.20
13992.00 14496.60
13823.00 14287.70
13881.00 14339.30
13778.00 14224.60
9/30/99 13782.00 14230.30
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 212
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
We recently spoke with Timothy D. Haney, the portfolio manager of the Van Kampen
Intermediate Term Municipal Income Fund, about the key events and economic
forces that shaped the markets during the past year. Mr. Haney has managed the
Fund since 1997 and has worked in the investment industry since 1988. He is
joined by Peter W. Hegel, chief investment officer for fixed-income investments.
The following comments reflect their views on the Fund's performance during the
12 months ended September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utility, environment-related, and
health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market. With the exception of the health-care
sector, overall credit quality remained high, and we witnessed a number of
credit upgrades as tax revenues kept municipal finances strong. In addition,
municipal bond yields remained very attractive compared with Treasury bonds,
especially when considering the tax advantages of municipals. At the end of the
reporting period, AAA-rated municipals were offering yields that were about 90
percent of comparable Treasury yields, making municipals very attractive for
investors in higher income tax brackets.
Another positive effect was that credit spreads--the difference in yields
between higher- and lower-quality bonds--widened toward the end of the reporting
period. We
5
<PAGE> 213
have considerable experience in researching and selecting those lower-quality
bonds that we feel have been undervalued, so this gave us a much wider range
from which to choose. While we are always looking for bonds in this area that
might benefit the Fund, the widening of credit spreads meant that the Fund
received better yields from these bonds than we had earlier in the reporting
period.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A The widening of credit spreads allowed us to continue to find
higher-yielding nonrated bonds to support the Fund's dividend.
Higher-yielding bonds became more attractive over the last several months
because the demand for these bonds dissipated as interest rates rose, requiring
issuers to provide more attractive yields. However, as credit spreads widened,
our high proportion of nonrated issues (currently more than 25 percent of the
portfolio) provided less of a cushion against rising interest rates.
In July, based on our positive interest rate outlook at the time, we
increased the Fund's duration, or sensitivity to interest rate changes. We feel
that this strategy will work well in a declining interest rate environment
because it should allow the Fund to participate more fully in a market rally.
However, the longer duration negatively affected the Fund's total return as the
market declined further in August and September.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A We were pleased with some of the opportunities we found in the utility
sector, which has improved considerably over the past year. Utility bonds
now represent nearly 6 percent of the portfolio, an increase from about
1.5 percent at the beginning of the reporting period. We also found some very
attractive issues that are being used to support continuing care retirement
centers. These bonds have generally offered very attractive yields, and we
believe that they have strong underlying credit quality. Despite making selected
purchases in that area of the market, our overall proportion of health-care
bonds declined because the challenges imposed by managed care and changing
Medicare reimbursement policies have led us to look to other sectors to find
value in recent months. Reducing the health-care exposure benefited the Fund
because that sector underperformed most other areas of the municipal market
during the period.
We also reduced the proportion of holdings in the housing sector, where the
generally lower interest-rate environment means the bonds could be repaid early
(called) as more homeowners refinance their mortgages. While the housing sector
usually offers more yield because of its susceptibility to calls, we did not
feel that these bonds offered enough yield to compensate for the added call
risk. For additional portfolio highlights, please refer to page 9.
6
<PAGE> 214
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A Given the overall downturn in bond prices, we were pleased with the Fund's
performance during the year. Although the absolute return results were
somewhat disappointing, the Fund suffered less than the overall
intermediate-term bond market because of its heavy proportion of lower-rated
bonds, which provided a level of cushion against price volatility. For the
one-year period ended September 30, 1999, the Fund's Class A shares returned
- -0.10 percent(1) at net asset value. By comparison, the Lehman Brothers 10-Year
Municipal Bond Index produced a -0.46 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
In addition, the Fund's dividend performance has been strong given the low
interest-rate environment we experienced in the early part of the reporting
period. The Fund's monthly dividend was increased in March to $0.043 per Class A
share and has remained at that rate for the past six months. The Fund's
tax-exempt dividend translates to a distribution rate of 4.89 percent(3), which
is equivalent to a yield of 7.64 percent for an investor in the 36 percent(4)
federal income tax bracket. Please refer to the chart and footnotes on page 3
for additional Fund performance results. Past performance does not guarantee
future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive higher-yielding bonds and protecting the Fund from
bond calls as much as possible. We will also use our research capabilities to
monitor the health-care sector for attractive opportunities throughout the
coming months.
[SIG.]
Timothy D. Haney
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 215
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 216
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TOP FIVE STATES AS OF SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
Illinois.................. 10.1%
New York.................. 7.8%
New Jersey................ 7.8%
Ohio...................... 7.2%
Georgia................... 6.4%
</TABLE>
CREDIT QUALITY*
AS OF SEPTEMBER 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA CCC/CAA
------- ----- --- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999 39.4 7.2 5.4 20.9 0.8 0.4
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1999 25.9
</TABLE>
AS OF SEPTEMBER 30, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA
------- ----- --- ------- -----
<S> <C> <C> <C> <C> <C>
As of September 30, 1998 35.9 4.3 7.7 20.6 2.9
<CAPTION>
NON-RATED
---------
<S> <C>
As of September 30, 1998 28.6
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 0.0405
Nov 1998 0.0405
Dec 1998 0.0405
Jan 1999 0.0405
Feb 1999 0.0405
Mar 1999 0.0430
Apr 1999 0.0430
May 1999 0.0430
Jun 1999 0.0430
Jul 1999 0.0430
Aug 1999 0.0430
Sep 1999 0.0430
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Health Care 19.5 21.0
Industrial Revenue 13.1 11.9
Multifamily Housing 12.6 14.3
General Purpose 10.2 13.3
Public Building 9.2 8.4
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 217
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 104.3%
ALABAMA 3.5%
$1,015 Birmingham, AL Arpt Auth Arpt Rev Rfdg
(AMBAC Insd) (b)....................... 5.250% 07/01/06 $ 1,029,017
500 West Jefferson Cnty, AL Amusement & Pub
Pk Auth (Prerefunded @ 12/01/06)....... 7.500 12/01/08 566,045
-----------
1,595,062
-----------
ALASKA 0.6%
250 Seward, AK Rev AK Sealife Cent Proj.... 7.100 10/01/05 255,198
-----------
ARIZONA 3.6%
500 Maricopa Cnty, AZ Indl Dev Auth Sr
Living Fac Rev......................... 7.250 04/01/05 506,195
1,070 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson Ser A
Rfdg (FSA Insd)........................ 7.250 07/15/10 1,156,082
-----------
1,662,277
-----------
CALIFORNIA 4.2%
335 California Edl Fac Auth Rev Pacific
Grad School............................ 6.950 11/01/07 337,747
1,000 California St (AMBAC Insd)............. 6.400 09/01/08 1,119,480
240 Del Mar, CA Race Track Auth Rev Rfdg... 6.000 08/15/06 249,348
200 Stockton, CA Cmnty Fac Dist Spl Tax No
1 Mello Roos Weston Ranch Ser A........ 5.500 09/01/09 195,290
-----------
1,901,865
-----------
COLORADO 4.4%
310 Colorado Hlth Fac Auth Rev Sr Living
Fac Eaton Terrace Ser A................ 6.800 07/01/09 308,323
99 Colorado Hsg Fin Auth Access Pgm Single
Family Pgm Ser E....................... 8.125 12/01/24 105,329
1,000 Denver, CO City & Cnty Arpt Rev Ser
A...................................... 7.400 11/15/04 1,090,840
1,000 Metropolitan Football Stadium Cap
Apprec Ser A (MBIA Insd)............... * 01/01/12 511,930
-----------
2,016,422
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 218
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONNECTICUT 1.3%
$ 145 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A (Escrowed to Maturity),
144A - Private Placement (a)........... 6.500% 09/01/06 $ 160,393
445 New Haven, CT Indl Fac Rev Adj Govt
Cent Thermal Energies.................. 7.250 07/01/09 451,657
-----------
612,050
-----------
FLORIDA 5.4%
1,150 Florida Hsg Fin Agy Hsg Maitland Club
Apts Ser B1 (AMBAC Insd)............... 6.750 08/01/14 1,225,095
190 Lee Cnty, FL Indl Dev Auth Econ Rev
Encore Nursing Cent Partner Rfdg....... 8.125 12/01/07 202,935
225 Orange Cnty, FL Hlth Fac Auth Rev First
Mtg Orlando Lutheran Twr Rfdg.......... 8.125 07/01/06 238,833
300 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg......................... 7.125 11/01/06 330,171
440 Westchase East Cmnty Dev Dist FL Cap
Impt Rev............................... 7.250 05/01/03 446,239
-----------
2,443,273
-----------
GEORGIA 6.7%
1,445 De Kalb Cnty, GA Hsg Auth Multi-Family
Hsg Rev North Hill Apts Proj Rfdg (FNMA
Collateralized) (c).................... 6.625 01/01/25 1,532,321
500 Forsyth Cnty, GA Hosp Auth Rev Antic
Ctfs GA Baptist Hlth Care Sys Proj..... 6.000 10/01/08 479,225
1,000 George L Smith II GA World Congress Ctr
Auth Rev Rfdg Domed Stadium Proj (MBIA
Insd) (b).............................. 6.000 07/01/04 1,037,520
-----------
3,049,066
-----------
ILLINOIS 10.5%
400 Bedford Park, IL Tax Increment 71st &
Cicero Proj Rfdg....................... 7.000 01/01/06 416,160
500 Carol Stream, IL First Mtg Rev Windsor
Pk Mnr Proj............................ 6.500 12/01/07 510,600
445 Chicago, IL Tax Increment Allocation
San Drainage & Ship Canal A............ 7.375 01/01/05 458,288
545 Clay Cnty, IL Hosp Rev................. 5.500 12/01/10 511,602
115 Danville, IL Single Family Mtg Rev
Rfdg................................... 7.300 11/01/10 119,444
330 Huntley, IL Spl Svc Area No 7 Spl
Tax.................................... 6.000 03/01/09 317,704
</TABLE>
See Notes to Financial Statements
11
<PAGE> 219
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$1,335 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A.............. 6.500% 09/01/09 $ 1,375,798
750 Illinois Hlth Fac Auth Rev Holy Cross
Hosp Proj Ser 94-A..................... 6.250 03/01/04 765,082
300 Peoria, IL Spl Tax WeaverRidge Spl Svc
Area................................... 7.625 02/01/08 315,432
-----------
4,790,110
-----------
KENTUCKY 1.2%
500 Kenton Cnty, KY Arpt Brd Rev (MBIA
Insd).................................. 5.900 03/01/05 525,780
-----------
LOUISIANA 3.7%
220 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev............................... 7.500 05/26/06 217,149
500 Louisiana Hsg Fin Agy Rev Multi-Family
Hsg Plantation Ser A................... 7.200 01/01/03 499,255
1,000 St John Baptist Parish LA Sales Tax
Dist (FSA Insd)........................ 5.000 12/01/11 975,460
-----------
1,691,864
-----------
MASSACHUSETTS 3.6%
500 Massachusetts St Hlth & Edl Fac Auth
Rev Cent New England Hlth Sys Ser A.... 6.125 08/01/13 487,000
500 Massachusetts St Hlth & Edl North Adams
Regl Hosp Ser C........................ 6.250 07/01/04 517,980
190 Massachusetts St Indl Fin Agy East
Boston Neighborhood Proj............... 7.250 07/01/06 180,409
465 Massachusetts St Indl Fin Agy Rev Grtr
Lynn Mental Hlth, 144A - Private
Placement (a).......................... 6.200 06/01/08 448,395
-----------
1,633,784
-----------
MICHIGAN 4.0%
440 John Tolfree Health Sys Corp Mich Mtg
Rev.................................... 5.450 09/15/06 426,070
1,500 Michigan St Strategic Fd Ltd Oblig Rev
United Waste Sys Proj.................. 5.200 04/01/10 1,400,280
-----------
1,826,350
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 220
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINNESOTA 1.7%
$ 500 Dakota Cnty, MN Hsg & Redev Auth
Multi-Family Hsg Rev Affordable Hsg
View Pointe Proj....................... 6.000% 11/01/09 $ 484,190
285 Minneapolis, MN Multi-Family Rev Hsg
Belmont Apts Proj...................... 7.000 11/01/06 288,300
-----------
772,490
-----------
MISSOURI 4.5%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser
A (FSA Insd) (c)....................... 7.000 09/01/12 1,642,125
400 West Plains, MO Indl Dev Auth Hosp Rev
Ozarks Med Ctr......................... 6.300 11/15/11 394,308
-----------
2,036,433
-----------
MONTANA 1.1%
500 Crow Fin Auth MT Tribal Purp Rev,
144A - Private Placement (a)........... 5.400 10/01/07 503,645
-----------
NEBRASKA 2.0%
1,000 American Pub Energy Agy NE Gas Sup Rev
NE Pub Gas Agy Proj Ser A (AMBAC
Insd).................................. 4.375 06/01/10 926,440
-----------
NEW JERSEY 8.2%
500 Camden Cnty, NJ Impt Auth Lease Rev
Kaighn Pt Marine Terminal A............ 7.375 06/01/07 517,710
1,000 East Orange, NJ Brd Ed Ctfs Partn Cap
Apprec (FSA Insd)...................... * 02/01/16 398,630
250 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A (Escrowed to
Maturity).............................. 8.000 05/15/04 281,195
225 New Jersey Health Care Facs Fing Auth
Rev-Palisades (Prerefunded @
07/01/02).............................. 7.500 07/01/06 241,447
115 New Jersey Health Care Facs Fing Auth
Rev-Palisades.......................... 7.500 07/01/06 121,708
1,000 New Jersey Hlthcare Fac Fin Auth Rev
Christ Hosp Group Issue (Connie Lee
Insd).................................. 7.000 07/01/06 1,123,370
1,000 New Jersey St Transn Tr Fd Auth Transn
Sys Ser A (b).......................... 5.500 06/15/11 1,029,070
-----------
3,713,130
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 221
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK 8.2%
$ 500 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev Woodcrest Estates
Fac Ser A.............................. 5.875% 12/01/09 $ 478,960
500 New York City Ser A.................... 7.000 08/01/07 560,600
500 New York St Dorm Auth Rev Rfdg Secd
Hosp North Gen Hosp Ser G.............. 5.125 02/15/08 496,610
1,000 New York St Med Care Fac Fin Agy Rev NY
Hosp Mtg Ser A (Prerefunded @ 02/15/05)
(AMBAC Insd)........................... 6.200 08/15/05 1,089,780
1,000 Niagara Falls, NY Pub Impt (MBIA
Insd).................................. 6.900 03/01/20 1,095,590
-----------
3,721,540
-----------
OHIO 7.5%
500 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty Ser A Rfdg..... 7.000 11/15/10 512,120
500 Dayton, OH Spl Facs Rev Afco Cargo Day
LLC Proj............................... 6.000 04/01/09 487,655
250 Marion Cnty, OH Hosp Impt Rev Cmnty
Hosp Rfdg.............................. 6.375 05/15/11 250,550
400 Montgomery Cnty, OH Hosp Rev Grandview
Hosp & Med Cent Rfdg................... 5.250 12/01/01 399,752
1,000 Ohio St Air Quality Dev Auth Rev Owens
Corning Fiberglass Proj Rfdg........... 6.250 06/01/04 1,019,430
775 Sandusky Cnty, OH Hosp Fac Rev Rfdg Mem
Hosp................................... 5.000 01/01/06 759,392
-----------
3,428,899
-----------
OKLAHOMA 0.8%
365 Shawnee, OK Hosp Auth Hosp Rev
Midamerica Hlthcare Inc Rfdg........... 5.750 10/01/03 366,551
-----------
OREGON 3.0%
1,465 Multnomah Cnty, OR Ctfs Partn Ser A.... 4.200 08/01/08 1,378,931
-----------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 222
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA 2.1%
$ 225 Erie, PA Higher Edl Bldg Auth College
Rev Mercyhurst College Proj A Rfdg..... 5.300% 03/15/03 $ 229,079
250 Philadelphia, PA Auth For Indl Dev Revs
1st Mtg - Crime Prevention Assn........ 6.000 04/01/09 244,000
490 Philadelphia, PA Auth For Indl Dev
Hlthcare Fac Rev Baptist Home of Phil
Ser A.................................. 5.200 11/15/04 480,911
-----------
953,990
-----------
TENNESSEE 4.0%
1,500 Franklin, TN Spl Sch Dist Cap Apprec
(FSA Insd)............................. * 06/01/15 616,095
1,300 Municipal Energy Acq Corp TN Gas Rev
(FSA Insd)............................. 4.125 03/01/09 1,189,643
-----------
1,805,738
-----------
TEXAS 4.1%
500 Austin, TX Util Sys Rev Rfdg (AMBAC
Insd).................................. 6.500 11/15/05 547,525
405 Mesquite, TX Hlth Fac Dev Retirement
Fac Christian Ser A.................... 6.100 02/15/08 411,326
585 Parker Cnty, TX Hosp Dist Hosp Rev
Campbell Health Sys.................... 5.700 08/15/09 580,864
300 San Antonio, TX Hsg Fin Corp
Multi-Family Hsg Rev Beverly Oaks Arpt
Proj Ser A............................. 7.500 02/01/10 304,911
-----------
1,844,626
-----------
UTAH 1.9%
845 Utah St Hsg Fin Agy Single Family Mtg
Mezz Ser A (FHA Gtd)................... 7.150 07/01/12 882,197
-----------
VIRGINIA 1.2%
500 Pittsylvania Cnty, VA Indl Dev Auth Rev
Exempt Fac Ser A....................... 7.450 01/01/09 531,350
-----------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 223
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. VIRGIN ISLANDS 1.3%
$ 600 Virgin Islands Pub Fin Auth Rev Sr Lien
Fd Ln Nts Ser C........................ 5.500% 10/01/07 $ 606,576
-----------
TOTAL LONG-TERM INVESTMENTS 104.3%
(Cost $46,582,997).................................................. 47,475,637
TOTAL SHORT-TERM INVESTMENTS 0.6%
(Cost $300,000)..................................................... 300,000
-----------
TOTAL INVESTMENTS 104.9%
(Cost $46,882,997).................................................. 47,775,637
LIABILITIES IN EXCESS OF OTHER ASSETS (4.9%)......................... (2,243,921)
-----------
NET ASSETS 100.0%.................................................... $45,531,716
===========
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
16
<PAGE> 224
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $46,882,997)........................ $47,775,637
Cash........................................................ 201,839
Receivables:
Interest.................................................. 699,241
Investments Sold.......................................... 388,220
Fund Shares Sold.......................................... 38,696
Other....................................................... 1,741
-----------
Total Assets.......................................... 49,105,374
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,106,745
Fund Shares Repurchased................................... 150,713
Income Distributions...................................... 54,246
Distributor and Affiliates................................ 45,491
Investment Advisory Fee................................... 18,782
Trustees' Deferred Compensation and Retirement Plans........ 137,203
Accrued Expenses............................................ 60,478
-----------
Total Liabilities..................................... 3,573,658
-----------
NET ASSETS.................................................. $45,531,716
===========
NET ASSETS CONSIST OF:
Capital ($.01 par value with an unlimited number of shares
authorized)............................................... $44,914,978
Net Unrealized Appreciation................................. 892,640
Accumulated Distributions in Excess of Net Investment
Income.................................................... (94,570)
Accumulated Net Realized Loss............................... (181,332)
-----------
NET ASSETS.................................................. $45,531,716
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $29,498,083 and 2,886,338 shares of
beneficial interest issued and outstanding)............. $ 10.22
Maximum sales charge (3.25%* of offering price)......... .34
-----------
Maximum offering price to public........................ $ 10.56
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $10,442,070 and 1,023,439 shares of
beneficial interest issued and outstanding)............. $ 10.20
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $5,591,563 and 548,062 shares of
beneficial interest issued and outstanding)............. $ 10.20
===========
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 225
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 2,546,686
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $62,887, $143,540 and $46,428,
respectively)............................................. 252,855
Investment Advisory Fee..................................... 220,587
Accounting Services......................................... 57,312
Shareholder Services........................................ 45,637
Trustees' Fees and Related Expenses......................... 31,682
