<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE STATES 6
TOP FIVE INDUSTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 30
NOTES TO FINANCIAL STATEMENTS 36
FUND OFFICERS AND IMPORTANT ADDRESSES 44
RESULTS OF SHAREHOLDER VOTES 45
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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 SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 2.39% 1.97% 1.86%
- -------------------------------------------------------------------------
Six-month total return(2) (2.47%) (2.02%) 0.86%
- -------------------------------------------------------------------------
One-year total return(2) (6.70%) (6.54%) (3.85%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 3.99% 3.96% 4.19%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 5.90% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.90% 3.83% 3.49%
- -------------------------------------------------------------------------
Commencement date 12/14/84 05/03/93 08/13/93
- -------------------------------------------------------------------------
Distribution rate(3) 4.69% 4.12% 4.13%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 7.33% 6.44% 6.45%
- -------------------------------------------------------------------------
SEC Yield(5) 5.16% 4.63% 4.63%
- -------------------------------------------------------------------------
</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 Class A shares) or
contingent deferred sales charge ("CDSC") for Class B and C shares. On purchases
of Class A shares of $1 million or more, a CDSC of 1% may be imposed on certain
redemptions made within one year of purchase. Returns for Class B shares are
calculated without the effect of the maximum 4% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the sixth year. Returns for Class C shares are calculated without the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase. If the sales charges were included, total returns would be
lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C shares.
On purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated with the effect of the maximum 4% CDSC, charged on
certain redemptions made within one year of purchase and declining thereafter to
0% after the sixth year. Returns for Class C shares are calculated with the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase.
(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%.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 5
Continued from page 3.
(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 March 31, 2000.
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.
See the Risk/Return Summary section of the current prospectus. There is no
assurance the Fund will achieve its investment objective. The Fund is subject to
investment risks. These risks include, but are not limited to: market risk--the
possibility that the market values of securities owned by the Fund will decline:
credit risk--refers to an issuer's ability to make timely payments of interest
or principal; income risk--the possibility that the income or return of the Fund
may decline due to changes in interest rates; call risk--the possibility that
the issuer will prepay their securities before maturity; municipal securities
risk--the possibility that yields on municipal securities may move differently
than the overall debt securities market; derivative investments risk--a
derivative investment is one whose value depends on (or is derived from) the
value of an underlying asset, interest rate or index and involves risks
different from investment in the underlying security; and manager
risk--management may not be successful in selecting the best performing
securities and the Fund's performance may lag behind that of similar funds.
Please read the Fund's prospectus for more detailed information. Fund shares,
when redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results. Investment return and net asset
value will fluctuate with market conditions.
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.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of March 31, 2000
<S> <C> <C>
- - AAA/Aaa............ 100%
[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- - AAA/Aaa............ 100%
[PIE CHART]
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
--------- -------------
<S> <C> <C>
10/99 0.0740 0.0000
11/99 0.0740 0.0000
12/99 0.0740 0.0046
1/00 0.0740 0.0000
2/00 0.0740 0.0000
3/00 0.0740 0.0000
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 7
TOP FIVE STATES
(as a percentage of long-term investments--March 31, 2000)
<TABLE>
<S> <C> <C>
Illinois 19.9%
- ---------------------------------------------------------------------
California 10.4%
- ---------------------------------------------------------------------
Texas 7.4%
- ---------------------------------------------------------------------
New York 6.5%
- ---------------------------------------------------------------------
Alabama 5.7%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
General Purpose 15.9 13.8
Health Care 14.4 16.1
Public Building 12.3 10.6
Retail Elec/Gas/Telephone 10.6 9.3
Public Education 9.1 11.1
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN INSURED
TAX FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE JOSEPH PIRARO,
PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1992 AND HAS WORKED IN THE
INVESTMENT INDUSTRY SINCE 1971. HE IS JOINED BY PETER W. HEGEL, CHIEF INVESTMENT
OFFICER FOR FIXED-INCOME INVESTMENTS. THE FOLLOWING DISCUSSION REFLECTS THEIR
VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED MARCH 31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
decline as interest rates rise, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate, a key short-term borrowing rate, to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding Treasury debt.
Q HOW DID THE MUNICIPAL
MARKET RESPOND?
A The performance of municipal
bonds has typically correlated to a degree with the taxable Treasury bond
market. Unfortunately, municipals lagged Treasuries in the fourth quarter of
1999. Widespread year 2000 (Y2K) jitters and a strong supply of municipal bond
issuance put a damper on nearly every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are actively making tax-related adjustments to their investment
program. But this year, investors were worried about higher interest rates and
potential Y2K fallout early in the year, so they avoided or pulled out of the
municipal market. Consequently, many municipal bond funds had negative returns
for January.
7
<PAGE> 9
Municipal bond funds in general have been losing assets lately because
they're competing with the soaring stock market for investors' interest. Also,
investors were rattled by recent negative returns from municipal bonds and the
threat of even higher interest rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. With the strength of the economy, fewer issuers see the need to insure
their bonds, so supply in the insured market, which accounted for roughly 50
percent of all new issuance about a year ago, now represents just over 40
percent of the market. The combination of a strong Treasury bond market and the
lack of supply in municipals helped make February and March positive months for
the fixed-income markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of their municipal bond investments
while still earning an attractive level of income.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A We've seen tough times in the
health-care sector. With the uncertainties involved in managed care--who pays
for what and how much--and the rising cost of services, many health-care
providers are under tremendous profitability pressures. In this situation,
investors have become concerned about the creditworthiness of the bond issuers,
and many of them shied away from this sector of the market.
Even within the insured sector, the impact of this uncertainty is evident.
The yield spread between insured health-care issues and insured bonds in other
sectors increased to 15 basis points, up from 5 basis points, over the past six
months. This suggests that investors want a higher yield to compensate for the
higher perceived credit risk of investing in health-care bonds--even those that
are insured. It appears that bad news has tainted the group as a whole, so
investors are less comfortable investing within this sector.
8
<PAGE> 10
Q HOW DID THESE FACTORS AFFECT
THE WAY YOU MANAGED THE FUND'S PORTFOLIO?
A Our research analysts have been
wary of the health-care sector for some time. We had anticipated weakness as
early as last summer, so we systematically reduced the Fund's holdings in this
sector, starting in the third quarter of 1999 and continuing into the first
quarter of 2000.
At the end of the reporting period, the Fund's health-care holdings
represented approximately 14 percent of the Fund's long-term investments, our
lowest allocation to the health-care sector since the inception of the Fund. We
believe paring down our holdings in this troubled sector boosted the Fund's
performance during the six-month reporting period.
In general, we have been forced to invest more selectively due to low supply
in the insured municipal bond market, so we rely on our research capabilities to
examine the underlying credits and sectors, even though these are insured
issues.
On the downside, the composition of the Fund's portfolio made it somewhat
vulnerable to losses when interest rates began to move higher. The Fund's
duration (a measure of its sensitivity to changes in interest rates) turned out
to be too high during the first half of the reporting period, but we were able
to adjust it downward in the first quarter of 2000.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A For the reporting period, the
Fund's total return was above the average for its peer group, primarily because
we reduced our holdings in the health-care sector and shortened the Fund's
duration. As of March 31, 2000, the Fund achieved a six-month total return of
2.39 percent (Class A shares at net asset value; if the maximum sales charge of
4.75 percent were included, the return would have been lower). By comparison,
the Lehman Brothers Municipal Bond Index produced a total return of 2.63 percent
for the same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance is no guarantee of future results.
9
<PAGE> 11
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from federal income tax, rather than investing for capital
appreciation.
The Fund's monthly tax-exempt dividend remained stable throughout the
reporting period at $0.074 per Class A share, and its distribution rate stood at
4.69 percent as of March 31, 2000. With this in mind, we'd like to point out
that investors would have to earn a distribution rate of 7.33 percent on a
taxable investment (for an investor in the 36 percent federal income tax
bracket) to match the tax-exempt yield provided by the Fund.
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
As the economy continues to be strong, many bond issuers have enjoyed
surpluses, causing less need to issue new debt. A continuation of weak supply
could lend price support to the municipal market as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three more interest-rate
hikes within the next quarter or two.
To deal with these factors, the Fund will be managed to maintain a neutral
duration based on the future direction of rates. Going forward, we will continue
to manage the Fund with a long-term perspective, relying on our research.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each are
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest
rate movements on net asset value. Typically, funds with shorter durations have
performed better in rising-rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA rated. Recently, an A rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 13
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 97.9%
ALABAMA 5.6%
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty
College (MBIA Insd)...................... 6.000% 10/01/14 $ 2,338,785
1,955 Alabama Wtr Pollutn Ctl Auth Revolving Fd
Ln Ser A (AMBAC Insd).................... 6.750 08/15/17 2,078,830