Custody..................................................... 6,004
Legal....................................................... 4,755
Other....................................................... 79,916
-----------
Total Expenses.......................................... 698,748
Less Credits Earned on Cash Balances.................... 685
-----------
Net Expenses............................................ 698,063
-----------
NET INVESTMENT INCOME....................................... $ 1,848,623
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 118,720
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 3,084,453
End of the Period....................................... 892,640
-----------
Net Unrealized Depreciation During the Period............... (2,191,813)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,073,093)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (224,470)
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 226
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999, the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............ $ 1,848,623 $ 1,184,525 $ 1,380,936
Net Realized Gain................ 118,720 38,354 347,481
Net Unrealized
Appreciation/Depreciation
During the Period.............. (2,191,813) 650,720 651,462
----------- ----------- -----------
Change in Net Assets from
Operations..................... (224,470) 1,873,599 2,379,879
----------- ----------- -----------
Distributions from Net Investment
Income......................... (1,881,557) (1,184,915) (1,375,554)
Distributions in Excess of Net
Investment Income.............. (94,570) -0- -0-
----------- ----------- -----------
Distributions from and in Excess
of Net Investment Income*...... (1,976,127) (1,184,915) (1,375,554)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.......... (2,200,597) 688,684 1,004,325
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........ 22,415,763 13,360,043 5,579,082
Net Asset Value of Shares Issued
Through Dividend
Reinvestment................... 1,287,591 800,943 883,487
Cost of Shares Repurchased....... (15,031,256) (8,183,923) (9,753,115)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS........... 8,672,098 5,977,063 (3,290,546)
----------- ----------- -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS......................... 6,471,501 6,665,747 (2,286,221)
NET ASSETS:
Beginning of the Period.......... 39,060,215 32,394,468 34,680,689
----------- ----------- -----------
End of the Period (Including
accumulated undistributed net
investment income of ($94,570),
$32,934 and $33,324,
respectively).................. $45,531,716 $39,060,215 $32,394,468
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
*Distributions by Class
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess
of Net Investment Income:
Class A Shares................. $(1,205,493) $ (625,738) $ (560,309)
Class B Shares................. (581,561) (469,656) (628,468)
Class C Shares................. (189,073) (89,521) (186,777)
----------- ----------- -----------
$(1,976,127) $(1,184,915) $(1,375,554)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 227
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Year Ended Ended -------------------------------------
Class A Shares Sept. 30, 1999 Sept. 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.................. $10.728 $10.536 $10.213 $10.264 $ 9.330 $10.145
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .471 .358 .480 .455 .508 .489
Net Realized and
Unrealized
Gain/Loss........... (.475) .199 .317 (.032) .900 (.815)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ (.004) .557 .797 .423 1.408 (.326)
------- ------- ------- ------- ------- -------
Less Distributions from
and in Excess of Net
Investment Income..... .504 .365 .474 .474 .474 .489
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $10.220 $10.728 $10.536 $10.213 $10.264 $ 9.330
======= ======= ======= ======= ======= =======
Total Return* (a)....... (0.10%) 5.36%** 8.08% 4.27% 15.31% (3.32%)
Net Assets at End of the
Period (In
millions)............. $ 29.5 $ 20.6 $ 12.9 $ 12.5 $ 15.6 $ 15.7
Ratio of Expenses to
Average Net Assets*... 1.28% 1.30% 1.52% 1.56% 1.00% .67%
Ratio of Net Investment
Income to Average Net
Assets*............... 4.49% 4.61% 4.67% 4.45% 5.10% 5.07%
Portfolio Turnover...... 65% 15%** 37% 45% 75% 274%
* If certain expenses had
not been reimbursed by Van
Kampen, Total Return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A 1.67% 1.74% 1.61% 1.75%
Ratio of Net Investment
Income to Average Net
Assets................ N/A N/A 4.52% 4.27% 4.49% 3.99%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
20
<PAGE> 228
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Year Ended Ended -------------------------------------
Class B Shares Sept. 30, 1999 Sept. 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.................. $10.714 $10.526 $10.209 $10.263 $ 9.319 $10.137
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .392 .308 .402 .375 .430 .417
Net Realized and
Unrealized
Gain/Loss........... (.475) .191 .317 (.027) .916 (.818)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ (.083) .499 .719 .348 1.346 (.401)
------- ------- ------- ------- ------- -------
Less Distributions from
and in Excess of Net
Investment Income..... .428 .311 .402 .402 .402 .417
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $10.203 $10.714 $10.526 $10.209 $10.263 $ 9.319
======= ======= ======= ======= ======= =======
Total Return* (a)....... (0.81%) 4.74%** 7.23% 3.54% 14.62% (4.04%)
Net Assets at End of the
Period (In
millions)............. $ 10.4 $ 15.2 $ 16.4 $ 16.4 $ 17.5 $ 17.7
Ratio of Expenses to
Average Net Assets*... 1.97% 2.06% 2.28% 2.32% 1.75% 1.43%
Ratio of Net Investment
Income to Average Net
Assets*............... 3.80% 3.90% 3.91% 3.69% 4.33% 4.30%
Portfolio Turnover...... 65% 15%** 37% 45% 75% 274%
* If certain expenses had
not been reimbursed by Van
Kampen, Total Return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A 2.42% 2.50% 2.36% 2.50%
Ratio of Net Investment
Income to Average Net
Assets................ N/A N/A 3.77% 3.51% 3.72% 3.24%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
21
<PAGE> 229
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Year Ended Ended -------------------------------------
Class C Shares Sept. 30, 1999 Sept. 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.................. $10.712 $10.525 $10.206 $10.260 $ 9.314 $10.134
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .399 .308 .402 .374 .430 .419
Net Realized and
Unrealized
Gain/Loss........... (.481) .190 .319 (.026) .918 (.822)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ (.082) .498 .721 .348 1.348 (.403)
------- ------- ------- ------- ------- -------
Less Distributions from
and in Excess of Net
Investment Income..... .428 .311 .402 .402 .402 .417
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $10.202 $10.712 $10.525 $10.206 $10.260 $ 9.314
======= ======= ======= ======= ======= =======
Total Return* (a)....... (0.81%) 4.74%** 7.23% 3.54% 14.74% (4.04%)
Net Assets at End of the
Period (In
millions)............. $ 5.6 $ 3.3 $ 3.1 $ 5.8 $ 4.9 $ 4.7
Ratio of Expenses to
Average Net Assets*... 2.02% 2.06% 2.29% 2.32% 1.74% 1.43%
Ratio of Net Investment
Income to Average Net
Assets*............... 3.75% 3.89% 3.88% 3.70% 4.36% 4.34%
Portfolio Turnover...... 65% 15%** 37% 45% 75% 274%
* If certain expenses had
not been reimbursed by Van
Kampen, Total Return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A 2.43% 2.50% 2.34% 2.46%
Ratio of Net Investment
Income to Average Net
Assets................ N/A N/A 3.74% 3.52% 3.75% 3.31%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
22
<PAGE> 230
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Intermediate Term Municipal Income Fund (the "Fund") is organized as
a series of Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust,
and is registered as a diversified open-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is to seek a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Fund commenced investment
operations on May 28, 1993 with two classes of common shares, Class A and Class
B shares. The distribution of the Fund's Class C shares commenced on October 19,
1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
23
<PAGE> 231
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Income and expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund 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 loss and offset such losses against any future realized capital gains.
At September 30, 1999, the Fund had an accumulated capital loss carryforward for
tax purposes of $181,332 which will expire on September 30, 2003.
At September 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $46,882,997; the aggregate gross unrealized
appreciation is $1,476,442 and the aggregate gross unrealized depreciation is
$583,802, resulting in net unrealized appreciation on long- and short-term
investments of $892,640.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays dividends
monthly from net investment income. Net realized gains, if any, are distributed
annually.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
F. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Fund's
custody fee was reduced by $685 as a result of credits earned on overnight cash
balances.
24
<PAGE> 232
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .500 of 1%
Over $500 million..................................... .450 of 1%
</TABLE>
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $2,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $59,900 representing Van Kampen's cost of providing accounting and
legal services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $23,200. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
25
<PAGE> 233
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $29,626,819, $9,940,594 and
$5,347,565 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 1,523,720 $ 16,094,310
Class B...................................... 283,297 2,990,396
Class C...................................... 315,962 3,331,057
---------- ------------
Total Sales.................................... 2,122,979 $ 22,415,763
========== ============
Dividend Reinvestment:
Class A...................................... 77,116 $ 810,720
Class B...................................... 30,595 322,125
Class C...................................... 14,739 154,746
---------- ------------
Total Dividend Reinvestment.................... 122,450 $ 1,287,591
========== ============
Repurchases:
Class A...................................... (633,044) $ (6,690,021)
Class B...................................... (708,231) (7,395,119)
Class C...................................... (89,710) (946,116)
---------- ------------
Total Repurchases.............................. (1,430,985) $(15,031,256)
========== ============
</TABLE>
26
<PAGE> 234
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $19,411,810, $14,023,192 and
$2,807,878 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 1,074,637 $11,350,330
Class B....................................... 130,358 1,377,259
Class C....................................... 59,963 632,454
--------- -----------
Total Sales..................................... 1,264,958 $13,360,043
========= ===========
Dividend Reinvestment:
Class A....................................... 43,203 $ 457,668
Class B....................................... 25,218 266,756
Class C....................................... 7,232 76,519
--------- -----------
Total Dividend Reinvestment..................... 75,653 $ 800,943
========= ===========
Repurchases:
Class A....................................... (425,765) $(4,501,920)
Class B....................................... (297,555) (3,150,507)
Class C....................................... (50,238) (531,496)
--------- -----------
Total Repurchases............................... (773,558) $(8,183,923)
========= ===========
</TABLE>
27
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $12,105,732, $15,529,684 and
$2,630,401 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A......................................... 224,786 $ 2,319,832
Class B......................................... 176,313 1,821,383
Class C......................................... 141,162 1,437,867
-------- -----------
Total Sales....................................... 542,261 $ 5,579,082
======== ===========
Dividend Reinvestment:
Class A......................................... 36,275 $ 374,192
Class B......................................... 34,418 354,505
Class C......................................... 15,094 154,790
-------- -----------
Total Dividend Reinvestment....................... 85,787 $ 883,487
======== ===========
Repurchases:
Class A......................................... (255,254) $(2,615,305)
Class B......................................... (255,930) (2,632,842)
Class C......................................... (437,360) (4,504,968)
-------- -----------
Total Repurchases................................. (948,544) $(9,753,115)
======== ===========
</TABLE>
28
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the year ended September 30, 1999, 347,734 Class B shares automatically
converted to Class A shares. The CDSC for Class B and Class C shares will be
imposed on most redemptions made within four years of the purchase for Class B
and one year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First............................................ 3.00% 1.00%
Second........................................... 2.50% None
Third............................................ 2.00% None
Fourth........................................... 1.00% None
Fifth and Thereafter............................. None None
</TABLE>
For the year ended September 30, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $4,300 and CDSC on redeemed shares of approximately $36,600. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $38,933,363 and
$29,431,524, respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 1999, are payments retained by Van Kampen of
approximately $251,300.
29
<PAGE> 237
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Intermediate Term Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Intermediate Term Municipal Income Fund (the "Fund"), including the
portfolio of investments, as of September 30, 1999, the related statement of
operations for the year then ended, the statement of changes in net assets for
the year then ended, for the nine-month period ended September 30, 1998, and for
the year ended December 31, 1997, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Intermediate Term Municipal Income Fund as of September 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
for the year then ended, for the nine-month period ended September 30, 1998, and
for the year ended December 31, 1997, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
November 11, 1999
30
<PAGE> 238
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
31
<PAGE> 239
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For the year ended September 30, 1999, 100% of the income distributions made by
the Fund were exempt from federal income taxes. In January 2000, the Fund will
provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 29, 2000, this report, if used with
prospective investors, must be accompanied by a monthly performance update.
32
<PAGE> 240
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 241
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 28
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 242
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 243
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 244
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on
NAV(1)................................. (3.74%) (4.51%) (4.51%)
One-year total return(2)............... (8.29%) (8.17%) (5.42%)
Five-year average annual total
return(2)............................ 4.86% 4.85% 5.13%
Life-of-Fund average annual total
return(2)............................ 4.68% 4.73% 4.90%
Commencement date...................... 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3)................... 4.70% 4.16% 4.15%
Taxable-equivalent distribution
rate(4).............................. 7.34% 6.50% 6.48%
SEC Yield(5)........................... 5.12% 4.62% 4.61%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999. Had
certain expenses of the Fund not been assumed by Van Kampen, the SEC Yield would
have been 4.38%, 3.84% and 3.84% for Classes A, B and C, respectively, and total
returns would have been lower.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
No representation is made as to any insurer's ability to meet its commitments.
The insurance does not remove market risk since it does not apply to the value
of the securities in the Fund's portfolio, and the Fund's net asset value may
fluctuate depending on changes in interest rates and other factors affecting the
municipal credit market.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 245
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Florida Insured Tax Free Income Fund vs. the Lehman Brothers
Municipal Bond Index (July 29, 1994 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Return = -8.29%
5 Year Avg. Return = 4.86%
Inception Avg. Annual = 4.68%
- ------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN FLORIDA INSURED TAX LEHMAN BROTHERS MUNICIPAL BOND
FREE INCOME FUND INDEX
------------------------------ ------------------------------
<S> <C> <C>
July1994 9527.00 10000.00
9635.00 10035.00
9519.00 9887.00
9289.00 9711.00
9010.00 9536.00
9387.00 9746.00
9718.00 10024.00
9982.00 10316.00
10021.00 10435.00
9998.00 10447.00
10280.00 10780.00
10145.00 10687.00
10233.00 10788.00
10350.00 10925.00
Sep1995 10418.00 10994.00
10565.00 11153.00
10797.00 11338.00
10916.00 11447.00
10998.00 11534.00
10930.00 11456.00
10658.00 11309.00
10625.00 11278.00
10628.00 11273.00
10749.00 11396.00
10921.00 11500.00
10903.00 11497.00
Sep1996 11092.00 11658.00
11230.00 11790.00
11451.00 12006.00
11394.00 11955.00
11359.00 11978.00
11461.00 12088.00
11335.00 11928.00
11423.00 12028.00
11611.00 12208.00
11715.00 12339.00
12060.00 12681.00
11908.00 12561.00
Sep1997 12021.00 12711.00
12111.00 12792.00
12178.00 12868.00
12388.00 13056.00
12503.00 13190.00
12499.00 13194.00
12510.00 13206.00
12433.00 13146.00
12655.00 13354.00
12708.00 13406.00
12744.00 13440.00
12969.00 13648.00
Sep1998 13162.00 13819.00
13125.00 13819.00
13178.00 13867.00
13207.00 13902.00
13362.00 14067.00
13281.00 14005.00
13260.00 14025.00
13297.00 14060.00
13182.00 13978.00
12947.00 13777.00
12951.00 13827.00
12739.00 13716.00
Sep1999 12670.00 13721.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 246
PORTFOLIO MANAGEMENT REVIEW
FLORIDA INSURED TAX FREE INCOME FUND
We recently spoke with Thomas M. Byron, portfolio manager of the Van Kampen
Florida Insured Tax Free Income Fund, about the key events and economic forces
that shaped the markets during the past year. Mr. Byron has managed the Fund
since 1997 and worked in the investment industry since 1981. He is joined by
Peter W. Hegel, chief investment officer for fixed-income investments. The
following comments reflect their views on the Fund's performance during the 12
months ended September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. In fact, the supply of new bonds was down more than 20 percent
during the first nine months of 1999 compared with the previous year. Supply was
down in almost every sector, although electric utilities, environment-related,
and health-care bonds saw the most significant drops. The lower supply helped
support bond prices somewhat because that meant more competition for available
bonds.
Florida's economy remained strong, as the state decreased its reliance on
agriculture and tourism and increased the role of trade and services. In
addition, the state remained fiscally sound and continued to experience budget
surpluses, even after a $1 billion tax cut that included reducing the state's
intangibles tax.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market. With the exception of the health-care
sector, overall credit quality remained high, and we witnessed a number of
credit upgrades as tax revenues kept municipal finances strong. In addition,
municipal bond yields remained very
5
<PAGE> 247
attractive compared with Treasury bonds, especially when considering the tax
advantages of municipals. At the end of the reporting period, AAA-rated
municipals were offering yields that were about 90 percent of comparable
Treasury yields, making municipals very attractive for investors in higher
income tax brackets.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A With the instability in the bond market in recent months, we focused on
diversifying the Fund's holdings as much as possible to attempt to reduce
the impact that any one part of the market might have on the Fund. For
example, we purchased bonds with intermediate term maturities of 15 to 20 years
because the Fund had been so heavily weighted toward longer-term securities.
These bonds did not decline in value as much as comparable 30-year securities
when bond prices started to fall during the summer, which helped to support the
Fund's total return.