2,500 Houston Cnty, AL Hlthcare (AMBAC Insd)... 6.250 10/01/30 2,560,875
41,390 Jefferson Cnty, AL Swr Rev Cap Impt Ser A
(FGIC Insd).............................. 5.375 02/01/36 37,898,753
1,500 Jefferson Cnty, AL Swr Rev Cap Impt Ser A
(FGIC Insd).............................. 5.125 02/01/39 1,316,685
2,000 Lauderdale Cnty & Florence AL Hlthcare
Auth Rev Eliza Coffee Mem Hosp Rfdg (MBIA
Insd).................................... 5.750 07/01/19 2,087,160
5,000 Montgomery, AL BMC Spl Care Fac Fin Auth
Rev Baptist Hlth Ser B (MBIA Insd)....... 5.000 11/15/29 4,271,250
5,500 Morgan Cnty Decatur, AL Hlthcare Auth
Hosp Rev Decatur Genl Hosp Rfdg (Connie
Lee Insd)................................ 6.250 03/01/13 5,715,435
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev
(FSA Insd)............................... 6.500 04/01/16 2,557,200
3,000 Orange Beach, AL Wtr Swr & Fire
Protection Auth Rev (FSA Insd)........... 5.000 05/15/23 2,666,640
1,400 West Morgan East Lawrence Wtr Auth AL Wtr
Rev (FGIC Insd).......................... 5.625 08/15/21 1,375,990
1,000 West Morgan East Lawrence Wtr Auth AL Wtr
Rev (FGIC Insd).......................... 5.625 08/15/25 974,880
--------------
65,842,483
--------------
ALASKA 0.9%
5,000 Alaska St Hsg Fin Corp Genl Mtg Ser A
(MBIA Insd).............................. 6.000 06/01/49 4,921,050
1,425 Anchorage, AK Wtr Rev Rfdg (AMBAC Insd).. 6.000 09/01/19 1,459,841
8,000 North Slope Boro, AK Cap Apprec Ser A
(MBIA Insd).............................. * 06/30/10 4,596,480
--------------
10,977,371
--------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ARIZONA 1.7%
$ 11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC
Insd).................................... 6.250% 09/01/10 $ 11,450,010
2,400 Mesa, AZ (FGIC Insd)..................... 5.000 07/01/18 2,227,440
1,800 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson Ser A
Rfdg (FSA Insd).......................... 7.250 07/15/10 1,913,562
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale
Mem Hosp Ser A Rfdg (AMBAC Insd)......... 6.000 09/01/12 1,974,769
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale
Mem Hosp Ser A Rfdg (AMBAC Insd)......... 6.125 09/01/17 1,818,372
--------------
19,384,153
--------------
CALIFORNIA 10.2%
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA
Redev Agy Pool Rev Ser A (FSA Insd)...... 6.000 12/15/14 2,972,384
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev
Ser A (MBIA Insd)........................ 5.650 06/01/15 5,021,750
8,435 California Edl Facs Auth Rev Loyola
Marymount Univ (AMBAC Insd).............. * 10/01/27 1,500,418
3,265 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd)............ 8.100 03/01/18 3,306,988
10,000 California St Pub Wks Brd Lease Rev Dept
of Corrections CA St Prison D Susanville
(MBIA Insd).............................. 5.375 06/01/18 9,817,300
2,830 Carlsbad, CA Uni Sch Dist (FGIC Insd).... * 05/01/22 781,137
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd).................................... 6.200 09/01/18 3,118,200
220 Concord, CA Redev Agy Tax Alloc Cent
Concord Redev Proj Ser 3 (BIGI Insd)..... 8.000 07/01/18 221,861
805 Corona Norco, CA Uni Sch Dist Lease Rev
Partn Insd Land Acquis Ser A (FSA
Insd).................................... 6.000 04/15/19 825,214
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn
Fac Refin (FGIC Insd).................... 6.300 09/01/12 1,299,837
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC
Insd).................................... 6.700 08/01/21 481,304
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev
Cap Apprec Cent for the Arts Rfdg (AMBAC
Insd).................................... * 09/01/17 1,939,658
1,500 Folsom, CA Pub Fin Auth 1998 Wtr Proj
(FGIC Insd).............................. 4.875 11/01/18 1,372,890
3,280 Foothill/Eastern Tran Corridor Agy CA
Toll Rd Rev (MBIA Insd).................. 5.125 01/15/19 3,098,255
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 265 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd)......................... 5.750% 08/01/19 $ 276,509
370 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd)......................... 5.800 02/01/21 382,931
320 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd)......................... 5.800 08/01/22 330,349
475 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd)......................... 5.800 02/01/23 488,666
370 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd)......................... 5.800 02/01/24 380,379
6,500 Grossmont, CA Union High Sch Dist Ctfs
Partn (MBIA Insd)........................ * 11/15/21 1,536,405
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp
Leasehold Rev Rfdg (AMBAC Insd).......... 6.000 12/01/16 3,562,930
2,000 Los Angeles Cnty, CA Metro Trans Auth
Sales Tax Rev Prop A First Tier Sr Ser C
(AMBAC Insd)............................. 5.000 07/01/23 1,819,500
9,080 Los Angeles Cnty, CA Metro Trans Auth
Sales Tax Rev Prop C Second Ser Ser A
(FSA Insd)............................... 4.750 07/01/26 7,840,217
3,000 Los Angeles, CA Cmnty Redev Agy Tax Alloc
Bunker Hill Ser H Rfdg (FSA Insd)........ 6.500 12/01/14 3,202,500
5,420 Manteca, CA Redev Agy Tax Alloc Redev
Proj No 1 Ser A Rfdg (MBIA Insd)......... 6.700 10/01/21 5,722,653
2,745 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev (AMBAC Insd).................... * 09/01/20 800,936
2,880 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev (AMBAC Insd).................... * 09/01/21 786,211
2,260 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev (AMBAC Insd).................... * 09/01/29 371,295
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser
F Rfdg (AMBAC Insd)...................... 6.000 07/01/20 2,039,840
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev
Proj Area No 1 Rfdg (MBIA Insd).......... 6.250 03/01/19 14,029,052
2,750 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).................................... 6.250 08/01/15 2,877,847
600 Roseville, CA City Sch Dist Ctfs Partn
Fin Proj (FSA Insd)...................... 4.875 09/01/23 531,120
3,900 Sacramento, CA Muni Util Dist Elec Rev
Ser A Rfdg (MBIA Insd)................... 5.750 08/15/13 3,956,121
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 13,800 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd).............. 6.820% 07/01/16 $ 13,489,500
1,635 Saratoga, CA Union Sch Dist Cap Apprec
Ser B (MBIA Insd)........................ * 03/01/24 400,869
12,600 Southern CA Pub Pwr Auth Transmission
Proj Rev (FSA Insd)...................... 6.000 07/01/12 13,051,836
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp
Rfdg (MBIA Insd)......................... 6.750 01/01/12 2,473,284
3,845 Vista, CA Uni Sch Dist Ctfs Partn Ser A
Rfdg (FSA Insd).......................... * 11/01/17 1,366,475
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax
Rev Cmnty Fac Rfdg (FSA Insd)............ 6.500 09/01/14 2,138,320
--------------
119,612,941
--------------
COLORADO 2.7%
2,365 Arvada, CO Sales & Use Tax Rev (FGIC
Insd).................................... 4.750 12/01/18 2,104,968
17,600 Denver, CO City & Cnty Arpt Rev Ser A
(MBIA Insd).............................. 5.700 11/15/25 17,353,776
3,375 Denver, CO City & Cnty Arpt Rev Ser B
(FSA Insd)............................... 5.000 11/15/25 2,977,999
5,200 Denver, CO City & Cnty Arpt Rev Ser D
Rfdg (MBIA Insd)......................... 5.500 11/15/25 4,989,452
10 Jefferson Cnty, CO Single Family Mtg Rev
Ser A Rfdg (MBIA Insd)................... 8.875 10/01/13 10,392
1,000 Metropolitan Football Stadium Dist CO
Sales Tax Rev Ser B (MBIA Insd).......... * 01/01/06 742,320
2,050 Thornton, CO Rfdg (FGIC Insd)............ * 12/01/11 1,098,472
1,100 Thornton, CO Rfdg (FGIC Insd)............ * 12/01/15 457,424
2,000 Westminster, CO Wtr & Wastewtr Util
Enterprise Rev (AMBAC Insd).............. 6.250 12/01/14 2,095,540
--------------
31,830,343
--------------
DISTRICT OF COLUMBIA 0.1%
1,315 District of Columbia Rev Gonzaga College
High Sch (FSA Insd)...................... 5.375 07/01/19 1,254,234
--------------
FLORIDA 4.7%
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd) (b).......................... 8.000 10/01/03 1,114,878
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd).............................. 8.000 10/01/05 1,354,203
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd).............................. 8.000 10/01/06 1,487,747
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY 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 $ 1,628,949
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC
Insd) (b)................................ 12.000 10/01/04 2,688,723
130 Duval Cnty, FL Hsg Fin Auth Single Family
Mtg Rev Ser C (FGIC Insd)................ 7.650 09/01/10 134,365
530 Duval Cnty, FL Hsg Fin Auth Single Family
Mtg Rev Ser C (FGIC Insd)................ 7.700 09/01/24 546,896
2,000 Florida St Brd of Edl Cap Outlay Pub Edl
Ser B Rfdg (MBIA Insd)................... 4.500 06/01/24 1,656,260
1,410 Florida St Dept Corrections Ctfs Partn
Okeechobee Correctional (AMBAC Insd)..... 6.250 03/01/15 1,477,920
2,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA
Insd).................................... 6.100 10/01/18 2,070,860
1,000 Key West, FL Util Brd Elec Rev Ser D
(AMBAC Insd)............................. * 10/01/13 482,300
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev
(Inverse Fltg) (MBIA Insd)............... 9.164 04/01/20 4,320,000
10,000 Miami Dade Cnty, FL Solid Waste Sys Rev
(AMBAC Insd)............................. 4.750 10/01/18 8,865,000
3,170 Miami Dade Cnty, FL Spl Oblig Ser B (MBIA
Insd).................................... 5.000 10/01/37 2,761,102
6,000 Orange Cnty, FL Hlth Fac Auth Rev
(Inverse Fltg) (MBIA Insd)............... 8.492 10/29/21 6,585,000
2,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn
Ser A (Prerefunded @ 08/01/04) (AMBAC
Insd).................................... 6.375 08/01/15 2,136,420
3,725 Santa Rosa Bay Brdg Auth FL Rev Cap
Apprec (MBIA Insd)....................... * 07/01/18 1,263,036
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee
Mem Regl Med Ser A Rfdg (MBIA Insd)
(b)...................................... 6.625 12/01/13 10,695,100
3,735 Volusia Cnty, FL Edl Fac Auth Rev Edl
Facs Embry Riddle Ser B Rfdg (AMBAC
Insd).................................... 5.250 10/15/19 3,570,137
--------------
54,838,896
--------------
GEORGIA 5.1%
15,000 Atlanta, GA Wtr & Wastewtr Rev Ser A
(FGIC Insd).............................. 5.000 11/01/29 13,149,150
1,095 Association Cnty Commnrs, GA Leasing Pgm
Ctfs Partn Rockdale Cnty GA Pub Purp Proj
(AMBAC Insd)............................. 4.800 07/01/06 1,082,188
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$ 1,275 Association Cnty Commnrs, GA Leasing Pgm
Ctfs Partn Rockdale Cnty GA Pub Purp Proj
(AMBAC Insd)............................. 4.900% 07/01/07 $ 1,263,640
580 Association Cnty Commnrs, GA Leasing Pgm
Ctfs Partn Rockdale Cnty GA Pub Purp Proj
(AMBAC Insd)............................. 5.000 07/01/08 577,825
3,000 Atlanta, GA Arpt Rev Genl Ser A Rfdg
(AMBAC Insd) (a)......................... 5.500 01/01/26 2,864,820
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial
Detention Cent (MBIA Insd)............... 6.250 12/01/17 1,846,985
3,000 Fulton Cnty, GA Facs Corp Ctfs Partn
Fulton Cnty, GA Pub Purp Proj (AMBAC
Insd).................................... 5.000 11/01/08 2,988,480
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B
(BIGI Insd).............................. * 01/01/07 4,587,375
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B
(BIGI Insd).............................. * 01/01/08 3,174,045
15,550 Georgia Muni Elec Auth Pwr Rev Ser Y
(AMBAC Insd) (b)......................... 6.400 01/01/13 17,227,534
10,000 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (b).......................... 6.500 01/01/17 11,172,100
--------------
59,934,142
--------------
HAWAII 1.9%
12,785 Hawaii St Arpt Sys Rev Rfdg (MBIA Insd)
(b)...................................... 6.400 07/01/08 13,520,521
10,250 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd).............................. 4.500 07/01/28 8,210,148
--------------
21,730,669
--------------
ILLINOIS 19.5%
1,000 Berwyn, IL (MBIA Insd)................... 7.000 11/15/10 1,035,620
2,215 Bolingbrook, IL Cap Apprec Ser C Rfdg
(MBIA Insd).............................. * 01/01/19 731,105
2,595 Bolingbrook, IL Cap Apprec Ser C Rfdg
(MBIA Insd).............................. * 01/01/20 802,737
1,695 Champaign Cnty, IL Cmnty Unit Ser C (FGIC
Insd).................................... * 01/01/15 716,883
2,845 Chicago, IL Brd of Edl Cap Apprec Sch
Reform B1 (FGIC Insd).................... * 12/01/19 889,518
10,000 Chicago, IL Brd of Edl Cap Apprec Sch
Reform B1 (FGIC Insd).................... * 12/01/27 1,882,000
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,500 Chicago, IL Brd of Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)................. * 12/01/19 $ 468,990
8,000 Chicago, IL Brd of Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)................. * 12/01/29 1,330,160
5,000 Chicago, IL Brd of Edl Cap Apprec Sch
Reform Ser A (FGIC Insd)................. * 12/01/30 780,250
1,400 Chicago, IL Brd of Edl Chicago Sch Reform
(AMBAC Insd)............................. 5.750% 12/01/20 1,392,342
16,000 Chicago, IL Brd of Edl Chicago Sch Reform
(AMBAC Insd)............................. 5.750 12/01/27 15,694,560
5,000 Chicago, IL Cap Apprec City Colleges
(FGIC Insd).............................. * 01/01/27 1,015,150
2,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd).............................. * 01/01/25 1,345,280
2,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd).............................. * 01/01/29 1,324,880
4,500 Chicago, IL Neighborhoods Alive 21 Pgm
Ser A (FGIC Insd)........................ 5.750 01/01/40 4,372,965
11,475 Chicago, IL Park Dist Ser B (FGIC
Insd).................................... 4.750 01/01/26 9,677,671
25,050 Chicago, IL Proj Rfdg (FGIC Insd)........ 5.250 01/01/28 22,805,770
2,720 Chicago, IL Pub Bldg Comm Bldg Rev
Chicago Transit Auth (AMBAC Insd)........ 6.600 01/01/15 2,877,597
3,150 Chicago, IL Skyway Toll Brdg Rev (MBIA
Insd).................................... 5.500 01/01/23 3,006,265
1,000 Chicago, IL Wastewtr Transmission Rev
(FGIC Insd).............................. 5.125 01/01/25 895,760
1,000 Chicago, IL Waste Transmission Rev Second
Lien (MBIA Insd)......................... 5.750 01/01/25 984,980
3,375 Chicago, IL Waste Transmission Rev Second
Lien (MBIA Insd)......................... 6.000 01/01/30 3,407,906
4,030 Cook Cnty, IL Cap Impt Ser A (FGIC
Insd).................................... 5.000 11/15/28 3,524,356
1,000 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd) (b)....... 8.400 01/01/01 1,030,460
5,550 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)........... 8.750 01/01/03 6,090,570
8,460 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)........... 8.750 01/01/04 9,533,066
2,460 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)........... 8.750 01/01/05 2,840,390
3,500 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd)........... 8.750 01/01/07 4,215,855
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,280 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor (AMBAC Insd)......... * 12/01/05 $ 952,960
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser
A (AMBAC Insd)........................... * 11/01/08 5,284,876
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn
South (FSA Insd)......................... 8.200% 12/01/14 1,912,554
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn
South (FSA Insd)......................... 8.100 12/01/16 2,261,244
1,380 Grundy Cnty, IL Sch Dist No 054 Morris
Ser A (AMBAC Insd)....................... 5.500 12/01/09 1,423,208
1,455 Grundy Cnty, IL Sch Dist No 054 Morris
Ser A (AMBAC Insd)....................... 5.500 12/01/10 1,499,290
1,800 Grundy Cnty, IL Sch Dist No 054 Morris
Ser A (AMBAC Insd)....................... 5.350 12/01/14 1,787,040
1,900 Grundy Cnty, IL Sch Dist No 054 Morris
Ser A (AMBAC Insd)....................... 5.400 12/01/15 1,884,990
1,045 Illinois Dept Cent Mgmt Ctfs Partn (MBIA
Insd).................................... 5.200 07/01/09 1,046,965
4,250 Illinois Dept Cent Mgmt Svcs Ctfs Partn
(MBIA Insd).............................. 5.850 07/01/19 4,279,367
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev
Comwlth Edison Co Proj Ser D Rfdg (AMBAC
Insd) (b)................................ 6.750 03/01/15 10,691,400
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 38,372,950
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm
Rockford Sch 205 (FSA Insd).............. 6.650 02/01/11 2,229,800
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm
Rockford Sch 205 Rfdg (FSA Insd)......... 6.650 02/01/12 5,404,739
5,000 Illinois Hlth Fac Auth Rev Children's Mem
Hosp Ser A (AMBAC Insd).................. 5.625 08/15/19 4,861,800
924 Illinois Hlth Fac Auth Rev Cmnty Prov
Pooled Pgm Ser B (MBIA Insd)............. 7.900 08/15/03 926,735
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters
Svcs (Inverse Fltg) (Prerefunded @
06/07/02) (MBIA Insd).................... 9.068 06/19/15 5,500,000
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth
Proj (Inverse Fltg) (Prerefunded @
05/08/01) (AMBAC Insd)................... 9.466 05/18/21 5,450,000
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,400 Illinois Hlth Fac Auth Rev Rush
Presbyterian Saint Luke Hosp (Inverse
Fltg) (Prerefunded @ 11/01/01) (MBIA
Insd).................................... 9.361% 10/01/24 $ 3,761,250
4,455 Illinois Muni Elec Agy Pwr Supply Sys Rev
Rfdg (FSA Insd).......................... 5.000 02/01/21 3,974,974
1,250 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl Expn
Proj Ser A Rfdg (FGIC Insd).............. 5.375 12/15/18 1,214,013
2,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl Expn
Proj Ser A Rfdg (FGIC Insd).............. 5.500 12/15/24 1,920,280
4,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl Expn
Proj Ser A Rfdg (FGIC Insd).............. 5.250 12/15/28 3,670,360
6,110 Rosemont, IL Tax Increment 3 (FGIC
Insd).................................... * 12/01/06 4,322,336
3,000 Rosemont, IL Tax Increment 3 (FGIC
Insd).................................... * 12/01/07 2,007,360
1,185 Saint Clair Cnty, IL Ctfs Partn (MBIA
Insd).................................... 8.000 12/01/04 1,331,999
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA
Insd).................................... 8.000 12/01/05 1,470,683
4,000 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd).................. * 04/01/19 1,310,520
2,000 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd).................. * 04/01/20 614,300
2,500 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd).................. * 04/01/23 633,300
2,000 Southern Illinois Univ Rev Cap Apprec Hsg
& Aux Ser A (MBIA Insd).................. * 04/01/26 421,440
1,500 Will Cnty, IL Cmnty Unit Sch Dist No 201
Ser C (FSA Insd)......................... * 10/01/13 716,355
1,000 Will Cnty, IL Cmnty Unit Sch Dist No 201
Ser C (FSA Insd)......................... * 10/01/14 447,690
--------------
228,259,864
--------------
INDIANA 1.0%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC
Insd).................................... 9.750 08/01/09 2,461,080
3,275 Indiana Bond Bank Spl Pgm Ser A (AMBAC
Insd).................................... 6.125 02/01/25 3,313,154
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty
Hosps Proj Rfdg & Impt (MBIA Insd)....... 6.400% 05/01/12 $ 5,201,050
1,000 Marion Cnty, IN Convention & Rectl Fac
Auth Excise Tax Rev Lease Rental Ser A
(AMBAC Insd)............................. 7.000 06/01/21 1,043,790
--------------
12,019,074
--------------
IOWA 0.7%
8,095 Iowa Fin Auth Hosp Fac Rev Mercy Med Cent
Proj (FSA Insd).......................... 5.750 08/15/29 7,865,426
--------------
KANSAS 2.1%
18,750 Burlington, KS Pollutn Ctl Rev KS Gas &
Elec Co Proj Rfdg (MBIA Insd) (b)........ 7.000 06/01/31 19,553,438
1,400 Kansas St Dev Fin Auth Rev Ltd Tax Dept
Comm Hsg Rfdg (FSA Insd)................. 4.000 06/01/06 1,299,312
1,000 Kansas St Dev Fin Auth Rev Ltd Tax Dept
Comm Hsg Rfdg (FSA Insd)................. 4.200 06/01/07 934,770
2,880 Saline Cnty, KS Uni Sch Dist No 305
Salina (FSA Insd)........................ 4.250 09/01/08 2,662,819
--------------
24,450,339
--------------
KENTUCKY 0.0%
20 Kentucky Cntys Single Family Mtg
Presbyterian Homes Ser A Rfdg (MBIA
Insd).................................... 8.625 09/01/15 20,037
--------------
LOUISIANA 1.0%
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 4,448,330
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 6,104,622
8,325 New Orleans, LA Home Mtg Auth Single
Family Mtg Rev 1985 Ser A (MBIA Insd).... * 09/15/16 1,461,121
--------------
12,014,073
--------------
MAINE 0.0%
35 Maine Hlth & Higher Edl Fac Auth Rev Ser
B (FSA Insd)............................. 7.100 07/01/14 38,581
--------------
MASSACHUSETTS 0.1%
1,700 Massachusetts St Hlth & Edl Fac Auth Rev
Mt Auburn Hosp Ser B1 (MBIA Insd)........ 6.250 08/15/14 1,780,172
--------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MICHIGAN 4.5%
$ 2,325 Bay City, MI (AMBAC Insd)................ * 06/01/15 $ 992,822
1,000 Bay City, MI (AMBAC Insd)................ * 06/01/16 399,930
4,250 Big Rapids, MI Pub Schs
Dist Rfdg (FSA Insd)..................... 4.750% 05/01/25 3,611,607
1,500 Detroit, MI Ser B (MBIA Insd)............ 5.000 04/01/09 1,487,685
12,270 Detroit, MI City Sch Dist Ser B (FGIC
Insd).................................... 5.000 05/01/21 11,035,761
20,250 Detroit, MI City Sch Dist Ser B (FGIC
Insd).................................... 4.750 05/01/28 17,043,817
3,000 Hazel Park, MI Bldg Auth Ice Arena (AMBAC
Insd).................................... 4.700 04/01/24 2,540,640
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC
Insd).................................... * 05/01/21 5,615,190
1,500 Manistee, MI Area Public Schs (FGIC
Insd).................................... 5.875 05/01/24 1,511,460
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev
Ser B (AMBAC Insd)....................... 4.850 04/01/04 1,984,960
5,000 Mount Clemens, MI Cmnty Sch Dist Cap
Apprec (Prerefunded @ 05/01/07) (MBIA
Insd).................................... * 05/01/17 1,752,650
2,500 Plymouth Canton, MI Cmnty Sch Dist (FSA
Insd).................................... 4.750 05/01/23 2,141,300
2,500 Saginaw Vly St Univ, MI Rev Gen (AMBAC
Insd).................................... 5.300 07/01/28 2,322,525
--------------
52,440,347
--------------
MINNESOTA 0.6%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser
B Rfdg (FSA Insd)........................ 6.650 03/01/17 1,036,160
5,600 Minneapolis-St Paul, MN Hsg & Redev
Auth Hlthcare Sys Rev Hlth One
Ser A (MBIA Insd)........................ 7.400 08/15/11 5,776,736
--------------
6,812,896
--------------
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 1,289,100
--------------
MISSOURI 0.4%
4,585 Missouri St Hlth & Edl Fac Auth (MBIA
Insd).................................... 6.250 06/01/16 4,698,249
115 Saint Louis Cnty, MO Single Family Mtg
Rev (AMBAC Insd)......................... 9.250 10/01/16 116,853
--------------
4,815,102
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
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 $ 1,945,845
--------------
NEVADA 0.9%
1,000 Carson City, NV Hosp Rev Ser B (AMBAC
Insd).................................... 5.400 03/01/17 964,610
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co
Proj Ser C Rfdg (AMBAC Insd)............. 7.200 10/01/22 2,137,320
1,675 Clark Cnty, NV Pub Fac Ser C (FGIC
Insd).................................... 5.000 06/01/24 1,483,011
1,305 Las Vegas, NV Loc Impt Spl Impt Dist No
404 Rfdg (FSA Insd)...................... 4.400 11/01/08 1,203,145
1,095 Las Vegas, NV Loc Impt Spl Impt Dist No
404 Rfdg (FSA Insd)...................... 4.500 11/01/09 1,009,229
4,705 Washoe Cnty, NV Sch Dist (AMBAC Insd).... 4.750 06/01/17 4,183,827
--------------
10,981,142
--------------
NEW HAMPSHIRE 0.2%
2,500 New Hampshire St Tpk Sys Rev Rfdg
(Inverse Fltg) (FGIC Insd)............... 9.323 11/01/17 2,909,375
--------------
NEW JERSEY 0.8%
5,500 Howell Twp, NJ Rfdg (FGIC Insd).......... 6.800 01/01/14 5,768,510
3,625 Morristown, NJ Rfdg (FSA Insd)........... 6.400 08/01/14 3,851,490
--------------