Another major strategy for the Fund was to increase its duration, or
sensitivity to interest-rate changes. We feel that this strategy will work well
in a declining interest-rate environment because it should allow the Fund to
participate more fully in a market rally. In the short term, however, the longer
duration negatively affected the Fund's total return as interest rates climbed.
We took advantage of the general market price declines to enhance the
current income potential and tax management of the Fund. We sold some of our
holdings at a capital loss to offset some of the gains we had earned early in
1999, so that the Fund can try to avoid the need to distribute taxable capital
gains to shareholders this year. These bonds were replaced with higher-yielding
issues, increasing the Fund's income stream without sacrificing credit quality.
The new bonds also had better protection against bond calls. This should help
the Fund maintain its income stream for a longer period of time if interest
rates fall.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A The essential services and education areas were very attractive during the
period because of their high quality and liquidity. Public education bonds
remained the top sector for the Fund, and at the end of September
comprised 18.5 percent of the long-term investments. Higher education
represented the next-largest sector at 12.7 percent of the long-term
investments, followed by water and sewer at 12.0 percent.
While we increased our holdings in the essential services and education, we
reduced the Fund's proportion of health-care bonds because of the challenges
imposed by managed care and changing Medicare reimbursement policies. Reducing
the health-care exposure benefited the Fund because that sector did not perform
as well as most other areas of the municipal market during the period. For
additional portfolio highlights, please refer to page 9.
6
<PAGE> 248
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -3.74 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
The Fund provided shareholders with an attractive dividend throughout the
past year, although the dividend was reduced in September 1999. The generally
lower interest rate environment over the past few years eventually reduced the
Fund's income stream as higher yielding bonds matured or were called from the
portfolio. This led to a reduction in the monthly dividend rate from $0.0645 per
Class A share to $0.06. At its current rate, the Fund's tax-exempt dividend
translates to a distribution rate of 4.70 percent(3), which is equivalent to a
yield of 7.34 percent(4) for an investor in the 36 percent federal income tax
bracket. Please refer to the chart and footnotes on page 3 for additional Fund
performance results. Past performance does not guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive-yielding bonds and protecting the Fund from bond
calls as much as possible. We will also use our research capabilities to monitor
the health-care sector for attractive opportunities throughout the coming
months.
[SIG]
Thomas M. Byron
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 249
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 250
PORTFOLIO HIGHLIGHTS
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
CREDIT QUALITY*
AS OF SEPTEMBER 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA
------- ----- --- -------
<S> <C> <C> <C> <C>
As of September 30, 1999 86.10 2.90 4.60 6.40
</TABLE>
AS OF SEPTEMBER 30, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA
------- ----- --- -------
<S> <C> <C> <C> <C>
As of September 30, 1998 83.10 2.00 6.30 8.60
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 $0.0645
Nov 1998 0.0645
Dec 1998 0.0645
Jan 1999 0.0645
Feb 1999 0.0645
Mar 1999 0.0645
Apr 1999 0.0645
May 1999 0.0645
Jun 1999 0.0645
Jul 1999 0.0645
Aug 1999 0.0645
Sep 1999 0.0600
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Public Education 18.5% 14.1%
Higher Education 12.7 10.2
Water & Sewer 12.0 10.6
Transportation 9.8 7.0
Retail/Elec/Gas/Teleph 9.4 4.4
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 251
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 94.5%
FLORIDA 92.6%
$ 600 Alachua Cnty, FL Sch Brd Ctfs Partn
(AMBAC Insd)........................... 5.000% 07/01/18 $ 549,036
500 Bartow, FL Wtr & Swr Sys Rev (FGIC
Insd).................................. 5.125 10/01/29 450,645
940 Bay Cnty, FL Sch Brd Ctfs Partn (AMBAC
Insd).................................. 4.750 07/01/17 831,891
1,850 Boca Raton, FL Cmnty Redev Agy Tax
Increment Rev Mizner Pk Proj Rfdg (FSA
Insd).................................. * 03/01/15 775,354
465 Brevard Cnty, FL Hsg Fin Auth Single
Family Mtg Rev (GNMA Collateralized)... 6.650 09/01/21 480,610
650 Brevard Cnty, FL Sales Tax Rev (MBIA
Insd).................................. 5.750 12/01/13 660,894
1,000 Brevard Cnty, FL Sch Brd Ctfs Partn Ser
A (AMBAC Insd)......................... 5.400 07/01/12 1,009,560
370 Broward Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Rfdg Ser A (GNMA
Collateralized)........................ 6.100 10/01/19 376,671
560 Broward Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Rfdg Ser A (GNMA
Collateralized)........................ 6.200 04/01/30 570,864
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem
Hosp Ser A Rfdg (FSA Insd)............. 6.500 08/15/12 532,865
1,000 Dade Cnty, FL Aviation Rev Ser B (MBIA
Insd).................................. 5.600 10/01/26 984,270
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of
Miami Ser B (MBIA Insd)................ 5.750 04/01/20 1,003,660
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 05/01/04) (MBIA Insd)... 5.750 05/01/08 530,720
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 05/01/04) (MBIA Insd)... 6.000 05/01/14 535,850
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd).................................. 5.375 10/01/16 732,855
900 Daytona Beach, FL Wtr & Swr Rev Rfdg
(AMBAC Insd)........................... 5.750 11/15/10 936,306
1,000 Escambia Cnty, FL Util Auth Util Sys
Rev Ser B (FGIC Insd).................. * 01/01/15 423,070
1,500 Florida Ports Fin Comm Rev St Trans
Trust Fd Intermodal Pgm (FGIC Insd)
(a).................................... 5.500 10/01/29 1,439,445
3,250 Florida St Brd of Edl Cap Outlay Pub
Edl Ser A Rfdg (FGIC Insd)............. 4.500 06/01/23 2,653,690
500 Florida St Brd of Edl Cap Outlay Pub
Edl Ser B Rfdg (MBIA Insd)............. 4.500 06/01/24 405,415
</TABLE>
See Notes to Financial Statements
10
<PAGE> 252
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$2,500 Florida St Brd of Edl Cap Outlay Pub
Edl Ser C (MBIA Insd).................. 5.600% 06/01/20 $ 2,477,125
3,250 Florida St Brd of Edl Lottery Rev Ser B
(FGIC Insd)............................ 5.250 07/01/13 3,223,025
1,750 Florida St Brd of Regts Univ Sys Impt
Rev (MBIA Insd)........................ 5.625 07/01/19 1,741,565
2,000 Florida St Brd of Regts Univ Sys Impt
Rev (AMBAC Insd)....................... 4.500 07/01/23 1,628,060
1,750 Florida St Div Bond Fin Dept Genl Svcs
Rev Dept Envrnmtl Presvtn 2000 Ser A
(AMBAC Insd) (b)....................... 5.000 07/01/12 1,700,842
2,000 Florida St Tpk Auth Tpk Rev Dept Trans
Ser A (FGIC Insd)...................... 4.500 07/01/27 1,620,940
2,000 Florida St Tpk Auth Tpk Rev Dept Trans
Ser B (MBIA Insd)...................... 5.000 07/01/16 1,863,280
1,300 Greater Orlando Aviation Auth Orlando
FL Arpt Facs Rev Ser A (FGIC Insd)..... 5.125 10/01/28 1,158,391
1,450 Hillsborough Cnty, FL Edl Fac Univ
Tampa Proj Rfdg........................ 5.750 04/01/18 1,410,603
500 Hillsborough Cnty, FL Hosp Auth Hosp
Rev Tampa Genl Hosp Proj Rfdg (FSA
Insd).................................. 6.375 10/01/13 530,985
750 Hillsborough Cnty, FL Indl Dev Auth
Pollutn Ctl Rev Tampa Elec Co Proj Rfdg
(MBIA Insd)............................ 6.250 12/01/34 767,948
1,300 Indian River Cnty, FL Hosp Rev Rfdg
(FSA Insd) (b)......................... 5.700 10/01/15 1,309,555
1,000 Indian River Cnty, FL Hosp Rev Rfdg
(FSA Insd)............................. 6.100 10/01/18 1,013,460
1,000 Jacksonville, FL Elec Auth Rev Saint
John's Pwr-2 Ser 7 Rfdg (MBIA Insd).... 5.500 10/01/14 997,470
1,000 Jacksonville, FL Wtr & Swr Rev United
Wtr FL Proj (AMBAC Insd)............... 6.350 08/01/25 1,038,920
745 Lee Cnty, FL Hsg Fin Auth Single Family
Mtg Rev Multi-Cnty Pgm Ser A (GNMA
Collateralized)........................ 7.450 09/01/27 829,967
1,000 Lee Cnty, FL Wtr & Swr Rev Ser A (AMBAC
Insd).................................. 5.000 10/01/29 883,660
330 Leon Cnty, FL Sch Dist Rfdg (AMBAC
Insd) (a).............................. 5.000 07/01/08 328,429
885 Manatee Cnty, FL Hsg Fin Auth Mtg Rev
(GNMA Collateralized).................. 6.875 11/01/26 949,932
</TABLE>
See Notes to Financial Statements
11
<PAGE> 253
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 835 Martin Cnty, FL Consolidated Util Sys
Rev (FGIC Insd)........................ 5.750% 10/01/08 $ 876,900
750 Martin Cnty, FL Indl Dev Auth Indl Dev
Rev Indiantown Cogeneration Proj Ser A
Rfdg................................... 7.875 12/15/25 777,870
545 Melbourne, FL Arpt Rev Rfdg (MBIA
Insd).................................. 6.250 10/01/18 565,416
500 Miramar, FL Wastewtr Impt Assmt Rev
(FGIC Insd)............................ 6.750 10/01/25 553,660
1,250 North Broward, FL Hosp Dist Rev Rfdg &
Impt (MBIA Insd)....................... 5.375 01/15/24 1,189,712
775 Orange Cnty, FL Hsg Fin Auth Single
Family Mtg Rev (GNMA Collateralized)... 6.550 10/01/21 799,033
1,000 Orange Cnty, FL Sch Brd Ctfs Partn Ser
A (MBIA Insd).......................... 5.000 08/01/20 904,460
900 Orange Cnty, FL Tourist Dev Tax Rev Ser
B (Prerefunded @ 10/01/02) (AMBAC
Insd).................................. 6.500 10/01/19 971,856
750 Palm Beach Cnty, FL Hlth Fac Auth Rev
Abbey Delray South Proj Rfdg........... 5.500 10/01/11 731,243
1,550 Palm Beach Cnty, FL Hlth Fac Auth Rev
Retirement Cmnty....................... 5.625 11/15/20 1,450,025
450 Palm Beach Cnty, FL Hlth Fac Auth Rev
Waterford Proj Rfdg.................... 5.500 10/01/15 424,589
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn
Ser A (Prerefunded @ 08/01/04) (AMBAC
Insd).................................. 6.375 08/01/15 817,965
1,000 Polk Cnty, FL Indl Dev Auth Tampa Elec
Co Proj................................ 5.850 12/01/30 993,520
1,100 Port Saint Lucie, FL Spl Assmt Rev Util
Svc Area No 3 & 4A (MBIA Insd) (a)..... 5.000 10/01/18 1,005,972
1,000 Santa Rosa Bay Brdg Auth FL Rev........ 6.250 07/01/28 1,016,380
750 Sarasota Cnty, FL Util Sys Rev
(Prerefunded @ 10/01/04) (FGIC Insd)... 6.500 10/01/14 829,957
4,750 Sunrise, FL Util Sys Rev Rfdg (AMBAC
Insd).................................. 5.000 10/01/28 4,228,735
1,000 Tampa Bay Wtr FL Util Sys Rev Ser A
Rfdg (FGIC Insd)....................... 4.750 10/01/27 837,960
1,000 Tampa, FL Hosp Rev Cap Impt H Lee
Moffitt Ser A.......................... 5.750 07/01/29 938,470
1,000 Volusia Cnty, FL Edl Fac Auth Rev Edl
Facs Embry Riddle Ser B Rfdg (AMBAC
Insd).................................. 5.250 10/15/19 944,910
</TABLE>
See Notes to Financial Statements
12
<PAGE> 254
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$1,000 Volusia Cnty, FL Edl Fac Auth Rev Edl
Facs Embry Riddle Ser B Rfdg (AMBAC
Insd).................................. 5.250% 10/15/22 $ 937,170
1,000 Volusia Cnty, FL Edl Fac Auth Rev
Stetson Univ Proj Ser A (MBIA Insd).... 5.500 06/01/26 970,660
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp
Fac Mem Hlth Rfdg & Impt (AMBAC
Insd).................................. 5.750 11/15/13 509,460
1,000 Volusia Cnty, FL Hlth Fac Auth Rev John
Knox Hlthcare Rfdg (Asset Gty Insd).... 6.000 06/01/17 1,005,600
1,000 Volusia Cnty, FL Sch Brd Ctfs Partn
Master Lease Pgm (FSA Insd)............ 5.500 08/01/24 974,160
-----------
66,613,511
-----------
PUERTO RICO 1.9%
670 Puerto Rico Comwlth Hwy & Tran Auth Hwy
Rev Ser V Rfdg......................... 6.625 07/01/12 710,950
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl
& Hlth Fac Ser M Rfdg (FSA Insd)....... 5.750 07/01/15 662,188
-----------
1,373,138
-----------
TOTAL LONG-TERM INVESTMENTS 94.5%
(Cost $68,443,300).................................................. 67,986,649
SHORT-TERM INVESTMENTS 3.5%
(Cost $2,500,000)................................................... 2,500,000
-----------
TOTAL INVESTMENTS 98.0%
(Cost $70,943,300).................................................. 70,486,649
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%........................... 1,422,053
-----------
NET ASSETS 100.0%.................................................... $71,908,702
===========
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
Asset Gty--Asset Guaranty Insurance Company
See Notes to Financial Statements
13
<PAGE> 255
STATEMENT OF ASSETS AND LIABILITIES
September 30,1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $70,943,300)........................ $70,486,649
Cash........................................................ 37,092
Receivables:
Investments Sold.......................................... 2,350,796
Fund Shares Sold.......................................... 1,865,207
Interest.................................................. 1,346,509
Expense Reimbursement from Advisor........................ 15,450
Other....................................................... 3,056
-----------
Total Assets.......................................... 76,104,759
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,758,202
Income Distributions...................................... 131,844
Distributor and Affiliates................................ 102,716
Fund Shares Repurchased................................... 42,456
Trustees' Deferred Compensation and Retirement Plans........ 101,549
Accrued Expenses............................................ 59,290
-----------
Total Liabilities..................................... 4,196,057
-----------
NET ASSETS.................................................. $71,908,702
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $73,656,525
Accumulated Distributions in Excess of Net Investment
Income.................................................... (57,917)
Net Unrealized Depreciation................................. (456,651)
Accumulated Net Realized Loss............................... (1,233,255)
-----------
NET ASSETS.................................................. $71,908,702
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $39,811,908 and 2,731,287 shares of
beneficial interest issued and outstanding)............. $ 14.58
Maximum sales charge (4.75%* of offering price)......... .73
-----------
Maximum offering price to public........................ $ 15.31
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $28,990,141 and 1,988,805 shares of
beneficial interest issued and outstanding)............. $ 14.58
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,106,653 and 212,904 shares of
beneficial interest issued and outstanding)............. $ 14.59
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
14
<PAGE> 256
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 3,418,318
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $85,959, $271,199, and $23,808,
respectively)............................................. 380,966
Investment Advisory Fee..................................... 319,038
Accounting.................................................. 60,622
Shareholder Services........................................ 31,297
Trustees' Fees and Related Expenses......................... 28,891
Shareholder Reports......................................... 26,165
Legal....................................................... 15,425
Amortization of Organizational Costs........................ 11,102
Custody..................................................... 8,032
Other....................................................... 48,426
-----------
Total Expenses.......................................... 929,964
Expense Reduction ($319,038 related to Advisory Fees and
$147,311 related to Other Expenses)................... 466,349
Less Credits Earned on Cash Balances.................... 3,466
-----------
Net Expenses............................................ 460,149
-----------
NET INVESTMENT INCOME....................................... $ 2,958,169
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (962,695)
Futures................................................... 12,227
-----------
Net Realized Loss........................................... (950,468)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 4,590,349
End of the Period......................................... (456,651)
-----------
Net Unrealized Depreciation During the Period............... (5,047,000)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(5,997,468)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(3,039,299)
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 257
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999,
the Nine Months Ended September 30, 1998
and Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................ $ 2,958,169 $ 1,689,056 $ 2,104,005
Net Realized Gain/Loss............... (950,468) 310,611 (593,398)
Net Unrealized
Appreciation/Depreciation During
the Period......................... (5,047,000) 952,580 2,178,761
------------ ----------- -----------
Change in Net Assets from
Operations......................... (3,039,299) 2,952,247 3,689,368
------------ ----------- -----------
Distributions from Net Investment
Income............................. (2,958,015) (1,689,056) (2,104,005)
Distributions in Excess of Net
Investment Income.................. -0- (53,515) (24,977)
------------ ----------- -----------
Distributions from and in Excess of
Net Investment Income*............. (2,958,015) (1,742,571) (2,128,982)
Distributions from Net Realized
Gain*.............................. -0- -0- (28,108)
------------ ----------- -----------
Total Distributions.................. (2,958,015) (1,742,571) (2,157,090)
------------ ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.............. (5,997,314) 1,209,676 1,532,278
------------ ----------- -----------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold............ 40,933,657 11,498,972 15,913,603
Net Asset Value of Shares Issued
Through Dividend Reinvestment...... 1,349,269 804,084 999,451
Cost of Shares Repurchased........... (16,727,671) (14,206,014) (7,278,428)
------------ ----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS....................... 25,555,255 (1,902,958) 9,634,626
------------ ----------- -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS............................. 19,557,941 (693,282) 11,166,904
NET ASSETS:
Beginning of the Period.............. 52,350,761 53,044,043 41,877,139
------------ ----------- -----------
End of the Period (Including
accumulated distributions in excess
of net investment income of
$57,917, $58,071 and $4,556,
respectively)...................... $ 71,908,702 $52,350,761 $53,044,043
============ =========== ===========
</TABLE>
*Distributions by Class
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $(1,709,865) $ (981,519) $(1,223,114)
Class B Shares...................... (1,147,849) (722,360) (878,013)
Class C Shares...................... (100,301) (38,692) (27,855)
----------- ----------- -----------
$(2,958,015) $(1,742,571) $(2,128,982)
=========== =========== ===========
Distributions from Net Realized Gain:
Class A Shares...................... $ -0- $ -0- $ (14,898)
Class B Shares...................... -0- -0- (12,813)
Class C Shares...................... -0- -0- (397)
----------- ----------- -----------
$ -0- $ -0- $ (28,108)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 258
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Year Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
September 30, September 30, ---------------------------- December 31,
Class A Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period..................... $15.921 $15.550 $15.060 $ 15.203 $13.796 $14.300
------- ------- ------- -------- ------- -------
Net Investment Income........ .778 .564 .766 .784 .789 .291
Net Realized and Unrealized
Gain/Loss.................. (1.353) .388 .508 (.153) 1.416 (.507)
------- ------- ------- -------- ------- -------
Total from Investment
Operations................... (.575) .952 1.274 .631 2.205 (.216)
------- ------- ------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .770 .581 .774 .774 .798 .288
Distributions from Net
Realized Gain.............. -0- -0- .010 -0- -0- -0-
------- ------- ------- -------- ------- -------
Total Distributions............ .770 .581 .784 .774 .798 .288
------- ------- ------- -------- ------- -------
Net Asset Value, End of the
Period....................... $14.576 $15.921 $15.550 $ 15.060 $15.203 $13.796
======= ======= ======= ======== ======= =======
Total Return* (a).............. (3.74%) 6.26%** 8.72% 4.37% 16.29% (1.47%)**
Net Assets at End of the Period
(In millions)................ $ 39.8 $ 27.1 $ 29.3 $ 22.2 $ 16.2 $ 9.0
Ratio of Expenses to Average
Net Assets*.................. .37% .60% .59% .28% .44% .49%
Ratio of Net Investment Income
to Average Net Assets*....... 4.98% 4.85% 5.05% 5.31% 5.33% 5.13%
Portfolio Turnover............. 101% 50%** 48% 73% 41% 19%**
* If certain expenses had not
been assumed by Van Kampen,
total return would have been
lower and the ratios would