9,620,000
--------------
NEW MEXICO 0.7%
8,000 Farmington, NM Pollutn Ctl Rev Southern
CA Edison Co Ser A Rfdg (MBIA Insd)...... 5.875 06/01/23 8,023,920
--------------
NEW YORK 6.4%
2,000 Long Island Pwr Auth NY Elec Sys Rev Cap
Apprec Gen Ser A (FSA Insd).............. * 12/01/09 1,210,200
8,000 Metropolitan Trans Auth NY Commuter Fac
Rev Ser A (MBIA Insd).................... 5.625 07/01/27 7,776,640
4,350 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd).... 6.375 11/15/14 4,591,860
5,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev (FSA Insd)....................... * 06/15/14 2,295,800
9,845 New York City Ser I (MBIA Insd).......... 4.750 04/15/17 8,789,222
11,220 New York City Transitional Fin Auth Rev
(FGIC Insd).............................. 4.750 11/01/17 10,005,435
3,000 New York St Dorm Auth Lease Rev Muni Hlth
Fac Impt Pgm Ser A (FSA Insd)............ 5.500 05/15/25 2,871,960
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 7,425 New York St Dorm Auth Lease Rev Office
Fac & Audit Ctl (MBIA Insd).............. 5.000% 04/01/29 $ 6,497,543
2,775 New York St Dorm Auth Rev City Univ Ser C
(FGIC Insd).............................. 7.000 07/01/14 2,849,675
5,500 New York St Dorm Auth Rev City Univ Sys
Cons Third Genl 1 (FGIC Insd)............ 5.250 07/01/25 5,083,925
2,500 New York St Dorm Auth Rev City Univ Sys
Cons Third Genl 1 (FSA Insd)............. 5.500 07/01/29 2,389,650
4,700 New York St Dorm Auth Rev Insd Pace Univ
Rfdg (MBIA Insd)......................... 5.750 07/01/26 4,658,640
15 New York St Med Care Fac Fin Agy Rev (FSA
Insd).................................... 6.500 08/15/15 16,008
8,500 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser A Rfdg (FSA
Insd).................................... 6.500 01/01/11 9,463,390
1,500 New York St Urban Dev Corp Rev
Correctional Fac Rfdg (AMBAC Insd)....... 5.250 01/01/18 1,422,705
4,500 New York St Urban Dev Corp Rev
Correctional Fac Rfdg (FSA Insd)......... 5.750 01/01/13 4,584,600
--------------
74,507,253
--------------
NORTH CAROLINA 0.1%
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch
Projs (FGIC Insd)........................ 6.625 06/01/14 1,353,412
--------------
NORTH DAKOTA 0.5%
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope
Vly Station Rfdg (AMBAC Insd)............ 7.200 06/30/13 5,815,950
--------------
OHIO 1.3%
5,000 Clermont Cnty, OH Hosp Fac Rev Muni
(Inverse Fltg) (Prerefunded @ 09/25/01)
(AMBAC Insd)............................. 9.296 10/05/21 5,518,750
9,750 Hamilton Cnty, OH Sales Tax Hamilton Cnty
Football Proj B (MBIA Insd).............. 5.000 12/01/27 8,607,787
1,500 Ohio St Air Quality Dev Auth Rev Pollutn
Ctl Cleveland Co Proj Rfdg (FGIC Insd)... 8.000 12/01/13 1,628,835
--------------
15,755,372
--------------
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OKLAHOMA 1.3%
$ 1,760 McAlester, OK Pub Wks Auth Rev Rfdg &
Impt (FSA Insd).......................... 5.250% 12/01/20 $ 1,799,442
11,000 McAlester, OK Pub Wks Auth Util Sys Rev
(FSA Insd)............................... * 02/01/30 1,718,750
5,660 Mustang, OK Impt Auth Util Rev (FSA
Insd).................................... 5.800 10/01/30 5,667,075
1,600 Oklahoma Hsg Fin Agy Single Family Rev
Mtg Ser A (MBIA Insd).................... 7.200 03/01/11 1,638,128
5,000 Oklahoma St Tpk Auth Rev Second Sr Ser A
(FGIC Insd).............................. 5.000 01/01/14 4,880,650
--------------
15,704,045
--------------
PENNSYLVANIA 3.3%
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev
Pittsburgh Mercy Hlth Sys Inc (AMBAC
Insd).................................... 5.625 08/15/26 4,805,434
11,700 Dauphin Cnty, PA Genl Auth Hlth Sys Rev
Pinnacle Hlth Sys Proj Rfdg (MBIA
Insd).................................... 5.500 05/15/27 10,984,194
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev
Hapsco Phoenixville Hosp Proj Ser B (FGIC
Insd).................................... 6.125 07/01/10 2,097,340
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 1,037,480
1,500 Philadelphia, PA (FSA Insd).............. 5.000 03/15/28 1,312,290
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A
Rfdg (FSA Insd).......................... 6.375 07/01/14 2,357,797
5,000 Philadelphia, PA Gas Wks Rev Second Ser
(FSA Insd)............................... 5.000 07/01/29 4,360,450
2,000 Pittsburgh & Allegheny Cnty, PA Pub Aud
Auth Excise Tax Rev (AMBAC Insd)......... 5.000 02/01/19 1,819,020
2,500 Pittsburgh & Allegheny Cnty, PA Pub Aud
Auth Regl Asset Dist Sales Tax Rev (AMBAC
Insd).................................... 5.000 02/01/24 2,215,275
3,000 Pittsburgh, PA Ser A (FGIC Insd)......... 5.750 09/01/24 2,982,300
1,000 Sayre, PA Hlthcare Fac Auth Rev VHA Cap
Asset Fin Pgm Ser H2 (AMBAC Insd)........ 7.625 12/01/15 1,034,550
3,000 Washington Cnty, PA Auth Rev Cap Fndg Cap
Proj & Equip (AMBAC Insd)................ 6.150 12/01/29 3,106,320
2,500 Westmoreland Cnty, PA Muni Auth Muni Svc
Rev (MBIA Insd).......................... * 08/15/22 658,925
--------------
38,771,375
--------------
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
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 $ 2,228,980
--------------
SOUTH CAROLINA 1.4%
70 Charleston Cnty, SC Ctfs Partn Ser B
(MBIA Insd).............................. 6.875 06/01/14 75,179
1,430 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)..... 6.875 06/01/14 1,562,776
2,475 Lancaster Cnty, SC Sch Dist (FSA Insd)... 4.750 03/01/16 2,225,025
2,600 Lancaster Cnty, SC Sch Dist (FSA Insd)... 4.750 03/01/17 2,319,720
2,725 Lancaster Cnty, SC Sch Dist (FSA Insd)... 4.750 03/01/18 2,410,044
8,500 South Carolina Tran Infrastructure Bank
Rev (AMBAC Insd)......................... 5.375 10/01/24 8,035,900
--------------
16,628,644
--------------
SOUTH DAKOTA 2.3%
14,860 Sioux Falls, SD Sales Tax Rev (AMBAC
Insd).................................... 5.450 11/15/14 14,895,367
1,610 South Dakota St Hlth & Edl Fac Auth Rev
(AMBAC Insd)............................. 5.250 08/01/24 1,472,683
5,205 South Dakota St Lease Rev Trust Ctfs Ser
A (FSA Insd)............................. 6.625 09/01/12 5,879,568
4,000 South Dakota St Lease Rev Trust Ctfs Ser
A (FSA Insd)............................. 6.700 09/01/17 4,560,000
--------------
26,807,618
--------------
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).................................... 9.368 05/25/21 2,177,500
2,000 Franklin, TN Spl Sch Dist Cap Apprec (FSA
Insd).................................... * 06/01/17 747,000
2,320 Johnson City, TN Sch Sales Tax
(Prerefunded @ 05/01/06) (AMBAC Insd).... 6.700 05/01/18 2,536,618
6,000 Tennergy Corp, TN Gas Rev (MBIA Insd).... 4.125 06/01/09 5,065,800
--------------
10,526,918
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS 7.2%
$ 3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High
Plains Baptist Hosp (Inverse Fltg) (FSA
Insd).................................... 8.936% 01/01/22 $ 3,270,000
2,290 Austin, TX Rev Town Lk Cmnty Events Cent
Venue (FGIC Insd)........................ 6.000 11/15/25 2,324,075
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA
Insd).................................... * 11/15/10 7,090,125
5,000 Brazos River Auth, TX Rev Houston Inds
Inc Proj Ser C (AMBAC Insd).............. 5.125 05/01/19 4,595,450
1,705 Corpus Christi, TX Hsg Fin Corp Single
Family Mtg Rev Ser A Rfdg (MBIA Insd).... 7.700 07/01/11 1,770,131
16,900 Dallas Cnty, TX Util & Reclamation Dist
Rfdg Ser B (AMBAC Insd).................. 5.875 02/15/29 16,898,648
2,515 Dallas, TX Rev Spl Tax Ser A (AMBAC
Insd).................................... 5.250 08/15/16 2,430,421
7,510 Harris Cnty-Houston, TX Sports Auth Spl
Rev Ser A (MBIA Insd).................... 5.000 11/15/28 6,558,408
12,500 Houston, TX Wtr & Swr Sys Rev Cap Apprec
Rfdg Ser A (FSA Insd).................... * 12/01/19 3,938,250
12,400 Houston, TX Wtr & Swr Sys Rev Cap Apprec
Rfdg Ser A (FSA Insd).................... * 12/01/20 3,661,720
2,505 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd).................................... * 03/01/15 1,075,397
1,000 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd).................................... * 03/01/16 401,890
1,305 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd).................................... * 03/01/17 491,215
3,600 North Cent, TX Hlth Fac Dev TX Hlth Res
Sys Ser B (MBIA Insd).................... 5.375 02/15/26 3,321,468
1,000 San Antonio, TX Indpt Sch Dist Pub Fac
Corp Lease Rev (AMBAC Insd).............. 5.850 10/15/10 1,048,890
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth
Sys Rev Ser B (FGIC Insd)................ 5.000 09/01/15 1,658,877
26,330 Texas St Tpk Auth Dallas North Twy George
Bush Tpk (FGIC Insd)..................... 5.250 01/01/23 24,432,397
--------------
84,967,362
--------------
UTAH 1.9%
9,010 Intermountain Pwr Agy UT Pwr Supply Rev
Ser B Rfdg (MBIA Insd)................... 5.750 07/01/19 9,050,815
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC
Insd).................................... 10.375 09/15/15 1,026,825
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTAH (CONTINUED)
$ 7,385 Utah St Muni Fin Co-op Loc Govt Rev Pool
Cap Salt Lake (FSA Insd)................. * 03/01/09 $ 4,604,105
3,115 West Jordan, UT Multi-Family Rev
Broadmoor Vlg Apts Proj Ser A Rfdg (FSA
Insd).................................... 6.800% 01/01/15 3,221,471
4,540 West Valley City, UT Muni Bldg Lease Ser
A Rfdg (AMBAC Insd)...................... 4.750 04/15/19 3,982,851
--------------
21,886,067
--------------
VIRGINIA 1.8%
2,900 Danville, VA Indl Dev Auth Hosp Rev
Danville Regl Med Cent (AMBAC Insd)...... 5.200 10/01/18 2,761,322
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)... 6.800 03/01/14 4,273,920
5,000 Richmond, VA (FSA Insd) (a).............. 5.500 01/15/16 4,867,800
5,000 Richmond, VA (FSA Insd) (a).............. 5.500 01/15/17 4,837,900
5,000 Richmond, VA (FSA Insd) (a).............. 5.500 01/15/18 4,806,550
--------------
21,547,492
--------------
WASHINGTON 1.3%
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 2,402,738
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 1,054,735
350 Pierce Cnty, WA Swr Rev Ser A (MBIA
Insd).................................... 9.000 02/01/05 410,480
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev
(AMBAC Insd)............................. 6.250 12/01/11 5,212,550
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 3,187,057
3,015 Washington St Pub Pwr Supply Sys Nuclear
Proj No 2 Rev Ser C Rfdg (MBIA Insd)..... * 07/01/04 2,428,040
--------------
14,695,600
--------------
WISCONSIN 1.8%
1,350 Plover, WI Wtr Sys Rev (AMBAC Insd)...... 5.400 12/01/16 1,330,223
1,500 Plover, WI Wtr Sys Rev (AMBAC Insd)...... 5.500 12/01/18 1,476,675
3,920 University of Wisconsin Hosps & Clinics
Auth Rev (FSA Insd)...................... 6.200 04/01/29 4,018,980
12,490 Wisconsin St Hlth & Edl Fac Auth Rev
Aurora Med Group Inc Proj (FSA Insd)
(b)...................................... 5.750 11/15/25 12,075,082
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY 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 $ 968,410
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med
College of WI Inc Proj (MBIA Insd)....... 5.750 03/01/27 980,360
--------------
20,849,730
--------------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj
(AMBAC Insd)............................. 6.700 05/01/12 2,108,800
--------------
PUERTO RICO 0.3%
3,000 Puerto Rico Indl Tourist Edl Med &
Environmental Ctl Fac Hosp Aux (MBIA
Insd).................................... 6.250 07/01/16 3,136,320
--------------
TOTAL LONG-TERM INVESTMENTS 97.9%
(Cost $1,112,177,002)................................................. 1,147,981,463
SHORT-TERM INVESTMENTS 2.4%
(Cost $28,500,000).................................................... 28,500,000
--------------
TOTAL INVESTMENTS 100.3%
(Cost $1,140,677,002)................................................. 1,176,481,463
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%)........................... (3,968,787)
--------------
NET ASSETS 100.0%...................................................... $1,172,512,676
==============
</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, and open futures transactions.