have been as follows:
Ratio of Expenses to Average
Net Assets................... 1.10% 1.30% 1.29% 1.47% 1.70% 1.99%
Ratio of Net Investment Income
to Average Net Assets........ 4.25% 4.15% 4.35% 4.13% 4.07% 3.64%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
17
<PAGE> 259
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Year Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
September 30, September 30, ------------------------------ December 31,
Class B Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $15.925 $ 15.554 $ 15.064 $ 15.201 $13.792 $14.300
------- -------- --------- -------- ------- -------
Net Investment Income...... .658 .478 .650 .677 .685 .251
Net Realized and Unrealized
Gain/Loss................ (1.350) .388 .510 (.154) 1.415 (.509)
------- -------- --------- -------- ------- -------
Total from Investment
Operations................. (.692) .866 1.160 .523 2.100 (.258)
------- -------- --------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .656 .495 .660 .660 .691 .250
Distributions from Net
Realized Gain............ -0- -0- .010 -0- -0- -0-
------- -------- --------- -------- ------- -------
Total Distributions.......... .656 .495 .670 .660 .691 .250
------- -------- --------- -------- ------- -------
Net Asset Value, End of the
Period..................... $14.577 $ 15.925 $ 15.554 $ 15.064 $15.201 $13.792
======= ======== ========= ======== ======= =======
Total Return* (a)............ (4.51%) 5.74%** 7.91% 3.58% 15.53% (1.81%)**
Net Assets at End of the
Period (In millions)....... $ 29.0 $ 23.6 $ 22.5 $ 18.9 $ 16.9 $ 10.9
Ratio of Expenses to Average
Net Assets*................ 1.13% 1.35% 1.33% 1.03% 1.12% 1.26%
Ratio of Net Investment
Income to Average Net
Assets*.................... 4.23% 4.09% 4.30% 4.56% 4.66% 4.31%
Portfolio Turnover........... 101% 50%** 48% 73% 41% 19%**
* If certain expenses had not
been assumed by Van Kampen,
total return would have
been lower and the ratios
would have been as follows:
Ratio of Expenses to Average
Net Assets................. 1.86% 2.05% 2.03% 2.22% 2.38% 2.75%
Ratio of Net Investment
Income to Average Net
Assets..................... 3.50% 3.39% 3.60% 3.38% 3.40% 2.81%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 260
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Year Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
September 30, September 30, ----------------------------- December 31,
Class C Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $ 15.941 $ 15.581 $ 15.081 $ 15.213 $13.786 $14.300
-------- -------- -------- -------- ------- -------
Net Investment Income....... .662 .483 .666 .668 .690 .249
Net Realized and Unrealized
Gain/Loss................. (1.355) .372 .504 (.140) 1.428 (.513)
-------- -------- -------- -------- ------- -------
Total from Investment
Operations.................. (.693) .855 1.170 .528 2.118 (.264)
-------- -------- -------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .656 .495 .660 .660 .691 .250
Distribution from Net
Realized Gain............. -0- -0- .010 -0- -0- -0-
-------- -------- -------- -------- ------- -------
Total Distributions........... .656 .495 .670 .660 .691 .250
-------- -------- -------- -------- ------- -------
Net Asset Value, End of the
Period...................... $ 14.592 $ 15.941 $ 15.581 $ 15.081 $15.213 $13.786
======== ======== ======== ======== ======= =======
Total Return* (a)............. (4.51%) 5.60%** 7.97% 3.65% 15.61% (1.81%)**
Net Assets at End of the
Period (In thousands)....... $3,106.7 $1,622.4 $1,195.1 $ 849.2 $ 461.8 $ 11.4
Ratio of Expenses to Average
Net Assets*................. 1.14% 1.32% 1.37% 1.03% 1.13% 1.26%
Ratio of Net Investment Income
to Average Net Assets*...... 4.28% 4.08% 4.38% 4.56% 4.51% 4.28%
Portfolio Turnover............ 101% 50%** 48% 73% 41% 19%**
* If certain expenses had not
been assumed by Van Kampen,
total return would have been
lower and the ratios would
have been as follows:
Ratio of Expenses to Average
Net Assets.................. 1.87% 2.03% 2.06% 2.22% 2.39% 2.74%
Ratio of Net Investment Income
to Average Net Assets....... 3.55% 3.38% 3.68% 3.38% 3.25% 2.87%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
19
<PAGE> 261
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Florida Insured Tax Free Income Fund (the "Fund") is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a non-diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors a high level of current income exempt from federal income
and Florida state intangibles taxes, consistent with preservation of capital.
Under normal market conditions, the Fund will invest at least 80% of its assets
in insured Florida municipal securities. The Fund commenced investment
operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the
20
<PAGE> 262
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
expected life of each applicable security. Income and expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $70,000. These costs were amortized on a
straight line basis over the 60 month period ending July 28, 1999.
E. FEDERAL INCOME TAXES--It is the Fund'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, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund 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 loss and offset such losses against any future realized capital gains.
At September 30, 1999, the Fund had an accumulated capital loss carryforward for
tax purposes of $240,022 which will expire on September 30, 2005. Net realized
gains or losses differ for financial reporting and tax purposes as a result of
post October 31 losses which are not realized for tax purposes until the first
day of the following fiscal year.
At September 30, 1999, for federal income tax purposes the cost of long- and
short-term investments is $70,943,300, the aggregate gross unrealized
appreciation is $1,309,229 and the aggregate gross unrealized depreciation is
$1,765,880, resulting in net unrealized depreciation on long- and short-term
investments of $456,651.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of expenses
under generally accepted accounting principles and federal income tax purposes,
the amount of distributed net investment income may differ for a particular
period. These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
21
<PAGE> 263
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
G. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Fund's
custody fee was reduced by $3,466 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .500 of 1%
Over $500 million..................................... .450 of 1%
</TABLE>
For the year ended September 30, 1999, the Adviser voluntarily waived
$319,038 of its investment advisory fees and assumed $147,311 of the Fund's
other expenses. This waiver is voluntary in nature and can be discontinued at
the Adviser's discretion.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $4,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $71,700 representing Van Kampen's cost of providing accounting and
legal services to the Fund. All of these expenses were assumed by Van Kampen.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $15,100. All of these
expenses were assumed by Van Kampen. Transfer agency fees are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At September 30, 1999, Van Kampen owned 100 shares each of Classes A, B and
C.
22
<PAGE> 264
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $40,884,308, $29,507,619 and
$3,264,598 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,535,773 $ 23,866,507
Class B.................................... 915,485 14,180,809
Class C.................................... 186,134 2,886,341
---------- ------------
Total Sales.................................. 2,637,392 $ 40,933,657
========== ============
Dividend Reinvestment:
Class A.................................... 52,779 $ 808,309
Class B.................................... 32,141 494,596
Class C.................................... 3,009 46,364
---------- ------------
Total Dividend Reinvestment.................. 87,929 $ 1,349,269
========== ============
Repurchases:
Class A.................................... (560,294) $ (8,714,774)
Class B.................................... (441,657) (6,786,954)
Class C.................................... (78,013) (1,225,943)
---------- ------------
Total Repurchases............................ (1,079,964) $(16,727,671)
========== ============
</TABLE>
23
<PAGE> 265
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $24,924,266, $21,619,168 and
$1,557,836 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 352,234 $ 5,494,787
Class B..................................... 320,092 4,997,538
Class C..................................... 64,525 1,006,647
-------- ------------
Total Sales................................... 736,851 $ 11,498,972
======== ============
Dividend Reinvestment:
Class A..................................... 30,117 $ 469,824
Class B..................................... 19,918 310,753
Class C..................................... 1,504 23,507
-------- ------------
Total Dividend Reinvestment................... 51,539 $ 804,084
======== ============
Repurchases:
Class A..................................... (566,619) $ (8,834,774)
Class B..................................... (303,798) (4,731,240)
Class C..................................... (40,958) (640,000)
-------- ------------
Total Repurchases............................. (911,375) $(14,206,014)
======== ============
</TABLE>
24
<PAGE> 266
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $27,794,429, $21,042,117 and
$1,167,682 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 609,339 $ 9,274,646
Class B..................................... 384,943 5,831,452
Class C..................................... 52,399 807,505
--------- -----------
Total Sales................................... 1,046,681 $15,913,603
========= ===========
Dividend Reinvestment:
Class A..................................... 39,223 $ 594,339
Class B..................................... 25,536 387,076
Class C..................................... 1,188 18,036
--------- -----------
Total Dividend Reinvestment................... 65,947 $ 999,451
========= ===========
Repurchases:
Class A..................................... (232,349) $(3,502,983)
Class B..................................... (216,650) (3,274,422)
Class C..................................... (33,195) (501,023)
--------- -----------
Total Repurchases............................. (482,194) $(7,278,428)
========= ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 3.75% None
Third........................................ 3.50% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>
25
<PAGE> 267
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
For the year ended September 30, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $32,200 and CDSC on redeemed shares of approximately $115,000.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $82,654,221 and
$63,963,114, 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.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund'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 these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. 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).
26
<PAGE> 268
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 1999, were as follows.
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... -0-
Futures Opened............................................ 30
Futures Closed............................................ (30)
---
Outstanding at September 30, 1999......................... -0-
===
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 1999, are payments retained by Van Kampen of
approximately $222,300.
27
<PAGE> 269
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Florida Insured Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Florida Insured Tax Free Income Fund (the "Fund"), including the
portfolio of investments, as of September 30, 1999, the related statement of
operations for the year ended, the statement of changes in net assets for the
year then ended, for the nine-month period ended September 30, 1998, and for the
year ended December 31, 1997, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Florida Insured Tax Free Income Fund as of September 30, 1999, the
results of its operations for the year then ended, the changes in its net assets
for the year then ended, for the nine-month period ended September 30, 1998, and
for the year ended December 31, 1997, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
[KPMG LLP SIG]
Chicago, Illinois
November 11, 1999
28
<PAGE> 270
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and ongoing expenses.
Please read it carefully before you
invest or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
29
<PAGE> 271
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN*--Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For the year ended September 30, 1999, the Fund designated 100% of the income
distributions as a tax-exempt income distribution. In January, 2000, the Fund
will provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 29, 2000, the report, if used with
prospective investors, must be accompanied by monthly performance update.
30
<PAGE> 272
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
31
<PAGE> 273
VAN KAMPEN FUNDS
YOUR NOTES:
32
<PAGE> 274
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 23
Report of Independent Accountants................ 30
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 275
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 276
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
[GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 277
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... (2.61%) (3.34%) (3.28%)
One-year total return(2)................. (7.24%) (7.02%) (4.20%)
Five-year total return(2)................ 5.94% 5.95% 6.21%
Life-of-Fund average annual total
return (2)............................ 5.51% 5.58% 5.73%
Commencement date........................ 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.67% 4.14% 4.14%
Taxable-equivalent distribution
rate (4).............................. 7.84% 6.95% 6.95%
SEC Yield(5)............................. 5.20% 4.71% 4.70%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period ended and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable-equivalent calculations reflect a combined federal and state income
tax rate of 40.4% which takes into consideration the deductibility of individual
state taxes paid.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1999. Had
certain expenses of the Fund not been assumed by Van Kampen, the SEC Yield would
have been 4.40%, 3.88%, and 3.87% for Classes A, B and C, respectively, and
total returns would have been lower.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
Investing in lower-rated securities involves a higher degree of credit and
market risk. Investments in derivative securities will subject the Fund to
greater risks.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 278
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen New York Tax Free Income Fund vs. the Lehman Brothers Municipal
Bond Index (July 29, 1994 through September 30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Return = - 7.24%
5 Year Avg. Annual = 5.94%
Inception Avg. Annual = 5.51%
- ------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN NEW YORK TAX FREE LEHMAN BROTHERS MUNICIPAL BOND
INCOME FUND INDEX
---------------------------- ------------------------------
<S> <C> <C>
Jul 1994 9527 10000
9662 10035
Sep 1994 9422 9887.49
9207 9711.49
8971 9535.71
9248 9745.5
9541 10024.2
9889 10315.9
9958 10434.5
9944 10447.1
10207 10780.3
10046 10686.5
10123 10786.1
10228 10925.1
Sep 1995 10320 10993.9
10490 11153.3
10717 11338.5
10850 11447.3
10898 11534.3
10816 11455.9
10624 11309.2
10578 11277.6
10620 11273.1
10735 11395.9
10895 11499.6
10878 11497.4
Sep 1996 11077 11658.3
11232 11790
11456 12005.8
11408 11955.4
11413 11976.1
11540 12088.3
11430 11927.5
11512 12027.7
11687 12208.1
11833 12338.8
12244 12680.5
12092 12561.3
Sep 1997 12247 12710.8
12339 12792.2
12408 12867.6
12654 13055.5
12804 13190
12833 13193.9
12852 13205.8
12768 13146.4
13027 13354.1
13090 13406.2
13120 13439.7
13382 13648
Sep 1998 13554 13818.6
13509 13818.6
13540 13867
13602 13901.6
13753 14067.1
13690 14005.2
13713 14024.8
13770 14059.9
13672 13978.3
13443 13777
13466 13826.6
13279 13716
Sep 1999 13200 13721.5
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 279
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
We recently spoke with Dennis S. Pietrzak, portfolio manager of the Van Kampen
New York Tax Free Income Fund, about the key events and economic forces that
shaped the markets during the past year. Mr. Pietrzak has managed the Fund since
1995 and worked in the investment industry since 1968. He is joined by Peter W.
Hegel, chief investment officer for fixed-income investments. The following
comments reflect their views on the Fund's performance during the 12 months
ended September 30, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types suffered price declines over the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve's two interest
rate increases during the summer, the bond market was hurt by the nation's
strong economic growth because it continually sparked inflation fears, which
caused concern about future rate hikes. Because of low demand for municipal
bonds during the period, these conditions hurt municipals more than their
taxable counterparts--corporate and Treasury bonds. The yields on newly issued
30-year AAA municipal bonds leaped almost a full percentage point during the
12-month period, so the prices of existing bonds dropped concurrently.
The interest rate increases also served to suppress municipal bond supply.
Many municipalities chose not to issue new bonds or refinance outstanding bonds
because of the higher interest rates they would have to pay in the current
marketplace. Supply was down in almost every sector, although electric
utilities, environment-related, and health-care bonds saw the most significant
drops. The lower supply helped support bond prices somewhat because that meant
more competition for available bonds.
The strength of New York City and the financial services industry ensured
that the New York municipal market would remain strong, as we continued to see
budget surpluses and credit upgrades throughout the state. However, finding
attractive bonds in the state was more of a challenge than in past years because
of decreasing supply. Although New York was the nation's second-largest issuer
of municipal debt in the first nine months of 1999, total issuance in the state
was down almost 48 percent compared with the same period last year.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market. With the exception of the health-care
sector, overall credit quality remained high, and we witnessed a number of
credit upgrades as tax revenues kept municipal finances strong. In addition,
municipal bond yields remained very attractive compared with Treasury bonds,
especially when considering the tax advantages of municipals. At the end of the
reporting period, AAA-rated municipals were offering yields that were about 90
percent
5
<PAGE> 280
of comparable Treasury yields, making municipals very attractive for investors
in higher income tax brackets.
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE FUND IN THESE CONDITIONS?
A We significantly increased the Fund's overall credit quality by purchasing
a large proportion of AAA bonds, which comprised more than 40 percent of
the portfolio's long-term investments at the end of September. Earlier in
the reporting period, credit spreads remained tight, meaning that the difference
in yields between high-quality and lower-quality bonds was minimal. As a result,
we favored AAA bonds because they provided almost as much yield as lower-rated
bonds but have less credit risk. These securities temporarily hurt the Fund
because they reacted more strongly to the recent interest-rate increases and
therefore suffered greater price declines than lower-rated bonds did. However,
the heavy AAA-bond allocation should benefit the Fund if interest rates decline
in the future.
Another major strategy for the Fund was to increase its duration, or
sensitivity to interest-rate changes. We feel that this strategy will work well
in a declining interest-rate environment because it should allow the Fund to
participate more fully in a market rally. In the short term, however, the longer
duration negatively affected the Fund's total return as interest rates climbed.
To the Fund's benefit, we purchased bonds with intermediate term maturities
of 10 to 20 years because we felt that they offered some of the best values in
the market. These securities did not decline in value as much as comparable
30-year securities when bond prices started to fall during the summer.
Q WHAT AREAS OF THE MUNICIPAL MARKET WERE MOST ATTRACTIVE TO YOU?
A Higher education bonds were very attractive to us, particularly as we
sought to increase the Fund's credit quality. We purchased securities
issued by a number of established universities in New York such as Fordham
University and Rochester Institute of Technology, as well as some smaller
schools whose bonds offered higher yields, such as St. Bonaventure University.
In fact, we more than doubled our position in higher-education bonds, which
represented about 25 percent of the portfolio's long-term investments at the end
of the reporting period. Those purchases in the lower credit-quality range
helped the Fund during the market downturn, whereas the higher-quality bonds
supported the Fund when interest rates were lower.
We also found some very attractive issues that are being used to finance
continuing-care retirement centers. These bonds have generally offered very
attractive yields and we believe that they have strong underlying credit
quality. Despite increasing our position in that area of the market, our overall
proportion of health-care bonds declined because the challenges imposed by
managed care and changing Medicare reimbursement policies have led us to look to
other sectors to find value in recent months. Reducing health-care exposure
benefited the Fund because that sector did not perform as well as most other
areas of the municipal market during the period. For additional portfolio
highlights, please refer to page 9.
6
<PAGE> 281
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return performance was disappointing because of the
overall downturn in bond prices and the Fund's longer duration. For the
one-year period ended September 30, 1999, the Fund's Class A shares
returned -2.61 percent(1) at net asset value. By comparison, the Lehman Brothers
Municipal Bond Index produced a -0.70 percent total return for the same period.
This index is an unmanaged, broad-based statistical composite of municipal bonds
and does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
The Fund provided shareholders with an attractive dividend throughout the
past year, although the dividend rate was reduced in September 1999. The
generally lower interest-rate environment over the past few years eventually
reduced the Fund's income stream as we had to purchase current coupon bonds
paying lower interest rates than many of the older bonds in the portfolio. This
led to a reduction in the monthly dividend rate from $0.0665 per Class A share
to $0.061. At its current rate, the Fund's tax-exempt dividend for Class A
shares translates to a distribution rate of 4.67 percent(3), which is equivalent
to a yield of 7.84 percent(4) for an investor in the 40.4 percent combined
federal and state income tax bracket. Please refer to the chart and footnotes on
page 3 for additional Fund performance results. Past performance does not
guarantee future performance.
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A We will probably continue to see a slowing economy in the fourth quarter
of 1999, which may be partly the result of year 2000 concerns. Wage
increases will likely keep inflation concerns at the forefront, although
increasing productivity should be able to offset higher wage costs for
employers. With those factors in mind, we are positioning the Fund to perform
well in a lower interest-rate environment by keeping its duration longer than
its benchmark. This would make the Fund better able to participate in a market
rally.
Preparations for the turn of the millennium may also limit new issuance and
general market activity as we near the end of the year. Many municipal issuers
may postpone issuing bonds until they feel certain that any potential computer
problems have been avoided, meaning that we will probably see very low levels of
new issuance in November and December. In the meantime, we will continue to
focus on finding attractive higher-yielding bonds and protecting the Fund from
bond calls as much as possible. We will also use our research capabilities to
monitor the health-care sector for attractive opportunities throughout the
coming months.
[SIG]
Dennis Pietrzak
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 282
GLOSSARY OF TERMS
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 283
PORTFOLIO HIGHLIGHTS
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TOP FIVE HOLDINGS AS OF SEPTEMBER 30, 1999*
<TABLE>
<S> <C>
Puerto Rico Pub Bldgs Auth Gtd Pub Ed & Hlth Fac............... 2.8%
New York City Ser F............................................ 2.3%
Metropolitan Tran Auth NY Commuter Fac Rev..................... 2.2%
Monroe Cnty, NY Indl Dev Agy Student Hsg Collegiate Ser A...... 2.2%
Clifton Park, NY Wtr Auth Sys Rev Ser A........................ 2.0%
</TABLE>
CREDIT QUALITY*
AS OF SEPTEMBER 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa BBB/Ba Non-Rated
------- ----- ----- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999 43.30 7.40 8.30 24.50 0.70 15.80
</TABLE>
AS OF SEPTEMBER 30, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa Non-Rated
------- ----- ----- ------- ---------
<S> <C> <C> <C> <C> <C>
As of September 30, 1998 30.20 5.90 10.60 35.60 17.70
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
Oct 1998 $ 0.0665
Nov 1998 0.0665
Dec 1998 0.0665
Jan 1999 0.0665
Feb 1999 0.0665
Mar 1999 0.0665
Apr 1999 0.0665
May 1999 0.0665
Jun 1999 0.0665
Jul 1999 0.0665
Aug 1999 0.0665
Sep 1999 0.0610
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Higher Education 25.5% 12.2%
General Purpose 12.5 11.4
Public Building 11.1 8.1
Transportation 10.7 12.9
Industrial Revenue 9.3 15.3
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 284
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 102.6%
NEW YORK 96.4%
$ 330 Bethlehem, NY Indl Dev Agy Sr Hsg Rev
Van Allen Proj Ser A................... 6.875% 06/01/39 $ 315,546
760 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev.................... 6.375 12/01/37 702,232
1,205 Buffalo, NY Genl Impt Ser A (AMBAC
Insd) (b).............................. 4.750 02/01/09 1,177,839
155 Buffalo, NY Sch Ser B (FSA Insd)....... 4.750 02/01/09 151,506
195 Cattaraugus Cnty, NY Indl Dev Agy Civic
Fac Rev................................ 4.400 09/15/04 190,340
1,630 Clifton Park, NY Wtr Auth Sys Rev Ser A
(FGIC Insd)............................ 5.000 10/01/29 1,429,950
750 Clifton Springs, NY Hosp & Clinic Ser A
Rfdg & Impt (b)........................ 7.650 01/01/12 814,477
500 Erie Cnty, NY Indl Dev Agy Civic Fac
Rev Depaul Ppty Inc Proj Ser A......... 5.750 09/01/28 448,785
250 Erie Cnty, NY Indl Dev Agy Life Care
Cmnty Rev Episcopal Church Home Ser
A (b).................................. 6.000 02/01/28 232,360
1,250 Huntington, NY Hsg Auth Sr Hsg Fac Rev
Gurwin Jewish Sr Residences A.......... 6.000 05/01/29 1,176,037
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev
NY Institute of Technology Rfdg (b).... 7.500 03/01/26 531,225
1,000 Long Island Power Auth, NY Electric Sys
Rev Gen Ser A (FSA Insd)............... 5.000 12/01/18 905,400
1,645 Metropolitan Tran Auth NY Commuter Fac
Rev.................................... 5.500 07/01/14 1,605,109
800 Metropolitan Tran Auth NY Commuter Fac
Rev Ser A (MBIA Insd).................. 5.625 07/01/27 782,336
400 Metropolitan Tran Auth NY Commuter Fac
Svc Contract Ser O..................... 5.750 07/01/13 411,040
1,155 Monroe Cnty, NY Indl Dev Agy St John
Fisher College Proj.................... 5.375 06/01/09 1,164,436
295 Monroe Cnty, NY Indl Dev Agy Student
Hsg Collegiate Ser A................... 4.650 04/01/06 284,663
310 Monroe Cnty, NY Indl Dev Agy Student
Hsg Collegiate Ser A................... 4.700 04/01/07 296,813
325 Monroe Cnty, NY Indl Dev Agy Student
Hsg Collegiate Ser A................... 4.800 04/01/08 309,650
</TABLE>
See Notes to Financial Statements
10
<PAGE> 285
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 170 Monroe Cnty, NY Indl Dev Agy Student
Hsg Collegiate Ser A................... 4.900% 04/01/09 $ 161,214
395 Monroe Cnty, NY Indl Dev Agy Student
Hsg Collegiate Ser A................... 5.150 04/01/12 368,890
1,705 Monroe Cnty, NY Indl Dev Agy Student
Hsg Collegiate Ser A................... 5.250 04/01/19 1,561,899
500 Monroe Cnty, NY Indl Dev Agy Rev Indl
Dev Empire Sports Proj Ser A (b)....... 6.250 03/01/28 466,105
500 Mount Vernon, NY Indl Dev Agy Wartburg
Sr Hsg Inc. Meadow View (b)............ 6.000 06/01/09 488,855
1,250 Nassau Cnty, NY Indl Dev Agy Civic Fac
Rev (MBIA Insd)........................ 4.750 07/01/28 1,045,250
1,250 New York City Indl Dev Agy LaGuardia
Assoc LP Proj Rfdg..................... 6.000 11/01/28 1,182,100
600 New York City Indl Dev Agy Brooklyn
Navy Yard.............................. 5.650 10/01/28 560,790
500 New York City Indl Dev Agy Civic Fac
Rev Cmnty Res Developmentally
Disabled............................... 7.500 08/01/26 522,490
500 New York City Indl Dev Agy Civic Fac
Rev College of New Rochelle Proj....... 5.750 09/01/17 487,700
375 New York City Indl Dev Agy Spl Fac Rev
Terminal One Group Assn Proj........... 5.700 01/01/04 384,769
500 New York City Indl Dev Agy Spl Facs
United Airls Inc Proj.................. 5.650 10/01/32 465,850
500 New York City Indl Dev Civic Touro
College Proj Ser A..................... 6.350 06/01/29 481,560
500 New York City Indl Dev Civic YMCA
Greater NY Proj........................ 6.000 08/01/07 516,020
515 New York City Indl Dev Civic YMCA
Greater NY Proj........................ 5.800 08/01/16 504,932
500 New York City Muni Wtr Fin Auth Wtr &
Swr Sys Rev Ser B (AMBAC Insd) (b)..... 5.375 06/15/19 477,165
500 New York City Ser B.................... 5.700 08/15/07 522,025
500 New York City Ser C (Prerefunded @
08/15/01) (b).......................... 7.250 08/15/24 528,280
1,700 New York City Ser F (AMBAC Insd) (b)... 5.250 08/01/14 1,641,265
</TABLE>
See Notes to Financial Statements
11
<PAGE> 286
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 New York City Ser H (Prerefunded @
02/01/02) (FSA Insd)................... 7.000% 02/01/21 $ 537,555
1,500 New York City Ser J (MBIA Insd)........ 5.000 05/15/20 1,337,595
1,000 New York City Tran Auth Met Ser A...... 5.250 01/01/29 919,600
720 New York St Dorm Auth Lease Rev Office
Fac Audit & Control (MBIA Insd)........ 5.250 04/01/13 702,670
1,000 New York St Dorm Auth Rev Mental Hlth
Svcs Facs Ser C (MBIA Insd)............ 4.750 08/15/19 859,580
1,410 New York St Dorm Auth Rev Univ
Rochester Ser A (MBIA Insd)............ 5.000 07/01/17 1,288,063
300 New York St Dorm Auth Rev City Univ Sys
Ser F.................................. 5.000 07/01/14 274,308
1,000 New York St Dorm Auth Rev City Univ Sys
Cons Third Genl Res 1 Rfdg (FSA
Insd) (a).............................. 5.500 07/01/29 959,670
600 New York St Dorm Auth Rev City Univ Sys
Third Genl Res 2 Rfdg.................. 6.000 07/01/05 633,150
750 New York St Dorm Auth Rev Cons City
Univ Sys Ser A......................... 5.625 07/01/16 748,312
500 New York St Dorm Auth Rev Court Fac
Lease Ser A............................ 5.700 05/15/22 485,435
570 New York St Dorm Auth Rev Dept Ed St of
NY Issue Ser A......................... 5.800 07/01/22 559,005
750 New York St Dorm Auth Rev FHA Nursing
Home Menorah (FHA Insd)................ 5.950 02/01/17 757,147
1,245 New York St Dorm Auth Rev NY Univ Ser A
(AMBAC Insd) (a)....................... 5.250 07/01/07 1,260,376
1,000 New York St Dorm Auth Rev Second Hosp
Interfaith Med Cent Ser D.............. 5.750 02/15/08 1,034,490
500 New York St Dorm Auth Rev St Univ Edl
Fac.................................... 5.750 05/15/10 515,205
1,200 New York St Dorm Auth Rev Svc Contract
Albany Cnty............................ 5.250 04/01/13 1,150,164
1,000 New York St Dorm Auth Rev Svc Contract
Albany Cnty (b)........................ 5.250 04/01/17 930,160
830 New York St Dorm Auth Revs NY Univ Ser
A (a).................................. 5.250 07/01/06 842,442
500 New York St Energy Resh & Dev Auth Elec
Fac Rev Cons Edison Co NY Inc Proj Ser
A (MBIA Insd).......................... 7.500 01/01/26 508,905
</TABLE>
See Notes to Financial Statements
12
<PAGE> 287
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 New York St Energy Resh & Dev Auth Gas
Fac Rev Brooklyn Union Gas Co Ser B
(Inverse Fltg) (c)..................... 10.06% 07/01/26 $ 606,875
500 New York St Environmental Fac Corp
Pollutn Ctl Rev St Wtr Revolving Fund
Ser D.................................. 6.850 11/15/11 554,130
490 New York St Hsg Fin Agy Rev Insd
Multi-Family Mtg Ser B (AMBAC Insd).... 6.250 08/15/14 513,334
500 New York St Med Care Fac Fin Agy Rev NY
Hosp Mtg Ser A (Prerefunded @ 02/15/05)
(AMBAC Insd)........................... 6.200 08/15/05 544,890
300 New York St Med Care Fac Fin Agy Rev
Presbyterian Hosp Mtg Ser A Rfdg (FHA
Insd).................................. 5.250 08/15/14 291,390
500 New York St Mtg Agy Rev Homeowner Mtg
Ser 30 B............................... 6.650 10/01/25 517,615
735 New York St Mtg Agy Rev Homeowner Mtg
Ser 58................................. 6.400 04/01/27 762,460
540 New York St Thruway Auth Svc Contract
Rev Loc Hwy & Brdg..................... 5.100 04/01/08 538,342
290 New York St Thruway Auth Svc Contract
Rev Loc Hwy & Brdg..................... 5.750 04/01/09 299,541
1,000 New York St Urban Dev Corp Rev Corrtl
Facs Svcs Contract Ser B (AMBAC
Insd).................................. 4.750 01/01/28 837,310
1,000 New York St Urban Dev Corp Rev Sports
Fac Assist Pg Ser A.................... 5.000 04/01/18 892,750
370 New York St Urban Dev Corp Rev
Correctional Cap Fac Rfdg.............. 5.625 01/01/07 379,420
500 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser A Rfdg........ 5.500 01/01/14 494,365
450 New York St Urban Dev Corp Rev
Correctional Cap Facs Ser 7............ 5.700 01/01/27 433,404
300 New York St Urban Dev Corp Rev
Correctional Cap Fac Rfdg.............. 5.750 01/01/13 300,981
1,245 New York St Dorm Auth Rev Insd Long
Island Univ............................ 5.000 09/01/16 1,130,373
1,500 New York St Dorm Auth Rev Insd Long
Island Univ............................ 5.125 09/01/19 1,355,820
</TABLE>
See Notes to Financial Statements
13
<PAGE> 288
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 New York St Dorm Auth Rev Univ
Rochester Ser B........................ 5.625% 07/01/24 $ 485,015
1,000 New York St Enrgy Resh & Dev Rfdg
Central Hudson Gas Ser A (AMBAC
Insd).................................. 5.450 08/01/27 953,310
420 Niagara Falls, NY Pub Impt (MBIA
Insd).................................. 6.900 03/01/20 460,148
1,000 Niagara Falls, NY Frontier Tran Auth
Arpt Rev (MBIA Insd)................... 5.500 04/01/19 966,930
325 Oneida Cnty, NY Indl Dev Agy Civic Fac
St Elizabeth Med A..................... 5.875 12/01/29 295,084
500 Oneida Cnty, NY Pub Impt (Prerefunded @
03/15/01).............................. 5.850 03/15/12 521,470
500 Oneida Cnty, NY Indl Dev Agy Rev Civic
Fac Mohawk Vly Handicap................ 5.300 03/15/19 460,600
455 Orange Cnty, NY Indl Dev Agy Life Care
Cmnty Rev.............................. 5.625 01/01/18 420,525
500 Peekskill, NY Indl Dev Agy Sr Drum Hill
Sr Living Proj......................... 6.375 10/01/28 463,165
300 Port Auth NY & NJ Spl Oblig............ 7.000 10/01/07 320,652
1,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd) (b).............................. 5.750 12/01/25 1,004,110
1,000 Port Auth NY & NJ Consolidated 119th
Series (FGIC Insd) (a)................. 5.500 09/15/17 980,420
555 Rockland Cnty, NY Indl Dev Agy Civic
Fac Rev Dominican College Proj 144A
Private Placement (d).................. 6.250 05/01/28 519,014
625 Rockland Cnty, NY Solid Waste Mgmt Auth
Ser B (AMBAC Insd)..................... 5.550 12/15/16 618,456
330 Saratoga Cnty, NY Indl Dev Agy Sr Hsg
Rev.................................... 6.875 06/01/39 315,134
1,500 Saint Lawrence Cnty, NY Indl St.
Lawrence Univ Project Series A......... 5.000 07/01/28 1,318,725
500 Suffolk Cnty, NY Indl Dev Agy Indl Dev
Rev Spellman High Voltage Fac Ser A.... 6.375 12/01/17 473,530
500 Suffolk Cnty, NY Indl Dev Agy Civic Fac
Rev (MBIA Insd)........................ 4.750 01/01/19 432,500
1,000 Syracuse, NY Ser C (FSA Insd).......... 4.900 10/01/09 968,720
225 Syracuse, NY Hsg Auth Rev Sub Proj
Loretto Rest Ser B..................... 7.500 08/01/10 220,649
</TABLE>
See Notes to Financial Statements
14
<PAGE> 289
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 400 Triborough Brdg & Tunl Auth NY Ser A
Rfdg................................... 5.000% 01/01/12 $ 387,328
500 Triborough Brdg & Tunl Auth NY Ser A
Rfdg (FGIC Insd)....................... 5.000 01/01/17 458,495
500 Ulster Cnty, NY Indl Dev Agy Civic Fac
Rev.................................... 6.250 06/01/08 491,045
1,000 Utica, NY Indl Dev Agy Civic Fac Rev
Utica College Proj Ser A............... 5.750 08/01/28 951,370
1,000 Yonkers, NY Ser C...................... 5.000 06/01/19 900,820
-----------
67,440,950
-----------
GUAM 0.8%
500 Guam Arpt Auth Rev Ser B............... 6.700 10/01/23 533,530
-----------
PUERTO RICO 2.9%
2,000 Puerto Rico Pub Bldgs Auth Gtd Pub Ed &
Hlth Fac............................... 5.700 07/01/16 2,006,120
-----------
U. S. VIRGIN ISLANDS 0.9%
650 Virgin Islands Pub Fin Auth Rev Sr Lien
Fd Ln Nts Ser C........................ 5.500 10/01/07 657,124
-----------
MARIANA ISLANDS 1.6%
850 Northern Mariana Islands Pub Sch Sys
Proj Ser A (FSA Insd).................. 5.000 10/01/05 870,570
250 Northern Mariana Islands Pub Sch Sys
Proj Ser A (FSA Insd).................. 5.000 10/01/04 256,613
-----------
1,127,183
-----------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 290
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL LONG-TERM INVESTMENTS 102.6%
(Cost $73,476,539).................................................. $71,764,907
SHORT-TERM INVESTMENTS 2.0%
(Cost $1,400,000)................................................... 1,400,000
-----------
TOTAL INVESTMENTS 104.6%
(Cost $74,876,539).................................................. 73,164,907
LIABILITIES IN EXCESS OF OTHER ASSETS (4.6%)......................... (3,210,122)
-----------
NET ASSETS 100.0%.................................................... $69,954,785
===========
</TABLE>
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by
the Fund to enhance the yield of the portfolio. The price of these
securities may be more volatile than the price of a comparable fixed rate
security.