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
29
<PAGE> 31
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,140,677,002)..................... $1,176,481,463
Cash........................................................ 968,381
Receivables:
Interest.................................................. 16,988,459
Investments Sold.......................................... 2,623,962
Fund Shares Sold.......................................... 567,475
Other....................................................... 58,387
--------------
Total Assets............................................ 1,197,688,127
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 20,373,943
Income Distributions...................................... 1,649,843
Fund Shares Repurchased................................... 1,313,681
Distributor and Affiliates................................ 635,234
Investment Advisory Fee................................... 499,814
Variation Margin on Futures............................... 167,063
Accrued Expenses............................................ 280,506
Trustees' Deferred Compensation and Retirement Plans........ 255,367
--------------
Total Liabilities....................................... 25,175,451
--------------
NET ASSETS.................................................. $1,172,512,676
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,146,354,721
Net Unrealized Appreciation................................. 34,944,873
Accumulated Distributions in Excess of Net Investment
Income.................................................... (353,669)
Accumulated Net Realized Loss............................... (8,433,249)
--------------
NET ASSETS.................................................. $1,172,512,676
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,114,057,279 and 61,717,985 shares of
beneficial interest issued and outstanding)............. $ 18.05
Maximum sales charge (4.75%* of offering price)......... .90
--------------
Maximum offering price to public........................ $ 18.95
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $50,994,889 and 2,825,348 shares of
beneficial interest issued and outstanding)............. $ 18.05
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $7,460,508 and 413,685 shares of
beneficial interest issued and outstanding)............. $ 18.03
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
30
<PAGE> 32
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 35,412,166
-------------
EXPENSES:
Investment Advisory Fee..................................... 2,990,386
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $1,315,163, $264,030 and $39,876,
respectively)............................................. 1,619,069
Shareholder Services........................................ 659,819
Trustees' Fees and Related Expenses......................... 62,930
Legal....................................................... 49,770
Custody..................................................... 46,249
Other....................................................... 290,308
-------------
Total Operating Expenses................................ 5,718,531
Less Credits Earned on Cash Balances.................... 26,464
-------------
Net Operating Expenses.................................. 5,692,067
Interest Expense........................................ 7,666
-------------
NET INVESTMENT INCOME....................................... $ 29,712,433
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (3,017,138)
Futures................................................... (912,020)
-------------
Net Realized Loss........................................... (3,929,158)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 33,264,766
-------------
End of the Period:
Investments............................................. 35,804,461
Futures................................................. (859,588)
-------------
34,944,873
-------------
Net Unrealized Appreciation During the Period............... 1,680,107
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (2,249,051)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 27,463,382
=============
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
MARCH 31, SEPT. 30,
2000 1999
--------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 29,712,433 $ 63,141,708
Net Realized Loss.................................. (3,929,158) (2,623,262)
Net Unrealized Appreciation/Depreciation During the
Period........................................... 1,680,107 (109,883,410)
-------------- --------------
Change in Net Assets from Operations............... 27,463,382 (49,364,964)
-------------- --------------
Distributions from Net Investment Income:
Class A Shares................................... (28,299,100) (60,158,791)
Class B Shares................................... (1,110,962) (2,628,280)
Class C Shares................................... (168,124) (320,563)
-------------- --------------
(29,578,186) (63,107,634)
-------------- --------------
Distributions from Net Realized Gain:
Class A Shares................................... (241,389) (15,893,768)
Class B Shares................................... (40,419) (826,371)
Class C Shares................................... (21,049) (90,442)
-------------- --------------
(302,857) (16,810,581)
-------------- --------------
Total Distributions................................ (29,881,043) (79,918,215)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (2,417,661) (129,283,179)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 89,772,483 692,548,007
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 21,196,291 57,008,999
Cost of Shares Repurchased......................... (179,461,985) (809,433,864)
-------------- --------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............................. (68,493,211) (59,876,858)
-------------- --------------
TOTAL DECREASE IN NET ASSETS....................... (70,910,872) (189,160,037)
NET ASSETS:
Beginning of the Period............................ 1,243,423,548 1,432,583,585
-------------- --------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $353,669 and $487,916, respectively).......... $1,172,512,676 $1,243,423,548
============== ==============
</TABLE>
See Notes to Financial Statements
32
<PAGE> 34
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ------------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 18.081 $ 19.956 $ 19.631 $ 19.238 $ 19.549 $ 17.572
-------- -------- -------- -------- -------- --------
Net Investment Income..... .445 .914 .710 .974 .980 1.021
Net Realized and
Unrealized Gain/Loss.... (.026) (1.641) .371 .551 (.304) 1.982
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................ .419 (.727) 1.081 1.525 .676 3.003
-------- -------- -------- -------- -------- --------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .444 .914 .720 .971 .987 1.026
Distributions from Net
Realized Gain........... .005 .234 .036 .161 -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions......... .449 1.148 .756 1.132 .987 1.026
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 18.051 $ 18.081 $ 19.956 $ 19.631 $ 19.238 $ 19.549
======== ======== ======== ======== ======== ========
Total Return (a)............ 2.39%* (3.80%) 5.61%* 8.19% 3.65% 17.49%
Net Assets at End of the
Period (In millions)...... $1,114.0 $1,178.3 $1,353.9 $1,283.5 $1,283.7 $1,365.4
Ratio of Expenses to Average
Net Assets (b)............ .94% .92% .90% .92% .95% .88%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 5.11% 4.77% 4.85% 5.07% 5.11% 5.44%
Portfolio Turnover.......... 37%* 92% 62%* 82% 92% 70%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.
(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
33
<PAGE> 35
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ------------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 18.084 $ 19.957 $ 19.634 $ 19.240 $ 19.549 $ 17.563
-------- -------- -------- -------- -------- --------
Net Investment Income..... .388 .769 .598 .826 .832 .890
Net Realized and
Unrealized Gain/Loss.... (.046) (1.643) .370 .551 (.304) 1.978
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................ .342 (.874) .968 1.377 .528 2.868
-------- -------- -------- -------- -------- --------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .372 .765 .609 .822 .837 .882
Distributions from Net
Realized Gain........... .005 .234 .036 .161 -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions......... .377 .999 .645 .983 .837 .882
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 18.049 $ 18.084 $ 19.957 $ 19.634 $ 19.240 $ 19.549
======== ======== ======== ======== ======== ========
Total Return (a)............ 1.97%* (4.60%) 5.07%* 7.36% 2.83% 16.67%
Net Assets at End of the
Period (In millions)...... $ 51.0 $ 56.8 $ 71.9 $ 70.1 $ 71.6 $ 75.3
Ratio of Expenses to Average
Net Assets (b)............ 1.72% 1.68% 1.66% 1.69% 1.74% 1.67%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 4.37% 3.99% 4.08% 4.29% 4.38% 4.69%
Portfolio Turnover.......... 37%* 92% 62%* 82% 92% 70%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fifth year. If the sales charge was
included, total returns would be lower.
(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
34
<PAGE> 36
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ------------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 18.080 $ 19.952 $ 19.630 $ 19.239 $ 19.548 $ 17.568
-------- -------- -------- -------- -------- --------
Net Investment Income..... .385 .763 .594 .822 .830 .883
Net Realized and
Unrealized Gain/Loss.... (.054) (1.636) .373 .552 (.302) 1.979
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................ .331 (.873) .967 1.374 .528 2.862
-------- -------- -------- -------- -------- --------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .372 .765 .609 .822 .837 .882
Distributions from Net
Realized Gain........... .005 .234 .036 .161 -0- -0-
-------- -------- -------- -------- -------- --------
Total Distributions......... .377 .999 .645 .983 .837 .882
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 18.034 $ 18.080 $ 19.952 $ 19.630 $ 19.239 $ 19.548
======== ======== ======== ======== ======== ========
Total Return (a)............ 1.86%* (4.55%) 5.02%* 7.36% 2.83% 16.60%
Net Assets at End of the
Period (In millions)...... $ 7.5 $ 8.3 $ 6.8 $ 5.6 $ 4.9 $ 5.1
Ratio of Expenses to Average
Net Assets (b)............ 1.72% 1.68% 1.66% 1.69% 1.74% 1.67%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 4.37% 3.99% 4.06% 4.29% 4.37% 4.68%
Portfolio Turnover 37%* 92% 62%* 82% 92% 70%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(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
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 3, 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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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
applicable security. Income and expenses of the Fund are allocated on a pro rata
36
<PAGE> 38
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 March 31, 2000, for federal income tax purposes, cost of long- and
short-term investments is $1,140,680,722; the aggregate gross unrealized
appreciation is $50,816,530 and the aggregate gross unrealized depreciation is
$15,015,789, resulting in net unrealized appreciation on long- and short-term
investments of $35,800,741.
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.
G. EXPENSE REDUCTIONS During the six months ended March 31, 2000, the Fund's
custody fee was reduced by $26,464 as a result of credits earned on cash
balances.
37
<PAGE> 39
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 DAILY 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $19,200 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $104,100 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 six months ended March 31,
2000, the Fund recognized expenses of approximately $480,700. 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.
38
<PAGE> 40
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $1,084,338,402, $53,730,690 and $8,285,629
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 4,831,561 85,316,437
Class B............................................... 147,070 2,605,666
Class C............................................... 103,979 1,850,380
----------- -------------
Total Sales............................................. 5,082,610 89,772,483
=========== =============
Dividend Reinvestment:
Class A............................................... 1,154,469 $ 20,471,954
Class B............................................... 34,475 611,572
Class C............................................... 6,362 112,765
----------- -------------
Total Dividend Reinvestment............................. 1,195,306 $ 21,196,291
=========== =============
Repurchases:
Class A............................................... (9,436,792) (167,905,766)
Class B............................................... (495,050) (8,780,442)
Class C............................................... (156,680) (2,775,777)
----------- -------------
Total Repurchases....................................... (10,088,522) (179,461,985)
=========== =============
</TABLE>
39
<PAGE> 41
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares seven years after the
end of the calendar month in which the shares were purchased. For the six months
ended March 31, 2000 and the year ended September 30, 1999, 136,807 and 672,438
Class B shares converted to Class A shares, respectively and are shown in the
above tables as sales of Class A shares and repurchases of Class B shares. Class
C shares purchased before January 1, 1997, and any dividend reinvestment plan
Class C shares received thereon, automatically convert to Class A shares ten
years after the end of the calendar month in which such shares were purchased.
Class C shares purchased on or after January 1, 1997 do not possess a conversion
feature. For the six months ended March 31, 2000 and the year ended September
30, 1999, no Class C shares converted to Class A shares.
40
<PAGE> 42
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 six months ended March 31, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $31,000 and CDSC on redeemed shares of approximately $82,300.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $433,931,532 and $516,105,572,
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.
41
<PAGE> 43
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended March 31, 2000 were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened............................................ 2,564
Futures Closed............................................ (2,078)
------
Outstanding at March 31, 2000............................... 486
======
</TABLE>
The futures contracts outstanding as of March 31, 2000, and the description
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DESCRIPTION CONTRACTS (DEPRECIATION)
<S> <C> <C>
Short Contracts -- Municipal Bond Index Futures June 2000
(Current notional value $95,344 per contract)............. 486 $(859,588)
=== =========
</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.
42
<PAGE> 44
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
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, as amended 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 six months ended March 31, 2000, are payments retained by Van Kampen of
approximately $338,000.
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 September 30, 2000. 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 .09% is
charged on the unused portion of the credit facility.
The average daily balance of bank borrowings for the year ended March 31,
2000 was approximately $243,155 with an average interest rate of 6.29%. At March
31, 2000, the Fund did not have any outstanding borrowings under the agreement.
43
<PAGE> 45
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
1 Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 August 31, 2000, the
report, if used with prospective investors, must be accompanied by a monthly
performance update.
44
<PAGE> 46
RESULTS OF
SHAREHOLDER VOTES
1) A Joint Special Meeting of Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the ratification
of KPMG LLP as the independent public accountants.
With regard to the election of the following trustees by the shareholders:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 44,199,924 880,450
Jerry D. Choate....................................... 44,218,165 862,209
Linda Hutton Heagy.................................... 44,208,207 872,167
R. Craig Kennedy...................................... 44,226,581 853,793
Mitchell M. Merin..................................... 44,208,650 871,724
Jack E. Nelson........................................ 44,193,502 886,873
Richard F. Powers, III................................ 44,203,256 877,118
Phillip B. Rooney..................................... 44,221,128 859,247
Fernando Sisto........................................ 44,052,219 928,156
Wayne W. Whalen....................................... 44,217,659 862,715
Suzanne H. Woolsey.................................... 44,205,060 875,315
Paul G. Yovovich*..................................... 44,196,035 884,339
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accounts
for the Fund, 43,699,939 shares voted for the proposal, 272,979 shares voted
against and 1,107,455 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
45
<PAGE> 47
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE STATES 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS 12
FINANCIAL STATEMENTS 36
NOTES TO FINANCIAL STATEMENTS 42
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 51
FUND OFFICERS AND IMPORTANT ADDRESSES 52
RESULTS OF SHAREHOLDER VOTES 53
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 48
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 49
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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> 50
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) (.57%) (.89%) (.89%)
- -------------------------------------------------------------------------
Six-month total return(2) (5.27%) (4.76%) (1.86%)
- -------------------------------------------------------------------------
One-year total return(2) (8.17%) (7.97%) (5.24%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 3.71% 3.66% 3.92%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 4.53% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 6.65% 4.38% 3.89%
- -------------------------------------------------------------------------
Commencement date 06/28/85 05/01/93 08/13/93
- -------------------------------------------------------------------------
Distribution rates(3) 5.57% 5.08% 5.08%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 8.70% 7.94% 7.94%
- -------------------------------------------------------------------------
SEC Yield(5) 5.38% 4.81% 4.81%
- -------------------------------------------------------------------------
</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 Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1.00% may be imposed on certain redemptions made
within one year of purchase. Returns for Class B shares are calculated without
the effect of the maximum 4% CDSC, charged on certain redemptions made within
one year of purchase and declining thereafter to 0% after the sixth year.
Returns for Class C shares are calculated without the effect of the maximum
1.00% CDSC, charged on certain redemptions made within one year of purchase. If
the sales charges were included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
shares of $1 million or more, a CDSC of 1.00% may be imposed on certain
redemptions made within one year of purchase. Returns for Class B shares are
calculated with the effect of the maximum 4% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the sixth year. Returns for Class C shares are calculated with the effect
of the maximum 1.00% CDSC, charged on certain redemptions made within one year
of purchase.
(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%.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 51
Continued from page 3.
(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 March 31, 2000.
A portion of the interest income may be subject to the federal alternative
minimum tax (AMT).
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary of
the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 52
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of March 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
<S> <C>
AAA/Aaa 20.3
AA/Aa 1
A/A 6.6
BBB/Baa 12.1
BB/Ba 2.9
B/B 0.5
CCC/Caa 0
Non-Rated 56.6
</TABLE>
As of September 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
<S> <C>
AAA/Aaa 28.1
AA/Aa 2.1
A/A 6.6
BBB/Baa 12.1
BB/Ba 2.6
B/B 0.4
CC/Ca 0.1
Non-Rated 48
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION HISTORY
--------------------
<S> <C>
10/99 0.0670
11/99 0.0670
12/99 0.0670
1/00 0.0655
2/00 0.0655
3/00 0.0655
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 53
TOP FIVE STATES
(as a percentage of long-term investments -- March 31, 2000)
<TABLE>
<S> <C> <C>
Illinois 10.9%
- ---------------------------------------------------------------------
Texas 10.6%
- ---------------------------------------------------------------------
California 7.9%
- ---------------------------------------------------------------------
Pennsylvania 7.8%
- ---------------------------------------------------------------------
Florida 7.3%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Industrial Revenue 19 16.2
Health Care 14.4 12.5
Other Care 12.1 11.6
Multi-Family Housing 11.6 10.3
Public Building 7.2 6.4
</TABLE>
6
<PAGE> 54
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN TAX FREE
HIGH INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE DAVID C.
JOHNSON, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1989 AND HAS WORKED
IN THE INVESTMENT INDUSTRY SINCE 1981. HE IS JOINED BY PETER W. HEGEL, CHIEF
INVESTMENT OFFICER FOR FIXED-INCOME INVESTMENTS. THE FOLLOWING DISCUSSION
REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED MARCH
31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
decline as interest rates rise, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate, a key short-term borrowing rate to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding Treasury debt.
Q HOW DID THE MUNICIPAL
MARKET RESPOND?
A Unfortunately, municipals lagged
the Treasury market in the fourth quarter of 1999, and high yield municipals
trailed the high-grade sector. Widespread year 2000 (Y2K) jitters and a strong
supply of municipal bond issuance put a damper on nearly every sector of the
municipal market.
Historically, January has been a good month for municipals, because
investors are actively making tax-related adjustments to their investment
programs. But this year, investors were worried about higher interest rates and
potential Y2K fallout early in the year, so they avoided or pulled out of the
municipal market. Consequently, many municipal bond funds had negative returns
for January.
Municipal bond funds in general have been losing assets lately because
they're competing with the soaring stock market for investors' interest.
7
<PAGE> 55
Also, investors were rattled by recent negative returns from municipal bonds and
the threat of even higher interest rates.
Q DID MARKET CONDITIONS IMPROVE
DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. The combination of a strong Treasury bond market and the lack of supply in
municipals helped make February and March positive months for the fixed-income
markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of their municipal bond investments
while still earning an attractive level of income.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A Because the Fund invests a
significant portion of its assets in medium- and lower-rated and nonrated bonds,
the last six months have been challenging. These sectors declined sharply in the
fourth quarter of 1999 and January of 2000 as interest rates went up (driving
prices down) and yield spreads widened significantly. For example, the
difference between the yield offered on a BBB rated municipal bond and a AAA
rated municipal bond increased from less than half a percentage point to well
over a full percentage point. In a nutshell, the prices of lower-rated and
nonrated bonds dropped more sharply than those of higher-rated bonds.
This was especially true in the health-care sector. In fact, at one time we
saw BBB rated hospital bonds trading with a spread of 1.75 percentage points
over AAA rated hospital bonds. This is a reflection of the tough times we've
seen in the health-care sector. With the uncertainties involved in managed
care--who pays for what and how much--and the rising cost of services, many
health-care providers are under tremendous profitability pressures. Due to these
concerns, some of the market moved out of this sector, causing the sector to
underperform.
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?
A Credit quality is always a concern
with the Fund. But we believe our in-depth research enabled us to find solid
values, namely medium- and low-rated and nonrated bonds with attractive
performance potential and limited risk.
Over the past six months, we took advantage of declining prices in the
nonrated sector to add some very attractive high-yielding issues to the
portfolio, including some reputable names--such as Mountain States Health
Care--with coupons as high as 8 percent or more. Our allocation to the nonrated
sector actually increased during the reporting period to about 56 percent of
long-term investments,
8
<PAGE> 56
up from 48 percent. Past performance is no guarantee of future results.
Because of the pressures within the health-care sector, we relied on our
strong research efforts to select the most creditworthy issues. We own a mix of
investment-grade and noninvestment-grade securities in this sector, accounting
for approximately 14 percent of the Fund's long-term investments.
We also boosted our allocation to the industrial revenue sector of the
market. About 19 percent of the Fund's long-term investments were invested in
this category, which includes airlines and pollution-control bonds. Of course,
not all the bonds in the Fund performed as favorably, nor is there any guarantee
that any of the bonds mentioned in this report will continue to perform as well
or will be held by the Fund in the future.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A For the reporting period, the
Fund's total return was above the average for its peer group, primarily because
of its ability to maintain a favorable balance of investment-grade and
noninvestment-grade securities within its portfolio. As of March 31, 2000, the
Fund achieved a six-month total return of -0.57 percent (Class A shares at net
asset value; if the maximum sales charge of 4.75 percent were included, the
return would have been lower). By comparison, the Lehman Brothers High Yield
Municipal Bond Index produced a total return of -1.31 percent for the same
period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance is no guarantee of future results.
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from federal income tax, rather than investing for capital
appreciation.
Although the Fund's monthly tax-exempt dividend was decreased to $.0655 from
$.0670 per Class A share in January 2000, its distribution rate stood at 5.57
percent at the end of the reporting period. With this in mind, we'd like to
point out that investors would have to earn a distribution rate of 8.70 percent
on a taxable investment (for an investor in the 36 percent federal income tax
bracket) to match the tax-exempt yield provided by the Fund.
9
<PAGE> 57
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
We've seen quite a few credit-rating upgrades, indicating that the rating
agencies are optimistic about the credit strength of municipal bond
issuers--most likely because the economy continues to be strong. Ironically,
since many bond issuers have surpluses from the strong economy, there isn't much
pressure to issue new debt. A continuation of weak supply could lend price
support to the municipal market as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three more interest-rate
hikes within the next quarter or two.
Overall, we will continue to manage the Fund with a long-term perspective,
relying on our research.
10
<PAGE> 58
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each are
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest-rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising-rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA rated. Recently, an A rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charges.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 59
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 96.7%
ALABAMA 1.1%
$2,500 Houston Cnty, AL Hlthcare (AMBAC Insd).... 6.250% 10/01/30 $ 2,560,875
1,500 Mobile, AL Indl Dev Brd Pollution Ctl Rev
Intl Paper Co Proj Rfdg................... 4.750 04/01/10 1,333,515
240 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svcs Co Proj Rfdg (d)... 6.950 01/01/20 78,196
2,150 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A..................... 5.650 11/01/22 1,728,965
1,395 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A..................... 5.600 11/01/16 1,162,509
935 West Jefferson Cnty, AL Amusement & Pub
Park Auth (Prerefunded @ 12/01/06) (b).... 7.500 12/01/08 1,035,326
3,290 West Jefferson Cnty, AL Amusement & Pub
Park Auth................................. 6.375 02/01/29 2,407,260
------------
10,306,646
------------
ALASKA 0.4%
2,000 Juneau, AK City & Borough Nonrecourse
Rev....................................... 6.875 12/01/25 1,860,380
2,250 Seward, AK Rev AK Sealife Cent Proj....... 7.650 10/01/16 2,274,727
------------
4,135,107
------------
ARIZONA 2.4%
6,169 Chandler, AZ Indl Dev Auth Rev Chandler
Finl Cent Proj Ser 1986 (c) (g)........... 9.875 12/01/16 5,109,286
1,000 Maricopa Cnty, AZ Indl Dev Auth AZ Charter
Schs Proj 1 Ser A......................... 6.625 07/01/20 977,550
4,000 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev...................... 6.625 07/01/33 3,672,920
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr Living
Fac Rev................................... 7.750 04/01/15 2,617,035
2,700 Maricopa Cnty, AZ Uni Sch Dist No 41
Gilbert Rfdg (FGIC Insd).................. * 01/01/08 1,806,921
1,500 Peoria, AZ Indl Dev Auth Rev Sierra Winds
Life Ser A Rfdg........................... 6.500 08/15/31 1,325,385
2,420 Pima Cnty, AZ Indl Dev Auth Sr Living Facs
Catilina Vlg Ser A Rev.................... 6.500 07/01/29 2,033,961
</TABLE>
See Notes to Financial Statements
12
<PAGE> 60
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$2,160 Pima Cnty, AZ Indl Dev Auth Multi-Family
Rev....................................... 6.625% 10/01/28 $ 2,024,050
305 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser
A......................................... 11.000 07/01/00 309,923
1,900 Red Hawk Canyon Cmnty Facs Dist No 2 AZ
Dist Assmt Rev............................ 6.500 12/01/12 1,813,930
1,000 Tuscon, AZ Indl Dev Auth Rev Clarion Santa
Rita Hotel Ser A Rfdg..................... 6.375 12/01/16 909,280
------------
22,600,241
------------
ARKANSAS 0.2%
2,000 Arkansas St Dev Fin Auth Hosp WA Regl Med
Cent (a).................................. 7.250 02/01/20 2,005,140
------------
CALIFORNIA 7.7%
2,000 Abag Fin Auth For Nonprofit Corps CA Ctfs
Partn..................................... 6.375 11/15/28 1,770,240
4,330 California Edl Fac Auth Rev Cap Apprec
Univ (AMBAC Insd)......................... * 10/01/23 1,097,915
1,310 California Edl Fac Auth Rev Univ of La
Verne..................................... 6.375 04/01/13 1,344,008
1,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist
Spl Tax (Prerefunded @ 09/01/07) (b)...... 7.100 09/01/21 1,145,640
1,470 Colton, CA Pub Fin Auth Rev Elec Sys Impts
(Prerefunded @ 10/01/03) (b).............. 7.500 10/01/20 1,611,179
5,000 Contra Costa, CA Home Mtg Fin Auth Home
Mtg Rev (MBIA Insd)....................... * 09/01/17 1,893,050
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc
Ser C..................................... 8.375 07/01/11 2,283,650
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev
CA Cent for the Arts (AMBAC Insd)......... * 09/01/15 1,367,843
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev
CA Cent for the Arts (AMBAC Insd)......... * 09/01/18 1,109,285
6,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev (MBIA Insd)................... * 01/15/18 2,116,200
22,985 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev............................... * 01/15/24 5,094,395
4,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev (i)........................... 0/5.875 01/15/26 2,073,280
3,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev (i)........................... 0/5.875 01/15/27 1,533,450
</TABLE>
See Notes to Financial Statements
13
<PAGE> 61
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$15,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev............................... * 01/15/30 $ 2,247,450
42,460 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev............................... * 01/15/31 5,969,027
35,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev............................... * 01/15/37 3,327,100
15,000 Foothill/Eastern Trans Corridor Agy CA
Toll Rd Rev............................... * 01/15/38 1,335,150
2,705 Healdsburg, CA Ctfs Partn Nuestro Hosp
Inc....................................... 6.375% 11/01/28 2,314,939
980 Indio, CA Pub Fin Auth Rev Tax
Increment................................. 6.500 08/15/27 981,470
1,990 Lake Elsinore, CA Pub Fin Auth Loc Agy
Rev....................................... 7.100 09/01/20 2,063,789
1,500 Millbrae, CA Residential Fac Rev Magnolia
of Millbrae Proj Ser A.................... 7.375 09/01/27 1,483,335
1,350 Riverside Cnty, CA Air Force Vlg West Inc
Ser A Rfdg (Prerefunded @ 06/15/02) (b)... 8.125 06/15/20 1,477,075
5,500 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev (MBIA Insd)................. * 06/01/22 1,465,915
8,255 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev (MBIA Insd)................. * 06/01/26 1,715,637
4,000 Sacramento, CA City Fin Auth Rev Sr
Convention Cent Hotel Ser A............... 6.250 01/01/30 3,682,160
2,300 San Francisco, CA City & Cnty (MBIA
Insd)..................................... 5.250 08/01/21 2,190,681
7,625 San Francisco, CA City & Cnty Redev Agy
Lease Rev Gains (Crossover Rfdg @
07/01/04) (i)............................. 0/8.500 07/01/14 7,134,407
2,000 San Jose, CA Multi-Family Hsg Rev Helzer
Courts Apts Ser A 144A (f)................ 6.400 12/01/41 1,786,800
1,000 San Luis Obispo, CA Ctfs Partn Vista Hosp
Sys Inc................................... 8.375 07/01/29 875,670
9,635 San Ramon Valley, CA Uni Sch Dist Ser A
(FGIC Insd)............................... * 07/01/18 3,408,959
1,500 Simi Valley, CA Cmnty Dev Agy Coml
Sycamore Plaza II Rfdg.................... 6.000 09/01/12 1,529,160
1,965 Vallejo, CA Ctfs Partn Touro Univ......... 7.250 06/01/16 1,954,920
1,500 Ventura, CA Port Dist Ctfs Partn.......... 6.375 08/01/28 1,442,895
------------
72,826,674
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 62
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
COLORADO 4.3%
$2,000 Colorado Hlth Fac Auth Rev Baptist Home
Assn Ser A................................ 6.375% 08/15/24 $ 1,764,800
1,590 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj........................ 6.850 01/01/15 1,547,420
1,060 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj........................ 7.050 01/01/19 1,051,679
6,200 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj (b).................... 9.000 01/01/25 6,811,072
2,205 Denver, CO City & Cnty Arpt Rev Ser A
(b)....................................... 8.875 11/15/12 2,366,957
795 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01).................. 8.875 11/15/12 861,629
2,500 Denver, CO City & Cnty Arpt Rev Ser D
(b)....................................... 7.750 11/15/13 2,907,075
1,030 Eagle Riverview Affordable Housing Corp.