(d) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
16
<PAGE> 291
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $74,876,539)........................ $73,164,907
Cash........................................................ 83,986
Receivables:
Interest.................................................. 1,128,723
Fund Shares Sold.......................................... 72,870
Expense Reimbursement from Advisor........................ 12,808
Investments sold.......................................... 5,000
Other....................................................... 2,922
-----------
Total Assets.......................................... 74,471,216
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,067,364
Fund Shares Repurchased................................... 189,206
Income Distributions...................................... 81,023
Distributor and Affiliates................................ 80,304
Trustees' Deferred Compensation and Retirement Plans........ 53,680
Accrued Expenses............................................ 44,854
-----------
Total Liabilities..................................... 4,516,431
-----------
NET ASSETS.................................................. $69,954,785
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $71,788,450
Accumulated Distributions in Excess of Net Investment
Income.................................................... (31,689)
Accumulated Net Realized Loss............................... (90,344)
Net Unrealized Depreciation................................. (1,711,632)
-----------
NET ASSETS.................................................. $69,954,785
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $36,607,970 and 2,450,569 shares of
beneficial interest issued and outstanding)............. $ 14.94
Maximum sales charge (4.75%* of offering price)......... .75
-----------
Maximum offering price to public........................ $ 15.69
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $28,214,424 and 1,891,680 shares of
beneficial interest issued and outstanding)............. $ 14.92
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $5,132,391 and 344,046 shares of
beneficial interest issued and outstanding)............. $ 14.92
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 292
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 3,160,479
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $77,907, $237,338 and $41,109,
respectively)............................................. 356,354
Investment Advisory Fee..................................... 353,477
Accounting Services......................................... 61,895
Shareholder Reports......................................... 46,975
Shareholder Services........................................ 28,654
Trustees' Fees and Related Expenses......................... 21,612
Legal....................................................... 13,432
Custody..................................................... 9,245
Other....................................................... 45,777
-----------
Total Expenses.......................................... 937,421
Less: Expense Reduction ($353,477 Advisory Fees and
$180,785 Other)....................................... 534,262
Credits Earned on Cash Balances......................... 995
-----------
Net Expenses............................................ 402,164
-----------
NET INVESTMENT INCOME....................................... $ 2,758,315
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (81,746)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,166,131
End of the Period......................................... (1,711,632)
-----------
Net Unrealized Depreciation During the Period............... (4,877,763)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(4,959,509)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(2,201,194)
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 293
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended September 30, 1999, the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Nine Months Ended Year Ended
September 30, 1999 September 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................... $ 2,758,315 $ 1,386,721 $ 1,115,725
Net Realized Gain/Loss.................. (81,746) 271,958 255,029
Net Unrealized Appreciation/Depreciation
During the Period..................... (4,877,763) 1,080,991 1,117,382
------------------ ------------------ -----------------
Change in Net Assets from Operations.... (2,201,194) 2,739,670 2,488,136
------------------ ------------------ -----------------
Distributions from Net Investment
Income................................ (2,758,315) (1,386,749) (1,126,124)
Distributions in Excess of Net
Investment Income..................... (16,019) (15,670) -0-
------------------ ------------------ -----------------
Distributions from and in Excess of Net
Investment Income*.................... (2,774,334) (1,402,419) (1,126,124)
Distributions from Net Realized
Gains*................................ (280,511) (40,996) (83,754)
------------------ ------------------ -----------------
Total Distributions..................... (3,054,845) (1,443,415) (1,209,878)
------------------ ------------------ -----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................ (5,256,039) 1,296,255 1,278,258
------------------ ------------------ -----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............... 37,031,717 16,595,104 16,610,486
Net Asset Value of Shares Issued Through
Dividend Reinvestment................. 2,056,860 924,200 683,838
Cost of Shares Repurchased.............. (10,970,966) (3,838,934) (4,637,600)
------------------ ------------------ -----------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.......................... 28,117,611 13,680,370 12,656,724
------------------ ------------------ -----------------
TOTAL INCREASE IN NET ASSETS............ 22,861,572 14,976,625 13,934,982
NET ASSETS:
Beginning of the Period................. 47,093,213 32,116,588 18,181,606
------------------ ------------------ -----------------
End of the Period (Including accumulated
undistributed net investment income of
($31,689), ($15,670) and $28,
respectively)......................... $ 69,954,785 $ 47,093,213 $ 32,116,588
================== ================== =================
*Distributions by Class
- ----------------------------------------------------------------------------------------------------
Distributions from and in Excess of Net
Investment Income:
Class A Shares........................ $ (1,566,371) $ (809,026) $ (584,822)
Class B Shares........................ (1,029,529) (523,570) (515,371)
Class C Shares........................ (178,434) (69,823) (25,931)
------------------ ------------------ -----------------
$ (2,774,334) $ (1,402,419) $ (1,126,124)
================== ================== =================
Distributions from Net Realized Gain:
Class A Shares........................ $ (147,076) $ (22,100) $ (46,829)
Class B Shares........................ (116,190) (16,870) (34,234)
Class C Shares........................ (17,245) (2,026) (2,691)
------------------ ------------------ -----------------
$ (280,511) $ (40,996) $ (83,754)
================== ================== =================
</TABLE>
See Notes to Financial Statements
19
<PAGE> 294
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months of Investment
Year Ended Ended Year Ended December 31 Operations) to
September 30, September 30, --------------------------- December 31,
Class A Shares 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $16.223 $15.734 $14.992 $15.048 $13.579 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income............ .794 .596 .786 .816 .821 .302
Net Realized and
Unrealized
Gain/Loss......... (1.198) .509 .795 (.074) 1.476 (.722)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.......... (.404) 1.105 1.581 .742 2.297 (.420)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............ .792 .599 .798 .798 .828 .301
Distributions from
Net Realized
Gain.............. .088 .017 .041 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions... .880 .616 .839 .798 .828 .301
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period....... $14.939 $16.223 $15.734 $14.992 $15.048 $13.579
======= ======= ======= ======= ======= =======
Total Return*(a)...... (2.61%) 7.11%** 10.92% 5.14% 17.33% (2.93%)**
Net Assets at End of
the Period (In
millions)........... $ 36.6 $ 25.0 $ 18.0 $ 7.7 $ 5.4 $ 2.9
Ratio of Expenses to
Average Net Assets*. .33% .39% .64% .31% .21% .26%
Ratio of Net
Investment Income to
Average Net Assets*. 5.03% 5.01% 5.16% 5.56% 5.63% 5.27%
Portfolio Turnover.... 67% 53%** 60% 126% 51% 68%**
*If certain expenses had not been assumed by Van Kampen, total return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to
Average Net
Assets.............. 1.23% 1.43% 1.47% 1.82% 2.10% 2.73%
Ratio of Net
Investment Income to
Average Net
Assets.............. 4.13% 3.97% 4.33% 4.04% 3.74% 2.81%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
20
<PAGE> 295
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months of Investment
Year Ended Ended Year Ended December 31, Operations) to
September 30, September 30, --------------------------- December 31,
Class B Shares 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $16.208 $15.727 $14.992 $15.046 $13.578 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income........... .679 .509 .684 .704 .713 .263
Net Realized and
Unrealized
Gain/Loss........ (1.200) .507 .782 (.068) 1.476 (.722)
------- ------- ------- ------- ------- -------
Total from Investment
Operations......... (.521) 1.016 1.466 .636 2.189 (.459)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income........... .684 .518 .690 .690 .721 .263
Distributions from
Net Realized
Gain............. .088 .017 .041 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total
Distributions...... .772 .535 .731 .690 .721 .263
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $14.915 $16.208 $15.727 $14.992 $15.046 $13.578
======= ======= ======= ======= ======= =======
Total Return*(a)..... (3.34%) 6.58%** 10.07% 4.37% 16.47% (3.20%)**
Net Assets at End of
the Period (In
millions).......... $ 28.2 $ 19.0 $ 13.1 $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to
Average Net
Assets*............ 1.08% 1.14% 1.36% 1.07% .93% .96%
Ratio of Net
Investment Income
to Average Net
Assets*............ 4.27% 4.26% 4.49% 4.79% 4.93% 4.58%
Portfolio Turnover... 67% 53%** 60% 126% 51% 68%**
*If certain expenses had not been assumed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to
Average Net
Assets............. 1.98% 2.19% 2.18% 2.60% 2.82% 3.42%
Ratio of Net
Investment Income
to Average Net
Assets............. 3.37% 3.21% 3.67% 3.26% 3.04% 2.12%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
21
<PAGE> 296
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months of Investment
Year Ended Ended Year Ended December 31, Operations) to
September 30, September 30, --------------------------- December 31,
Class C Shares 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $16.204 $15.726 $14.992 $15.041 $13.579 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income........... .682 .515 .676 .701 .711 .267
Net Realized and
Unrealized
Gain/Loss........ (1.196) .498 .789 (.060) 1.472 (.725)
------- ------- ------- ------- ------- -------
Total from Investment
Operations......... (.514) 1.013 1.465 .641 2.183 (.458)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income........... .684 .518 .690 .690 .721 .263
Distributions from
Net Realized
Gain............. .088 .017 .041 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total
Distributions...... .772 .535 .731 .690 .721 .263
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $14.918 $16.204 $15.726 $14.992 $15.041 $13.579
======= ======= ======= ======= ======= =======
Total Return*(a)..... (3.28%) 6.51%** 10.07% 4.44% 16.39% (3.20%)**
Net Assets at End of
the Period (In
millions).......... $ 5.1 $ 3.1 $ 1.0 $ .4 $ .4 $ .2
Ratio of Expenses to
Average Net
Assets*............ 1.08% 1.14% 1.41% 1.08% .98% .96%
Ratio of Net
Investment Income
to Average Net
Assets*............ 4.28% 4.22% 4.37% 4.78% 4.81% 4.58%
Portfolio Turnover... 67% 53%** 60% 126% 51% 68%**
*If certain expenses had not been assumed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to
Average Net
Assets............. 1.98% 2.18% 2.23% 2.61% 2.86% 3.42%
Ratio of Net
Investment Income
to Average Net
Assets............. 3.38% 3.17% 3.55% 3.25% 2.93% 2.12%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
22
<PAGE> 297
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen New York Tax Free Income Fund (the "Fund") is organized as a series
of the Van Kampen Tax Free Trust, a Delaware business trust, and is registered
as a non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide
investors with a high level of current income exempt from federal, New York
State and New York City income taxes, consistent with preservation of capital.
The Fund seeks to achieve its investment objective by investing at least 80% of
its assets in a portfolio of New York municipal securities rated investment
grade at the time of investment. The Fund commenced investment operations on
July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles 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 are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund 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 Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
23
<PAGE> 298
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the expected life of each applicable security. Income and expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $75,000. These costs were amortized on a
straight line basis over the 60 month period ended July 28, 1999.
E. FEDERAL INCOME TAXES--It is the Fund'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, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
At September 30, 1999, for federal income tax purposes, cost of long- and
short-term investments is $74,876,539; the aggregate gross unrealized
appreciation is $918,063 and the aggregate gross unrealized depreciation is
$2,629,695, resulting in net unrealized depreciation on long- and short-term
investments of $1,711,632.
Net realized gains or losses may differ for financial reporting and tax
reporting purposes primarily as a result of post-October losses which may not be
recognized for tax purposes until the first day of the following fiscal year.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
24
<PAGE> 299
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
G. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Fund's
custody fee was reduced by $995 as a result of credits earned on overnight cash
balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser"), will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .600 of 1%
Over $500 million..................................... .500 of 1%
</TABLE>
For the year ended September 30, 1999, the Adviser voluntarily waived
$353,477 of its investment advisory fees and assumed $180,785 of the Fund's
other expenses. This waiver is voluntary in nature and can be discontinued at
the Adviser's discretion.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $5,400, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person. All of this expense has been assumed by Van
Kampen.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $69,900 representing Van Kampen's cost of providing accounting and
legal services to the Fund. A portion of this cost has been assumed by Van
Kampen.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended September 30,
1999, the Fund recognized expenses of approximately $15,200. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund 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 for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
25
<PAGE> 300
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1999, Van Kampen owned 100 shares each of Classes A, B and
C.
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $37,735,427, $28,665,275 and
$5,387,748 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 1,174,020 $ 18,522,207
Class B...................................... 984,624 15,451,431
Class C...................................... 195,063 3,058,079
---------- ------------
Total Sales.................................... 2,353,707 $ 37,031,717
========== ============
Dividend Reinvestment:
Class A...................................... 82,755 $ 1,297,421
Class B...................................... 39,877 624,335
Class C...................................... 8,638 135,104
---------- ------------
Total Dividend Reinvestment.................... 131,270 2,056,860
========== ============
Repurchases:
Class A...................................... (347,401) $ (5,425,572)
Class B...................................... (302,183) (4,719,677)
Class C...................................... (53,303) (825,717)
---------- ------------
Total Repurchases.............................. (702,887) $(10,970,966)
========== ============
</TABLE>
26
<PAGE> 301
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $23,341,371, $17,309,186, and
$3,020,282 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 520,265 $ 8,251,633
Class B....................................... 391,237 6,192,887
Class C....................................... 135,402 2,150,584
---------- -----------
Total Sales..................................... 1,046,904 $16,595,104
========== ===========
Dividend Reinvestment:
Class A....................................... 39,009 $ 619,536
Class B....................................... 16,654 264,369
Class C....................................... 2,532 40,295
---------- -----------
Total Dividend Reinvestment..................... 58,195 $ 924,200
========== ===========
Repurchases:
Class A....................................... (160,416) $(2,542,226)
Class B....................................... (72,177) (1,139,992)
Class C....................................... (9,896) (156,716)
---------- -----------
Total Repurchases............................... (242,489) $(3,838,934)
========== ===========
</TABLE>
27
<PAGE> 302
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $17,012,428, $11,991,922, and
$986,119 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 704,992 $10,792,140
Class B....................................... 335,132 5,071,998
Class C....................................... 48,608 746,348
--------- -----------
Total Sales..................................... 1,088,732 $16,610,486
========= ===========
Dividend Reinvestment:
Class A....................................... 27,283 $ 418,784
Class B....................................... 15,994 244,789
Class C....................................... 1,318 20,265
--------- -----------
Total Dividend Reinvestment..................... 44,595 $ 683,838
========= ===========
Repurchases:
Class A....................................... (103,563) $(1,589,463)
Class B....................................... (193,090) (2,927,339)
Class C....................................... (7,857) (120,798)
--------- -----------
Total Repurchases............................... (304,510) $(4,637,600)
========= ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 3.75% None
Third........................................ 3.50% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>
28
<PAGE> 303
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
For the year ended September 30, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $25,700 and CDSC on redeemed shares of approximately $73,300.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended September 30, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $70,060,386 and
$39,573,306, respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended September 30, 1999, are payments retained by Van Kampen of
approximately $210,000.
29
<PAGE> 304
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen New York Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen New York Tax Free Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1999, the related statement of operations for
the year then ended, the statement of changes in net assets for the year then
ended, for the nine-month period ended September 30, 1998, and for the year
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1999, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen New York Tax Free Income Fund as of September 30, 1999, the results of
its operations for the year then ended, the changes in its net assets for the
year then ended, for the nine-month period ended September 30, 1998, and for the
year ended December 31, 1997, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
[KPMG LLP SIG]
Chicago, Illinois
November 11, 1999
30
<PAGE> 305
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
31
<PAGE> 306
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
303 East Wacker Drive
Chicago, Illinois 60601
For the year ended September 30, 1999, 100% of the income distributions made by
the Fund were exempt from federal income taxes. In January 2000, the Fund will
provide tax information to shareholders for the 1999 calendar year.
* "Interested" persons of the Fund, as defined in
the Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1999. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares and other pertinent
data. After March 31, 2000, the report must, if used with prospective investors,
be accompanied by a quarterly performance update.