Multi-Family Rev.......................... 6.300 07/01/29 952,616
331 East River Regl Santn Dist CO Var Rfdg
(Var Rate Cpn)............................ 8.250 12/01/08 334,929
4,163 Himalaya Wtr & Santn Dist Adams Cnty, CO
Genl Oblig Ltd Tax Rfdg Bond Ser 1995
(d)....................................... 9.500 02/15/07 3,335,430
2,125 Lafayette, CO Indl Dev Rev Rocky Mtn Instr
Proj A.................................... 7.000 10/01/18 1,952,407
870 Lafayette, CO Indl Dev Rev Rocky Mtn Instr
Proj Ser A................................ 6.750 10/01/14 840,498
1,915 Northern Metro Dist CO Adams Cnty Rfdg.... 6.500 12/01/16 1,894,644
4,392 Skyland Metro Dist CO Gunnison Cnty Rfdg
(Var Rate Cpn) (g)........................ 4.000 12/01/08 3,126,692
13,868 Tower Metro Dist Adams Cnty, CO Genl Oblig
Ltd Tax Rfdg Bond Ser 1995 (d)............ 9.500 12/01/24 11,094,445
------------
40,842,293
------------
CONNECTICUT 1.5%
3,000 Connecticut St Spl Oblig Pkg Bradley Intl
Arpt Ser A (a)............................ 6.600 07/01/24 3,024,690
2,980 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A (Prerefunded @ 09/01/07)
(b) (f)................................... 6.400 09/01/11 3,269,000
3,020 Mashantucket Western Pequot Tribe CT Spl
Rev Ser B, 144A (f)....................... 6.400 09/01/11 3,139,139
5,000 Stamford, CT Hsg Auth Multi-Family Rev
Fairfield Apts Proj Rfdg.................. 4.750 12/01/28 4,497,350
------------
13,930,179
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 63
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
DELAWARE 0.2%
$2,225 Wilmington, DE Multi-Family Rent Rev Hsg
Electra Arms Sr Assoc Proj................ 6.250% 06/01/28 $ 1,995,691
------------
DISTRICT OF COLUMBIA 0.5%
1,615 District of Columbia A-1 Rfdg (MBIA Insd)
(b)....................................... 6.500 06/01/10 1,766,326
85 District of Columbia A-1 Rfdg (MBIA
Insd)..................................... 6.500 06/01/10 93,951
1,000 District of Columbia Rev Methodist Home
Issue..................................... 6.000 01/01/29 831,540
2,000 District of Columbia Ser E (FSA Insd)
(b)....................................... 6.000 06/01/11 2,071,520
------------
4,763,337
------------
FLORIDA 7.1%
23,000 Dade Cnty, FL Gtd Entitlement Rev Cap
Apprec Ser A Rfdg (MBIA Insd) (b)......... * 02/01/18 7,995,720
4,585 Escambia Cnty, FL Rev ICF/MR Pensacola
Care Dev Cent (b)......................... 10.250 07/01/11 4,517,417
1,935 Escambia Cnty, FL Rev ICF/MR Pensacola
Care Dev Cent Ser A....................... 10.250 07/01/11 1,906,478
1,115 Fishhawk Cmnty, FL Dev Dist Spl Assmt
Rev....................................... 7.625 05/01/18 1,142,730
3,000 Florida Hsg Fin Corp Rev Hsg Beacon Hill
Apts Ser C................................ 6.610 07/01/38 2,781,090
4,000 Florida Hsg Fin Corp Rev Hsg Cypress Trace
Apts Ser G................................ 6.600 07/01/38 3,734,000
3,000 Florida Hsg Fin Corp Rev Hsg Westbrook
Apts Ser U1............................... 6.450 01/01/39 2,696,550
4,000 Florida Hsg Fin Corp Rev Hsg Westchase
Apts Ser B................................ 6.610 07/01/38 3,729,720
1,000 Heritage Harbor Cmnty Dev Dist Spl Assmt
Ser A..................................... 6.700 05/01/19 964,010
1,300 Heritage Harbor Cmnty Dev Dist FL Rev
Rectl..................................... 7.750 05/01/19 1,238,510
960 Lake Saint Charles, FL Cmnty Dev Dist Spl
Assmt Rev................................. 7.875 05/01/17 981,418
3,000 Leon Cnty, FL Edl Facs Auth Rev Southgate
Residence Hall Ser A Rfdg................. 6.750 09/01/28 2,888,130
1,000 Northern Palm Beach Cnty Impt Dist FL Wtr
Ctl & Impt Unit Dev 16 Rfdg............... 7.500 08/01/24 992,660
1,500 Orange Cnty, FL Hlth Fac Auth Rev First
Mtg Orlando Lutheran Tower................ 8.750 07/01/26 1,629,975
</TABLE>
See Notes to Financial Statements
16
<PAGE> 64
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY 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 $ 1,418,820
2,000 Orange Cnty, FL Hlth Facs Auth Westminster
Cmnty Care................................ 6.600 04/01/24 1,812,280
7,000 Orlando, FL Util Comm Wtr & Elec Rev
Linked Savrs & Ribs....................... 5.600 10/06/17 7,016,380
2,395 Pinellas Cnty, FL Edl Fac Auth Rev College
Harbor Proj Ser A......................... 8.250 12/01/21 2,441,535
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac
Sunnyside Ppty (b)........................ 6.700 07/01/25 5,427,540
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 & Tran Cmnty
Dev Dist Rev Cap Impt Area 7 Proj......... 8.500 05/01/17 883,422
1,000 University Square Cmnty Dev Dist FL Cap
Impt Rev.................................. 6.750 05/01/20 981,300
1,625 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg............................ 7.500 11/01/16 1,807,097
2,000 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg............................ 7.625 11/01/26 2,302,520
------------
67,715,302
------------
GEORGIA 4.2%
2,000 Americus Sumter Cnty, GA Hosp Auth Rev
South GA Methodist Ser A Rfdg............. 6.375 05/15/29 1,723,440
6,000 Atlanta, GA Arpt Rev Genl Ser A Rfdg (FGIC
Insd) (a)................................. 5.500 01/01/26 5,729,640
19,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Mtg Rev Hsg Peachtree Apts
Proj Ser A................................ 8.500 04/01/26 20,453,880
19,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Mtg Rev Hsg Peachtree Apts
Proj Ser C (h)............................ 2.400 04/01/26 2,802,500
1,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev John Eagan Proj Ser A.... 6.750 07/01/30 943,540
1,500 Forsyth Cnty, GA Hosp Auth Rev GA Baptist
Hlthcare Sys Proj......................... 6.250 10/01/18 1,315,380
1,500 Forsyth Cnty, GA Hosp Auth Rev GA Baptist
Hlthcare Sys Proj......................... 6.375 10/01/28 1,291,695
</TABLE>
See Notes to Financial Statements
17
<PAGE> 65
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$4,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev....................................... 6.500% 02/01/28 $ 3,751,240
2,000 Fulton Cnty, GA Residential Care Sr Lien
Rha Asstd Living A........................ 7.000 07/01/29 1,791,300
------------
39,802,615
------------
HAWAII 0.7%
2,360 Hawaii St Dept of Trans Spl Fac
Continental Airls Inc..................... 5.625 11/15/27 1,940,864
3,000 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)............................... * 07/01/14 1,331,940
4,245 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)............................... 4.500 07/01/28 3,400,202
------------
6,673,006
------------
IDAHO 0.6%
1,000 Idaho Hlth Facs Auth Rev Vly Vista Care
Ser A Rfdg................................ 7.875 11/15/29 971,990
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev
Envirosafe Svcs of ID Inc. ............... 8.250 11/01/02 4,362,694
------------
5,334,684
------------
ILLINOIS 10.6%
1,000 Bolingbrook IL Cap Apprec Ser B (MBIA
Insd)..................................... * 01/01/34 124,480
2,500 Bolingbrook, IL Cap Apprec Ser B (MBIA
Insd)..................................... * 01/01/29 427,300
1,790 Bridgeview, IL Tax Increment Rev Rfdg..... 9.000 01/01/11 2,052,629
25,800 Chicago IL Brd Ed Cap Apprec Sch Reform
Ser B-1 (FGIC Insd)....................... * 12/01/22 6,623,118
3,000 Chicago, IL Proj Ser A Rfdg (FGIC Insd)... 5.375 01/01/34 2,768,220
3,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd)............................... * 01/01/25 2,017,920
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A (b)......... 7.875 11/01/25 3,079,920
22,345 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Proj Ser 84A (b)......... 8.850 05/01/18 23,323,934
2,505 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B (b)................ 8.950 05/01/18 2,614,669
3,375 Chicago, IL Rev Chatham Ridge Tax
Increment................................. 10.250 01/01/07 3,461,434
960 Chicago, IL Tax Increment (b)............. 7.250 01/01/14 982,349
10,000 Chicago, IL Wastewtr Trans Rev Cap Apprec
Rfdg Ser A (MBIA Insd).................... * 01/01/22 2,712,200
</TABLE>
See Notes to Financial Statements
18
<PAGE> 66
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$1,285 Du Page Cnty, IL Cmnty High Sch Dist No
099 Downers Grove (FSA Insd).............. * 12/01/11 $ 675,396
1,500 Godfrey, IL Rev United Methodist Vlg Ser
A......................................... 5.875% 11/15/29 1,209,315
2,000 Hoopeston, IL Hosp Cap Impt Rev Hoopeston
Cmnty Mem Hosp Rfdg....................... 6.550 11/15/29 1,789,100
2,000 Huntley, IL Increment Alloc Rev Huntley
Redev Proj Ser A.......................... 8.500 12/01/15 2,205,320
280 Huntley, IL Spl Svc Area No 10 Spl Tax Ser
A......................................... 6.250 03/01/09 269,954
2,629 Huntley, IL Spl Svc Area No 10 Spl Tax Ser
A......................................... 6.500 03/01/29 2,447,389
1,000 Huntley, IL Spl Svc Area No 7 Spl Tax..... 6.300 03/01/28 905,210
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj.............................. 8.000 11/15/16 1,452,995
1,000 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj........................... 7.500 08/15/26 1,018,180
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Ser A Rfdg.......................... 7.400 08/15/23 3,008,880
4,145 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser D (b)............................ 9.500 11/15/15 4,367,586
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp
Oblig Group Ser B (Prerefunded @ 02/15/05)
(b)....................................... 8.000 02/15/25 1,131,220
4,685 Illinois Hlth Fac Auth Rev Midwest
Physician Group Ltd Proj (Prerefunded @
11/15/04) (b)............................. 8.100 11/15/14 5,312,509
2,000 Illinois Hlth Facs Auth Rev............... 7.500 01/01/11 1,804,540
1,440 Illinois Hlth Facs Auth Rev Silver Cross
Hosp & Med Rfdg........................... 5.500 08/15/19 1,253,203
4,175 Illinois Hlth Facs Auth Rev Silver Cross
Hosp & Med Rfdg........................... 5.500 08/15/25 3,520,569
4,575 Illinois Hlth Facs Auth Rev West Suburban
Hosp Ser A Rfdg........................... 5.750 07/01/20 3,819,484
1,000 Illinois Hlth Facs Auth Rev Central
Baptist Home Project...................... 7.125 11/15/29 949,290
1,800 Peoria, IL Spl Tax Weaver Ridge Spl Svc
Area...................................... 8.050 02/01/17 1,887,552
2,095 Regional Tran Auth IL Ser B (AMBAC Insd)
(b)....................................... 8.000 06/01/17 2,648,750
3,953 Robbins, IL Res Recovery Rev Restructuring
Proj Ser A (d)............................ 8.375 10/15/16 1,778,906
</TABLE>
See Notes to Financial Statements
19
<PAGE> 67
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$1,547 Robbins, IL Res Recovery Rev Restructuring
Proj Ser B (d)............................ 8.375% 10/15/16 $ 696,094
613 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C................................ 7.250 10/15/09 588,885