32
<PAGE> 307
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INSURED TAX FREE CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 1,234,603,076<F1>
<INVESTMENTS-AT-VALUE> 1,267,867,842<F1>
<RECEIVABLES> 36,468,837<F1>
<ASSETS-OTHER> 68,539<F1>
<OTHER-ITEMS-ASSETS> 4,269<F1>
<TOTAL-ASSETS> 1,304,409,487<F1>
<PAYABLE-FOR-SECURITIES> 56,182,546<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,803,393<F1>
<TOTAL-LIABILITIES> 60,985,939<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,146,455,777
<SHARES-COMMON-STOCK> 65,168,747
<SHARES-COMMON-PRIOR> 67,843,044
<ACCUMULATED-NII-CURRENT> (487,916)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,201,234)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 33,264,766<F1>
<NET-ASSETS> 1,178,342,105
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 75,945,082<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (12,803,374)<F1>
<NET-INVESTMENT-INCOME> 63,141,708<F1>
<REALIZED-GAINS-CURRENT> (2,623,262)<F1>
<APPREC-INCREASE-CURRENT> (109,883,410)<F1>
<NET-CHANGE-FROM-OPS> (49,364,964)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (60,158,791)
<DISTRIBUTIONS-OF-GAINS> (15,893,770)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,531,055
<NUMBER-OF-SHARES-REDEEMED> (40,059,533)
<SHARES-REINVESTED> 2,854,181
<NET-CHANGE-IN-ASSETS> (175,539,242)
<ACCUMULATED-NII-PRIOR> (521,990)<F1>
<ACCUMULATED-GAINS-PRIOR> 15,232,609<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 6,729,700<F1>
<INTEREST-EXPENSE> 234,497<F1>
<GROSS-EXPENSE> 12,858,062<F1>
<AVERAGE-NET-ASSETS> 1,262,188,083
<PER-SHARE-NAV-BEGIN> 19.956
<PER-SHARE-NII> 0.914
<PER-SHARE-GAIN-APPREC> (1.641)
<PER-SHARE-DIVIDEND> (0.914)
<PER-SHARE-DISTRIBUTIONS> (0.234)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.081
<EXPENSE-RATIO> 0.92
<FN>
<F1>This item relates tot he Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> INSURED TAX FREE CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 1,234,603,076<F1>
<INVESTMENTS-AT-VALUE> 1,267,867,842<F1>
<RECEIVABLES> 36,468,837<F1>
<ASSETS-OTHER> 68,539<F1>
<OTHER-ITEMS-ASSETS> 4,269<F1>
<TOTAL-ASSETS> 1,304,409,487<F1>
<PAYABLE-FOR-SECURITIES> 56,182,546<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,803,393<F1>
<TOTAL-LIABILITIES> 60,985,939<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 59,293,894
<SHARES-COMMON-STOCK> 3,138,853
<SHARES-COMMON-PRIOR> 3,601,092
<ACCUMULATED-NII-CURRENT> (487,916)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,201,234)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 33,264,766<F1>
<NET-ASSETS> 56,764,436
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 75,945,082<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (12,803,374)<F1>
<NET-INVESTMENT-INCOME> 63,141,708<F1>
<REALIZED-GAINS-CURRENT> (2,623,262)<F1>
<APPREC-INCREASE-CURRENT> (109,883,410)<F1>
<NET-CHANGE-FROM-OPS> (49,364,964)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,628,280)
<DISTRIBUTIONS-OF-GAINS> (826,371)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 613,802
<NUMBER-OF-SHARES-REDEEMED> (1,177,316)
<SHARES-REINVESTED> 101,275
<NET-CHANGE-IN-ASSETS> (15,102,878)
<ACCUMULATED-NII-PRIOR> (521,990)<F1>
<ACCUMULATED-GAINS-PRIOR> 15,232,609<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 6,729,700<F1>
<INTEREST-EXPENSE> 234,497<F1>
<GROSS-EXPENSE> 12,858,062<F1>
<AVERAGE-NET-ASSETS> 65,999,293
<PER-SHARE-NAV-BEGIN> 19.957
<PER-SHARE-NII> 0.769
<PER-SHARE-GAIN-APPREC> (1.643)
<PER-SHARE-DIVIDEND> (0.765)
<PER-SHARE-DISTRIBUTIONS> (0.234)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.084
<EXPENSE-RATIO> 1.68
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> INSURED TAX FREE CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 1,234,603,076<F1>
<INVESTMENTS-AT-VALUE> 1,267,867,842<F1>
<RECEIVABLES> 36,468,837<F1>
<ASSETS-OTHER> 68,539<F1>
<OTHER-ITEMS-ASSETS> 4,269<F1>
<TOTAL-ASSETS> 1,304,409,487<F1>
<PAYABLE-FOR-SECURITIES> 56,182,546<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,803,393<F1>
<TOTAL-LIABILITIES> 60,985,939<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,098,261
<SHARES-COMMON-STOCK> 460,024
<SHARES-COMMON-PRIOR> 342,562
<ACCUMULATED-NII-CURRENT> (487,916)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,201,234)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 33,264,766<F1>
<NET-ASSETS> 8,317,007
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 75,945,082<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (12,803,374)<F1>
<NET-INVESTMENT-INCOME> 63,141,708<F1>
<REALIZED-GAINS-CURRENT> (2,623,262)<F1>
<APPREC-INCREASE-CURRENT> (109,883,410)<F1>
<NET-CHANGE-FROM-OPS> (49,364,964)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (320,563)
<DISTRIBUTIONS-OF-GAINS> (90,442)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 778,738
<NUMBER-OF-SHARES-REDEEMED> (676,622)
<SHARES-REINVESTED> 15,346
<NET-CHANGE-IN-ASSETS> 1,482,083
<ACCUMULATED-NII-PRIOR> (521,990)<F1>
<ACCUMULATED-GAINS-PRIOR> 15,232,609<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 6,729,700<F1>
<INTEREST-EXPENSE> 234,497<F1>
<GROSS-EXPENSE> 12,858,062<F1>
<AVERAGE-NET-ASSETS> 8,020,898
<PER-SHARE-NAV-BEGIN> 19.952
<PER-SHARE-NII> 0.763
<PER-SHARE-GAIN-APPREC> (1.636)
<PER-SHARE-DIVIDEND> (0.765)
<PER-SHARE-DISTRIBUTIONS> (0.234)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.080
<EXPENSE-RATIO> 1.68
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> T.F.H.I. CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 1,139,467,894<F1>
<INVESTMENTS-AT-VALUE> 1,124,678,467<F1>
<RECEIVABLES> 33,774,125<F1>
<ASSETS-OTHER> 61,559<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,158,514,151<F1>
<PAYABLE-FOR-SECURITIES> 56,343,428<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 12,912,777<F1>
<TOTAL-LIABILITIES> 69,256,205<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 850,797,574
<SHARES-COMMON-STOCK> 53,578,756
<SHARES-COMMON-PRIOR> 51,164,482
<ACCUMULATED-NII-CURRENT> (9,871,263)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (103,979,553)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,964,340)<F1>
<NET-ASSETS> 745,232,686
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 73,249,612<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (13,743,601)<F1>
<NET-INVESTMENT-INCOME> 59,506,011<F1>
<REALIZED-GAINS-CURRENT> (8,381,192)<F1>
<APPREC-INCREASE-CURRENT> (82,290,513)<F1>
<NET-CHANGE-FROM-OPS> (31,165,694)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (43,068,954)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,253,619
<NUMBER-OF-SHARES-REDEEMED> (12,242,352)
<SHARES-REINVESTED> 1,403,007
<NET-CHANGE-IN-ASSETS> (49,410,501)
<ACCUMULATED-NII-PRIOR> (9,019,837)<F1>
<ACCUMULATED-GAINS-PRIOR> (95,598,361)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,384,470<F1>
<INTEREST-EXPENSE> 654,836<F1>
<GROSS-EXPENSE> 13,119,032<F1>
<AVERAGE-NET-ASSETS> 777,800,417
<PER-SHARE-NAV-BEGIN> 15.076
<PER-SHARE-NII> 0.807
<PER-SHARE-GAIN-APPREC> (1.164)
<PER-SHARE-DIVIDEND> (0.810)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.909
<EXPENSE-RATIO> 0.96
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> T.F.H.I. CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 1,139,467,894<F1>
<INVESTMENTS-AT-VALUE> 1,124,678,467<F1>
<RECEIVABLES> 33,774,125<F1>
<ASSETS-OTHER> 61,559<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,158,514,151<F1>
<PAYABLE-FOR-SECURITIES> 56,343,428<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 12,912,777<F1>
<TOTAL-LIABILITIES> 69,256,205<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 300,435,113
<SHARES-COMMON-STOCK> 20,318,857
<SHARES-COMMON-PRIOR> 18,554,723
<ACCUMULATED-NII-CURRENT> (9,871,263)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (103,979,553)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,964,340)<F1>
<NET-ASSETS> 282,513,282
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 73,249,612<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (13,743,601)<F1>
<NET-INVESTMENT-INCOME> 59,506,011<F1>
<REALIZED-GAINS-CURRENT> (8,381,192)<F1>
<APPREC-INCREASE-CURRENT> (82,290,513)<F1>
<NET-CHANGE-FROM-OPS> (31,165,694)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (14,016,298)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,333,895
<NUMBER-OF-SHARES-REDEEMED> (2,963,915)
<SHARES-REINVESTED> 394,154
<NET-CHANGE-IN-ASSETS> (18,215,766)
<ACCUMULATED-NII-PRIOR> (9,019,837)<F1>
<ACCUMULATED-GAINS-PRIOR> (95,598,361)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,384,470<F1>
<INTEREST-EXPENSE> 654,836<F1>
<GROSS-EXPENSE> 13,119,032<F1>
<AVERAGE-NET-ASSETS> 293,967,790
<PER-SHARE-NAV-BEGIN> 15.071
<PER-SHARE-NII> 0.686
<PER-SHARE-GAIN-APPREC> (1.156)
<PER-SHARE-DIVIDEND> (0.697)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.904
<EXPENSE-RATIO> 1.73
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> T.F.H.I. CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 1,139,467,894<F1>
<INVESTMENTS-AT-VALUE> 1,124,678,467<F1>
<RECEIVABLES> 33,774,125<F1>
<ASSETS-OTHER> 61,559<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,158,514,151<F1>
<PAYABLE-FOR-SECURITIES> 56,343,428<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 12,912,777<F1>
<TOTAL-LIABILITIES> 69,256,205<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,840,415
<SHARES-COMMON-STOCK> 4,424,055
<SHARES-COMMON-PRIOR> 4,194,703
<ACCUMULATED-NII-CURRENT> (9,871,263)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (103,979,553)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (13,964,340)<F1>
<NET-ASSETS> 61,511,978
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 73,249,612<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (13,743,601)<F1>
<NET-INVESTMENT-INCOME> 59,506,011<F1>
<REALIZED-GAINS-CURRENT> (8,381,192)<F1>
<APPREC-INCREASE-CURRENT> (82,290,513)<F1>
<NET-CHANGE-FROM-OPS> (31,165,694)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,272,185)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,466,836
<NUMBER-OF-SHARES-REDEEMED> (1,363,307)
<SHARES-REINVESTED> 125,823
<NET-CHANGE-IN-ASSETS> (11,256,345)
<ACCUMULATED-NII-PRIOR> (9,019,837)<F1>
<ACCUMULATED-GAINS-PRIOR> (95,598,361)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,384,470<F1>
<INTEREST-EXPENSE> 654,836<F1>
<GROSS-EXPENSE> 13,119,032<F1>
<AVERAGE-NET-ASSETS> 68,711,388
<PER-SHARE-NAV-BEGIN> 15.069
<PER-SHARE-NII> 0.686
<PER-SHARE-GAIN-APPREC> (1.154)
<PER-SHARE-DIVIDEND> (0.697)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.904
<EXPENSE-RATIO> 1.73
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> CAL INS CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 214,561,590<F1>
<INVESTMENTS-AT-VALUE> 215,885,663<F1>
<RECEIVABLES> 5,965,627<F1>
<ASSETS-OTHER> 27,267<F1>
<OTHER-ITEMS-ASSETS> 58,828<F1>
<TOTAL-ASSETS> 221,937,385<F1>
<PAYABLE-FOR-SECURITIES> 6,143,187<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,080,608<F1>
<TOTAL-LIABILITIES> 7,223,795<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,907,170
<SHARES-COMMON-STOCK> 9,374,835
<SHARES-COMMON-PRIOR> 8,043,260
<ACCUMULATED-NII-CURRENT> (276,952)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,628,449)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,324,073<F1>
<NET-ASSETS> 161,956,847
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 11,476,894<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,338,959)<F1>
<NET-INVESTMENT-INCOME> 9,137,935<F1>
<REALIZED-GAINS-CURRENT> 559,638<F1>
<APPREC-INCREASE-CURRENT> (17,714,915)<F1>
<NET-CHANGE-FROM-OPS> (8,017,342)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (7,590,523)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,206,388
<NUMBER-OF-SHARES-REDEEMED> (7,118,589)
<SHARES-REINVESTED> 243,776
<NET-CHANGE-IN-ASSETS> 10,997,742
<ACCUMULATED-NII-PRIOR> 252,535<F1>
<ACCUMULATED-GAINS-PRIOR> (2,188,087)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 998,839<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,348,374<F1>
<AVERAGE-NET-ASSETS> 159,324,456
<PER-SHARE-NAV-BEGIN> 18.768
<PER-SHARE-NII> 0.824
<PER-SHARE-GAIN-APPREC> (1.447)
<PER-SHARE-DIVIDEND> (0.869)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.276
<EXPENSE-RATIO> 0.92
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 32
<NAME> CAL INS CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 214,561,590<F1>
<INVESTMENTS-AT-VALUE> 215,885,663<F1>
<RECEIVABLES> 5,965,627<F1>
<ASSETS-OTHER> 27,267<F1>
<OTHER-ITEMS-ASSETS> 58,828<F1>
<TOTAL-ASSETS> 221,937,385<F1>
<PAYABLE-FOR-SECURITIES> 6,143,187<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,080,608<F1>
<TOTAL-LIABILITIES> 7,223,795<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,220,345
<SHARES-COMMON-STOCK> 2,625,524
<SHARES-COMMON-PRIOR> 2,140,606
<ACCUMULATED-NII-CURRENT> (276,952)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,628,449)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,324,073<F1>
<NET-ASSETS> 45,317,715
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 11,476,894<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,338,959)<F1>
<NET-INVESTMENT-INCOME> 9,137,935<F1>
<REALIZED-GAINS-CURRENT> 559,638<F1>
<APPREC-INCREASE-CURRENT> (17,714,915)<F1>
<NET-CHANGE-FROM-OPS> (8,017,342)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,810,361)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 905,506
<NUMBER-OF-SHARES-REDEEMED> (486,135)
<SHARES-REINVESTED> 65,547
<NET-CHANGE-IN-ASSETS> 5,164,656
<ACCUMULATED-NII-PRIOR> 252,535<F1>
<ACCUMULATED-GAINS-PRIOR> (2,188,087)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 998,839<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,348,374<F1>
<AVERAGE-NET-ASSETS> 44,856,949
<PER-SHARE-NAV-BEGIN> 18.758
<PER-SHARE-NII> 0.684
<PER-SHARE-GAIN-APPREC> (1.447)
<PER-SHARE-DIVIDEND> (0.735)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.260
<EXPENSE-RATIO> 1.68
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 33
<NAME> CAL INS CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 214,561,590<F1>
<INVESTMENTS-AT-VALUE> 215,885,663<F1>
<RECEIVABLES> 5,965,627<F1>
<ASSETS-OTHER> 27,267<F1>
<OTHER-ITEMS-ASSETS> 58,828<F1>
<TOTAL-ASSETS> 221,937,385<F1>
<PAYABLE-FOR-SECURITIES> 6,143,187<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,080,608<F1>
<TOTAL-LIABILITIES> 7,223,795<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,167,403
<SHARES-COMMON-STOCK> 431,087
<SHARES-COMMON-PRIOR> 254,972
<ACCUMULATED-NII-CURRENT> (276,952)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,628,449)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 1,324,073<F1>
<NET-ASSETS> 7,439,028
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 11,476,894<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,338,959)<F1>
<NET-INVESTMENT-INCOME> 9,137,935<F1>
<REALIZED-GAINS-CURRENT> 559,638<F1>
<APPREC-INCREASE-CURRENT> (17,714,915)<F1>
<NET-CHANGE-FROM-OPS> (8,017,342)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (266,538)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 298,867
<NUMBER-OF-SHARES-REDEEMED> (131,471)
<SHARES-REINVESTED> 8,719
<NET-CHANGE-IN-ASSETS> 2,657,059
<ACCUMULATED-NII-PRIOR> 252,535<F1>
<ACCUMULATED-GAINS-PRIOR> (2,188,087)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 998,839<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,348,374<F1>
<AVERAGE-NET-ASSETS> 6,600,297
<PER-SHARE-NAV-BEGIN> 18.754
<PER-SHARE-NII> 0.694
<PER-SHARE-GAIN-APPREC> (1.457)
<PER-SHARE-DIVIDEND> (0.735)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.256
<EXPENSE-RATIO> 1.69
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 41
<NAME> MUNI INC CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 971,829,318<F1>
<INVESTMENTS-AT-VALUE> 977,418,262<F1>
<RECEIVABLES> 28,751,527<F1>
<ASSETS-OTHER> 52,638<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,006,222,427<F1>
<PAYABLE-FOR-SECURITIES> 79,484,892<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 25,152,571<F1>
<TOTAL-LIABILITIES> 104,637,463<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 784,371,726
<SHARES-COMMON-STOCK> 53,609,969
<SHARES-COMMON-PRIOR> 49,321,491
<ACCUMULATED-NII-CURRENT> 691,607<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (17,122,157)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 6,301,745<F1>
<NET-ASSETS> 777,523,133
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 61,364,894<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (11,326,207)<F1>
<NET-INVESTMENT-INCOME> 50,038,687<F1>
<REALIZED-GAINS-CURRENT> (5,874,518)<F1>
<APPREC-INCREASE-CURRENT> (84,600,975)<F1>
<NET-CHANGE-FROM-OPS> (40,436,806)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (43,701,298)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,553,762
<NUMBER-OF-SHARES-REDEEMED> (43,778,916)
<SHARES-REINVESTED> 1,513,632
<NET-CHANGE-IN-ASSETS> (11,194,254)
<ACCUMULATED-NII-PRIOR> 2,282,049<F1>
<ACCUMULATED-GAINS-PRIOR> (11,247,639)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 4,580,681<F1>
<INTEREST-EXPENSE> 1,462,202<F1>
<GROSS-EXPENSE> 11,357,430<F1>
<AVERAGE-NET-ASSETS> 794,023,242
<PER-SHARE-NAV-BEGIN> 15.991
<PER-SHARE-NII> 0.819
<PER-SHARE-GAIN-APPREC> (1.461)
<PER-SHARE-DIVIDEND> (0.846)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.503
<EXPENSE-RATIO> 0.88
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> MUNI INC CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 971,829,318<F1>
<INVESTMENTS-AT-VALUE> 977,418,262<F1>
<RECEIVABLES> 28,751,527<F1>
<ASSETS-OTHER> 52,638<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,006,222,427<F1>
<PAYABLE-FOR-SECURITIES> 79,484,892<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 25,152,571<F1>
<TOTAL-LIABILITIES> 104,637,463<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 109,009,485
<SHARES-COMMON-STOCK> 7,354,016
<SHARES-COMMON-PRIOR> 12,385,888
<ACCUMULATED-NII-CURRENT> 691,607<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (17,122,157)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 6,301,745<F1>
<NET-ASSETS> 106,559,134
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 61,364,894<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (11,326,207)<F1>
<NET-INVESTMENT-INCOME> 50,038,687<F1>
<REALIZED-GAINS-CURRENT> (5,874,518)<F1>
<APPREC-INCREASE-CURRENT> (84,600,975)<F1>
<NET-CHANGE-FROM-OPS> (40,436,806)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (7,150,083)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,694,567
<NUMBER-OF-SHARES-REDEEMED> (6,966,979)
<SHARES-REINVESTED> 240,540
<NET-CHANGE-IN-ASSETS> (91,388,265)
<ACCUMULATED-NII-PRIOR> 2,282,049<F1>
<ACCUMULATED-GAINS-PRIOR> (11,247,639)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 4,580,681<F1>
<INTEREST-EXPENSE> 1,462,202<F1>
<GROSS-EXPENSE> 11,357,430<F1>
<AVERAGE-NET-ASSETS> 150,795,444
<PER-SHARE-NAV-BEGIN> 15.982
<PER-SHARE-NII> 0.713
<PER-SHARE-GAIN-APPREC> (1.473)
<PER-SHARE-DIVIDEND> (0.732)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.490
<EXPENSE-RATIO> 1.63
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 43
<NAME> MUNI INC CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 971,829,318<F1>
<INVESTMENTS-AT-VALUE> 977,418,262<F1>
<RECEIVABLES> 28,751,527<F1>
<ASSETS-OTHER> 52,638<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,006,222,427<F1>
<PAYABLE-FOR-SECURITIES> 79,484,892<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 25,152,571<F1>
<TOTAL-LIABILITIES> 104,637,463<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 18,332,558
<SHARES-COMMON-STOCK> 1,209,052
<SHARES-COMMON-PRIOR> 971,576
<ACCUMULATED-NII-CURRENT> 691,607<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (17,122,157)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 6,301,745<F1>
<NET-ASSETS> 17,502,697
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 61,364,894<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (11,326,207)<F1>
<NET-INVESTMENT-INCOME> 50,038,687<F1>
<REALIZED-GAINS-CURRENT> (5,874,518)<F1>
<APPREC-INCREASE-CURRENT> (84,600,975)<F1>
<NET-CHANGE-FROM-OPS> (40,436,806)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (777,748)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 554,621
<NUMBER-OF-SHARES-REDEEMED> (345,002)
<SHARES-REINVESTED> 27,857
<NET-CHANGE-IN-ASSETS> 1,992,266
<ACCUMULATED-NII-PRIOR> 2,282,049<F1>
<ACCUMULATED-GAINS-PRIOR> (11,247,639)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 4,580,681<F1>
<INTEREST-EXPENSE> 1,462,202<F1>
<GROSS-EXPENSE> 11,357,430<F1>
<AVERAGE-NET-ASSETS> 16,374,540
<PER-SHARE-NAV-BEGIN> 15.964
<PER-SHARE-NII> 0.699
<PER-SHARE-GAIN-APPREC> (1.455)
<PER-SHARE-DIVIDEND> (0.732)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.476
<EXPENSE-RATIO> 1.63
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 51
<NAME> INTER TERM MUNI A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 46,882,997<F1>
<INVESTMENTS-AT-VALUE> 47,775,637<F1>
<RECEIVABLES> 1,327,996<F1>
<ASSETS-OTHER> 1,741<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 49,105,374<F1>
<PAYABLE-FOR-SECURITIES> 3,106,745<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 466,913<F1>
<TOTAL-LIABILITIES> 3,573,658<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,626,819
<SHARES-COMMON-STOCK> 2,886,338
<SHARES-COMMON-PRIOR> 1,918,546
<ACCUMULATED-NII-CURRENT> (94,570)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (181,332)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 892,640<F1>
<NET-ASSETS> 29,498,083
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,546,686<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (698,063)<F1>
<NET-INVESTMENT-INCOME> 1,848,623<F1>
<REALIZED-GAINS-CURRENT> 118,720<F1>
<APPREC-INCREASE-CURRENT> (2,191,813)<F1>
<NET-CHANGE-FROM-OPS> (224,470)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,205,493)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,523,720
<NUMBER-OF-SHARES-REDEEMED> (633,044)
<SHARES-REINVESTED> 77,116
<NET-CHANGE-IN-ASSETS> 8,916,921
<ACCUMULATED-NII-PRIOR> 32,934<F1>
<ACCUMULATED-GAINS-PRIOR> (300,052)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 220,587<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 698,063<F1>
<AVERAGE-NET-ASSETS> 25,150,079
<PER-SHARE-NAV-BEGIN> 10.728
<PER-SHARE-NII> 0.471
<PER-SHARE-GAIN-APPREC> (0.475)
<PER-SHARE-DIVIDEND> (0.504)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.220
<EXPENSE-RATIO> 1.28
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 52
<NAME> INTER TERM MUNI B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 46,882,997<F1>
<INVESTMENTS-AT-VALUE> 47,775,637<F1>
<RECEIVABLES> 1,327,996<F1>
<ASSETS-OTHER> 1,741<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 49,105,374<F1>
<PAYABLE-FOR-SECURITIES> 3,106,745<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 466,913<F1>
<TOTAL-LIABILITIES> 3,573,658<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,940,594
<SHARES-COMMON-STOCK> 1,023,439
<SHARES-COMMON-PRIOR> 1,417,778
<ACCUMULATED-NII-CURRENT> (94,570)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (181,332)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 892,640<F1>
<NET-ASSETS> 10,442,070
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,546,686<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (698,063)<F1>
<NET-INVESTMENT-INCOME> 1,848,623<F1>
<REALIZED-GAINS-CURRENT> 118,720<F1>
<APPREC-INCREASE-CURRENT> (2,191,813)<F1>
<NET-CHANGE-FROM-OPS> (224,470)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (581,561)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 283,297
<NUMBER-OF-SHARES-REDEEMED> (708,231)
<SHARES-REINVESTED> 30,595
<NET-CHANGE-IN-ASSETS> (4,747,614)
<ACCUMULATED-NII-PRIOR> 32,934<F1>
<ACCUMULATED-GAINS-PRIOR> (300,052)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 220,587<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 698,063<F1>
<AVERAGE-NET-ASSETS> 14,351,360
<PER-SHARE-NAV-BEGIN> 10.714
<PER-SHARE-NII> 0.392
<PER-SHARE-GAIN-APPREC> (0.475)
<PER-SHARE-DIVIDEND> (0.428)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.203
<EXPENSE-RATIO> 1.97
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 53
<NAME> INTER TERM MUNI C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 46,882,997<F1>
<INVESTMENTS-AT-VALUE> 47,775,637<F1>
<RECEIVABLES> 1,327,996<F1>
<ASSETS-OTHER> 1,741<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 49,105,374<F1>
<PAYABLE-FOR-SECURITIES> 3,106,745<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 466,913<F1>
<TOTAL-LIABILITIES> 3,573,658<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,347,565
<SHARES-COMMON-STOCK> 548,062
<SHARES-COMMON-PRIOR> 307,071
<ACCUMULATED-NII-CURRENT> (94,570)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (181,332)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 892,640<F1>
<NET-ASSETS> 5,591,563
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,546,686<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (698,063)<F1>
<NET-INVESTMENT-INCOME> 1,848,623<F1>
<REALIZED-GAINS-CURRENT> 118,720<F1>
<APPREC-INCREASE-CURRENT> (2,191,813)<F1>
<NET-CHANGE-FROM-OPS> (224,470)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (189,073)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 315,962
<NUMBER-OF-SHARES-REDEEMED> (89,710)
<SHARES-REINVESTED> 14,739
<NET-CHANGE-IN-ASSETS> 2,302,194
<ACCUMULATED-NII-PRIOR> 32,934<F1>
<ACCUMULATED-GAINS-PRIOR> (300,052)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 220,587<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 698,063<F1>
<AVERAGE-NET-ASSETS> 4,642,466
<PER-SHARE-NAV-BEGIN> 10.712
<PER-SHARE-NII> 0.399
<PER-SHARE-GAIN-APPREC> (0.481)
<PER-SHARE-DIVIDEND> (0.428)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.202
<EXPENSE-RATIO> 2.02
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
</LEGEND>
<SERIES>
<NUMBER> 61
<NAME> FLORIDA INSURED A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 70,943,300<F1>
<INVESTMENTS-AT-VALUE> 70,486,649<F1>
<RECEIVABLES> 5,577,962<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 40,148<F1>
<TOTAL-ASSETS> 76,104,759<F1>
<PAYABLE-FOR-SECURITIES> 3,758,202<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 437,855<F1>
<TOTAL-LIABILITIES> 4,196,057<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,884,308
<SHARES-COMMON-STOCK> 2,731,287
<SHARES-COMMON-PRIOR> 1,703,029
<ACCUMULATED-NII-CURRENT> (57,917)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,233,255)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (456,651)<F1>
<NET-ASSETS> 39,811,908
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,418,318<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (460,149)<F1>
<NET-INVESTMENT-INCOME> 2,958,169<F1>
<REALIZED-GAINS-CURRENT> (950,468)<F1>
<APPREC-INCREASE-CURRENT> (5,047,000)<F1>
<NET-CHANGE-FROM-OPS> (3,039,299)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,709,865)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,535,773
<NUMBER-OF-SHARES-REDEEMED> (560,294)
<SHARES-REINVESTED> 52,779
<NET-CHANGE-IN-ASSETS> 12,697,922
<ACCUMULATED-NII-PRIOR> (58,017)<F1>
<ACCUMULATED-GAINS-PRIOR> (282,787)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 319,038<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 929,964<F1>
<AVERAGE-NET-ASSETS> 34,371,855
<PER-SHARE-NAV-BEGIN> 15.921
<PER-SHARE-NII> 0.778
<PER-SHARE-GAIN-APPREC> (1.353)
<PER-SHARE-DIVIDEND> (0.770)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.576
<EXPENSE-RATIO> 0.37
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
</LEGEND>
<SERIES>
<NUMBER> 62
<NAME> FLORIDA INSURED B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 70,943,300<F1>
<INVESTMENTS-AT-VALUE> 70,486,649<F1>
<RECEIVABLES> 5,577,962<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 40,148<F1>
<TOTAL-ASSETS> 76,104,759<F1>
<PAYABLE-FOR-SECURITIES> 3,758,202<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 437,855<F1>
<TOTAL-LIABILITIES> 4,196,057<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,507,619
<SHARES-COMMON-STOCK> 1,988,805
<SHARES-COMMON-PRIOR> 1,482,836
<ACCUMULATED-NII-CURRENT> (57,917)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,233,255)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (456,651)<F1>
<NET-ASSETS> 28,990,141
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,418,318<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (460,149)<F1>
<NET-INVESTMENT-INCOME> 2,958,169<F1>
<REALIZED-GAINS-CURRENT> (950,468)<F1>
<APPREC-INCREASE-CURRENT> (5,047,000)<F1>
<NET-CHANGE-FROM-OPS> (3,039,299)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,147,849)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 915,485
<NUMBER-OF-SHARES-REDEEMED> (441,657)
<SHARES-REINVESTED> 32,141
<NET-CHANGE-IN-ASSETS> 5,375,785
<ACCUMULATED-NII-PRIOR> (58,071)<F1>
<ACCUMULATED-GAINS-PRIOR> (282,787)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 319,038<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 929,964<F1>
<AVERAGE-NET-ASSETS> 27,110,007
<PER-SHARE-NAV-BEGIN> 15.925
<PER-SHARE-NII> 0.658
<PER-SHARE-GAIN-APPREC> (1.350)
<PER-SHARE-DIVIDEND> (0.656)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.577
<EXPENSE-RATIO> 1.13
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
</LEGEND>
<SERIES>
<NUMBER> 63
<NAME> FLORIDA INSURED C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 70,943,300<F1>
<INVESTMENTS-AT-VALUE> 70,486,649<F1>
<RECEIVABLES> 5,577,962<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 40,148<F1>
<TOTAL-ASSETS> 76,104,759<F1>
<PAYABLE-FOR-SECURITIES> 3,758,202<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 437,855<F1>
<TOTAL-LIABILITIES> 4,196,057<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,264,598
<SHARES-COMMON-STOCK> 212,904
<SHARES-COMMON-PRIOR> 101,774
<ACCUMULATED-NII-CURRENT> (57,917)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (1,233,255)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (456,651)<F1>
<NET-ASSETS> 3,106,653
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,418,318<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (460,149)<F1>
<NET-INVESTMENT-INCOME> 2,958,169<F1>
<REALIZED-GAINS-CURRENT> (950,468)<F1>
<APPREC-INCREASE-CURRENT> (5,047,000)<F1>
<NET-CHANGE-FROM-OPS> (3,039,299)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (100,301)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 186,134
<NUMBER-OF-SHARES-REDEEMED> (78,013)
<SHARES-REINVESTED> 3,009
<NET-CHANGE-IN-ASSETS> 1,484,234
<ACCUMULATED-NII-PRIOR> (58,071)<F1>
<ACCUMULATED-GAINS-PRIOR> (282,787)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 319,038<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 929,964<F1>
<AVERAGE-NET-ASSETS> 2,338,890
<PER-SHARE-NAV-BEGIN> 15.941
<PER-SHARE-NII> 0.662
<PER-SHARE-GAIN-APPREC> (1.355)
<PER-SHARE-DIVIDEND> (0.656)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.592
<EXPENSE-RATIO> 1.14
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 81
<NAME> N.Y.T.F. CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 74,876,539<F1>
<INVESTMENTS-AT-VALUE> 73,164,907<F1>
<RECEIVABLES> 1,219,401<F1>
<ASSETS-OTHER> 2,922<F1>
<OTHER-ITEMS-ASSETS> 83,986<F1>
<TOTAL-ASSETS> 74,471,216<F1>
<PAYABLE-FOR-SECURITIES> 4,067,364<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 449,067<F1>
<TOTAL-LIABILITIES> 4,516,431<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37,735,427
<SHARES-COMMON-STOCK> 2,450,569
<SHARES-COMMON-PRIOR> 1,541,195
<ACCUMULATED-NII-CURRENT> (31,689)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (90,344)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,711,632)<F1>
<NET-ASSETS> 36,607,970
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,160,479<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (402,164)<F1>
<NET-INVESTMENT-INCOME> 2,758,315<F1>
<REALIZED-GAINS-CURRENT> (81,746)<F1>
<APPREC-INCREASE-CURRENT> (4,877,763)<F1>
<NET-CHANGE-FROM-OPS> (2,201,194)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,566,371)
<DISTRIBUTIONS-OF-GAINS> (147,076)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,174,020
<NUMBER-OF-SHARES-REDEEMED> (347,401)
<SHARES-REINVESTED> 82,755
<NET-CHANGE-IN-ASSETS> 6,520,019
<ACCUMULATED-NII-PRIOR> (15,670)<F1>
<ACCUMULATED-GAINS-PRIOR> 271,913<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 153,859<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 244,010<F1>
<AVERAGE-NET-ASSETS> 31,151,496
<PER-SHARE-NAV-BEGIN> 16.223
<PER-SHARE-NII> 0.794
<PER-SHARE-GAIN-APPREC> (1.198)
<PER-SHARE-DIVIDEND> (0.792)
<PER-SHARE-DISTRIBUTIONS> (0.088)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.939
<EXPENSE-RATIO> 0.33
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 82
<NAME> N.Y.T.F. CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 74,876,539<F1>
<INVESTMENTS-AT-VALUE> 73,164,907<F1>
<RECEIVABLES> 1,219,401<F1>
<ASSETS-OTHER> 2,922<F1>
<OTHER-ITEMS-ASSETS> 83,986<F1>
<TOTAL-ASSETS> 74,471,216<F1>
<PAYABLE-FOR-SECURITIES> 4,067,364<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 449,067<F1>
<TOTAL-LIABILITIES> 4,516,431<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,665,275
<SHARES-COMMON-STOCK> 1,891,680
<SHARES-COMMON-PRIOR> 1,169,362
<ACCUMULATED-NII-CURRENT> (31,689)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (90,344)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,711,632)<F1>
<NET-ASSETS> 28,214,424
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,160,479<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (402,164)<F1>
<NET-INVESTMENT-INCOME> 2,758,315<F1>
<REALIZED-GAINS-CURRENT> (81,746)<F1>
<APPREC-INCREASE-CURRENT> (4,877,763)<F1>
<NET-CHANGE-FROM-OPS> (2,201,194)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,029,529)
<DISTRIBUTIONS-OF-GAINS> (116,190)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 984,624
<NUMBER-OF-SHARES-REDEEMED> (302,183)
<SHARES-REINVESTED> 39,877
<NET-CHANGE-IN-ASSETS> 4,436,129
<ACCUMULATED-NII-PRIOR> (15,670)<F1>
<ACCUMULATED-GAINS-PRIOR> 271,913<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 153,859<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 244,010<F1>
<AVERAGE-NET-ASSETS> 23,726,562
<PER-SHARE-NAV-BEGIN> 16.208
<PER-SHARE-NII> 0.679
<PER-SHARE-GAIN-APPREC> (1.200)
<PER-SHARE-DIVIDEND> (0.684)
<PER-SHARE-DISTRIBUTIONS> (0.088)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.915
<EXPENSE-RATIO> 1.08
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 83
<NAME> N.Y.T.F. CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 74,876,539<F1>
<INVESTMENTS-AT-VALUE> 73,164,907<F1>
<RECEIVABLES> 1,219,401<F1>
<ASSETS-OTHER> 2,922<F1>
<OTHER-ITEMS-ASSETS> 83,986<F1>
<TOTAL-ASSETS> 74,471,216<F1>
<PAYABLE-FOR-SECURITIES> 4,067,364<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 449,067<F1>
<TOTAL-LIABILITIES> 4,516,431<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,387,748
<SHARES-COMMON-STOCK> 344,046
<SHARES-COMMON-PRIOR> 193,648
<ACCUMULATED-NII-CURRENT> (31,689)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (90,344)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,711,632)<F1>
<NET-ASSETS> 5,132,391
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,160,479<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (402,164)<F1>
<NET-INVESTMENT-INCOME> 2,758,315<F1>
<REALIZED-GAINS-CURRENT> (81,746)<F1>
<APPREC-INCREASE-CURRENT> (4,877,763)<F1>
<NET-CHANGE-FROM-OPS> (2,201,194)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (178,434)
<DISTRIBUTIONS-OF-GAINS> (17,245)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 195,063
<NUMBER-OF-SHARES-REDEEMED> (53,303)
<SHARES-REINVESTED> 8,638
<NET-CHANGE-IN-ASSETS> 854,209
<ACCUMULATED-NII-PRIOR> (15,670)<F1>
<ACCUMULATED-GAINS-PRIOR> 271,913<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 153,859<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 244,010<F1>
<AVERAGE-NET-ASSETS> 4,109,632
<PER-SHARE-NAV-BEGIN> 16.204
<PER-SHARE-NII> 0.682
<PER-SHARE-GAIN-APPREC> (1.196)
<PER-SHARE-DIVIDEND> (0.684)
<PER-SHARE-DISTRIBUTIONS> (0.088)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.918
<EXPENSE-RATIO> 1.08
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