2,652 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C................................ 7.250 10/15/24 2,493,071
619 Robbins, IL Res Recovery Rev Restructuring
Proj Ser D................................ * 10/15/09 290,813
1,705 St Charles, IL Spl Svc Area No 21......... 6.625 03/01/28 1,552,010
1,000 Sterling, IL Rev Hoosier Care Proj Ser
A......................................... 7.125 06/01/34 910,430
470 Will Cnty, IL Forest Presv Dist Ser B
(FGIC Insd)............................... * 12/01/13 220,651
------------
100,395,475
------------
INDIANA 1.5%
825 Crawfordsville, IN Redev Comm Redev Dist
Tax Increment Rev......................... 7.000 02/01/12 804,672
2,000 East Chicago, IN Exempt Fac Inland Steel
Co Proj No 14............................. 6.700 11/01/12 1,830,700
1,995 Indiana Hlth Fac Fin Auth Rev Hoosier Care
Proj Ser A................................ 7.125 06/01/34 1,816,308
3,000 Indiana Hlth Fac Fin Auth Rev Metro Hlth &
IN Inc Proj............................... 6.400 12/01/33 2,542,260
980 Indiana Hlth Fac Fin Auth Rev Metro Hlth &
IN Inc Proj............................... 6.300 12/01/23 843,790
4,000 Indiana St Dev Fin Auth Pollutn Ctl Rev
Inland Steel Co Proj No 13 Rfdg (b)....... 7.250 11/01/11 3,843,200
2,000 Jasper Cnty, IN Econ Dev Rev.............. 5.600 04/01/29 1,704,480
1,000 South Bend, IN Econ Dev Rev Ser A......... 6.250 11/15/29 860,320
------------
14,245,730
------------
IOWA 0.1%
1,500 Cedar Rapids, IA Rev First Mtg Cottage
Grove..................................... 5.875 07/01/28 1,222,095
------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 68
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
KANSAS 0.3%
$ 480 Kansas City, KS Crawford Cnty Leavenworth
Single Family Mtg Rev (AMBAC Insd)........ * 04/01/16 $ 87,058
1,000 Lawrence, KS Coml Dev Rev Holiday Inn Sr
Ser A..................................... 8.000% 07/01/16 1,033,100
1,000 Manhattan, KS Coml Dev Rev Holiday Inn Sr
Ser A Rfdg................................ 8.000 07/01/16 1,038,160
1,000 Olathe, KS Sr Living Fac Rev Aberdeen Vlg,
Inc. Ser A................................ 8.000 05/15/30 986,970
------------
3,145,288
------------
KENTUCKY 0.7%
2,300 Jefferson Cnty, KY Hosp Rev (MBIA Insd)
(Inverse Fltg)............................ 7.364 10/01/08 2,507,000
900 Jefferson Cnty, KY Hosp Rev (Prerefunded @
10/01/02) (MBIA Insd) (Inverse Fltg)...... 7.364 10/01/08 991,125
1,000 Kenton Cnty, KY Aprt Brd Spl Facs Rev
Mesaba Aviation Inc Proj Ser A............ 6.700 07/01/29 950,010
2,500 Newport, KY Pub Pptys Corp Rev First Mtg
Pub Pkg & Plaza A 1....................... 8.500 01/01/27 2,510,100
------------
6,958,235
------------
LOUISIANA 2.0%
5,755 Jefferson, LA Sales Tax Dist Spl Sales Tax
Rev (FSA Insd)............................ * 12/01/14 2,556,371
4,000 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A.......................... 7.125 01/01/28 3,733,000
2,000 Louisiana Loc Govt Envir Facs Hlthcare
Saint James Place Ser A Rfdg.............. 8.000 11/01/29 1,960,960
1,000 Louisiana Pub Facs Auth Rev Progressive
Hlthcare.................................. 6.375 10/01/20 876,560
1,000 Louisiana Pub Facs Auth Rev Progressive
Hlthcare.................................. 6.375 10/01/28 847,900
4,875 Louisiana St Hlth Edl Auth Rev Lambeth
House A Rfdg.............................. 5.250 01/01/05 4,664,839
3,862 Louisiana St Univ Agric & Mech College
Univ Rev.................................. 5.750 10/30/18 3,461,901
1,435 Webster Parish, LA Pollutn Ctl Rev Intl
Paper Co Proj Ser B Rfdg.................. 5.200 03/01/13 1,288,601
------------
19,390,132
------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 69
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MAINE 0.1%
$ 25 Maine Hlth & Higher Edl Facs Auth Rev Ser
B (FSA Insd).............................. 7.000% 07/01/24 $ 27,463
1,225 Maine Hlth & Higher Edl Facs Auth Rev Ser
B (Prerefunded @ 07/01/04) (FSA Insd)..... 7.000 07/01/24 1,345,662
------------
1,373,125
------------
MARYLAND 1.3%
1,000 Baltimore Cnty, MD Mtg Rev Shelter Elder
Care Ser A................................ 7.250 11/01/29 921,150
2,000 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser B Rfdg...... 7.500 06/01/15 2,035,620
1,500 Frederick Cnty, MD Spl Oblig Urbana Cmnty
Dev Auth.................................. 6.625 07/01/25 1,417,500
1,015 Maryland St Econ Dev Corp Rev Air Cargo
BWI LLC Proj.............................. 6.250 07/01/07 990,681
1,260 Maryland St Econ Dev Corp Rev Air Cargo
BWI LLC Proj.............................. 6.500 07/01/24 1,186,794
3,000 Montgomery Cnty, MD Econ Dev Editorial
Projs In Edl Ser A........................ 6.400 09/01/28 2,664,450
3,000 Prince Georges Cnty, MD Spl Oblig Spl
Assmt Woodview Ser A...................... 8.000 07/01/26 3,249,720
------------
12,465,915
------------
MASSACHUSETTS 3.3%
1,000 Massachusetts St Dev Fin Agy Mchsp Human
Svs Providers A........................... 8.000 07/01/20 1,000,000
3,945 Massachusetts St Dev Fin Agy New England
Center For Children (b)................... 6.000 11/01/19 3,324,530
2,000 Massachusetts St Dev Fin Agy Rev Health
Care Facility Alliance Ser A.............. 7.100 07/01/32 1,877,680
2,000 Massachusetts St Dev Fin Agy Rev Hillcrest
Ed Cent Inc. ............................. 6.375 07/01/29 1,908,240
7,000 Massachusetts St Hlth & Edl Fac Auth Rev
New England Med Cent Hosp Ser G (Embedded
Swap) (MBIA Insd) (b)..................... 5.000 07/01/13 6,594,560
1,929 Massachusetts St Hsg Fin Agy Hsg Rev Insd
Rental Ser A Rfdg (AMBAC Insd)............ 6.650 07/01/19 1,989,020
780 Massachusetts St Indl Fin Agy First Mtg
Pilgrim Inc Proj.......................... 6.500 10/01/15 698,069
1,270 Massachusetts St Indl Fin Agy Rev Grtr
Lynn Mental Hlth.......................... 6.200 06/01/08 1,191,031
2,965 Massachusetts St Indl Fin Agy Grtr Lynn
Mental Hlth............................... 6.375 06/01/18 2,635,262
</TABLE>
See Notes to Financial Statements
22
<PAGE> 70
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 575 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent........................... 8.000% 12/01/06 $ 603,106
1,085 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent........................... 8.375 12/01/13 1,189,486
675 Massachusetts St Indl Fin Agy Rev Dimmock
Cmnty Hlth Cent........................... 8.500 12/01/20 742,946
6,100 Massachusetts St Indl Fin Agy Rev Swr Fac
Res Ctl Composting........................ 9.250 06/01/10 6,180,215
2,000 Massachusetts St Indl Fin Agy Trustees
Deerfield Academy......................... 6.750 10/01/28 1,742,880
------------
31,677,025
------------
MICHIGAN 2.8%
2,000 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @ 05/01/04)
(b)....................................... 7.600 05/01/16 2,224,920
5,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev (MBIA Insd)................. 4.750 07/01/25 4,252,400
1,000 Detroit, MI Loc Dev Fin Auth Ser C........ 6.850 05/01/21 968,030
3,100 Detroit, MI Sewage Disposal Rev (Embedded
Swap) (FGIC Insd)......................... 7.314 07/01/23 2,879,125
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev
First Mtg Burcham Hills Ser A............. 7.500 07/01/13 2,411,486
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev
First Mtg Burcham Hills Ser A............. 7.750 07/01/19 3,506,798
3,000 Michigan St Hosp Fin Auth Rev Detroit Med
Cent Oblig Ser A.......................... 5.250 08/15/23 2,225,220
4,250 Michigan St Hosp Fin Auth Rev Detroit Med
Cent Oblig Ser A.......................... 5.250 08/15/28 3,061,487
8,774 Michigan St Strategic Fd Ltd Oblig Rev
Great Lakes Pulp & Fiber Proj (e)......... 8.000 12/01/27 4,387,043
525 Saint Clair Cnty, MI Econ Dev Corp Kmart
Proj...................................... 9.500 02/01/06 530,156
------------
26,446,665
------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 71
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MINNESOTA 0.9%
$1,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Pf Ser A................... 6.000% 10/01/28 $ 833,130
2,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser B................. 6.000 10/01/33 1,651,640
1,425 Columbia Heights, MN Multi-Family Crest
View Corp Proj............................ 6.000 03/01/33 1,176,223
500 Dakota Cnty, MN Hsg & Redev............... 6.000 11/01/09 475,505
2,500 Dakota Cnty, MN Hsg & Redev............... 6.250 05/01/29 2,291,225
815 Little Canada, MN Fac Rev Hsg Alt Dev Co
Proj Ser A................................ 6.100 12/01/17 755,970
1,500 Saint Paul, MN Port Auth Hotel Fac Rev
Radisson Kellogg Proj Ser 2............... 7.375 08/01/29 1,460,175
------------
8,643,868
------------
MISSOURI 1.7%
580 Ferguson, MO Tax Increment Rev Crossings
at Halls Ferry Proj....................... 7.250 04/01/07 568,185
3,095 Ferguson, MO Tax Increment Rev Crossings
at Halls Ferry Proj....................... 7.625 04/01/17 2,992,896
675 Ferguson, MO Tax Increment Rev Crossings
at Halls Ferry Proj....................... 7.625 04/01/18 652,124
905 Jefferson Cnty, MO Indl Dev Auth Indl Rev
Cedars Hlthcare Cent Proj Ser A Rfdg...... 8.250 12/01/15 945,490
4,135 Missouri St Hlth & Edl Fac Rev Bjc Hlth
Sys (MBIA Insd)........................... 5.000 05/15/38 3,488,369
5,000 Saline Cnty, MO Indl Dev Auth Hlth Facs
Rev....................................... 6.500 12/01/28 4,299,250
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)
(b)....................................... 6.000 06/01/15 1,074,960
2,000 Valley Park, MO Indl Dev Auth Sr Hsg Rev
Cape Albeon Proj.......................... 6.150 12/01/33 1,790,260
------------
15,811,534
------------
NEBRASKA 0.3%
1,400 Nebraska Invt Fin Auth Single Family Mtg
Rev (Inverse Fltg) (GNMA Collateralized)
(b)....................................... 9.507 10/17/23 1,485,750
1,200 Nebraska Invt Fin Auth Single Family Mtg
Rev (Inverse Fltg) (GNMA Collateralized)
(b)....................................... 10.669 09/10/30 1,263,000
------------
2,748,750
------------
</TABLE>
See Notes to Financial Statements
24
<PAGE> 72
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEVADA 0.5%
$3,000 Clark Cnty, NV Indl Dev Rev Adj NV Power
Co Proj Ser C Rfdg........................ 5.500% 10/01/30 $ 2,501,070
1,945 Reno, NV Redev Agy Tax Alloc Downtown
Redev Proj Ser E Rfdg (Prerefunded @
09/01/03)................................. 5.600 09/01/09 2,004,070
------------
4,505,140
------------
NEW HAMPSHIRE 1.3%
2,000 New Hampshire Higher Edl & Hlth Fac Auth
Rev Havenwood-Heritage Heights............ 7.350 01/01/18 2,042,200
2,000 New Hampshire Higher Edl & Hlth Fac Auth
Rev Havenwood-Heritage Heights............ 7.450 01/01/25 2,036,100
4,000 New Hampshire Higher Edl & Hlth Fac Auth
Rev Hosp Catholic Med Cent Rfdg (b)....... 8.250 07/01/13 4,085,320
3,285 New Hampshire Higher Edl & Hlth Fac Auth
Rev Vly Regl Hosp......................... 7.350 04/01/23 3,286,971
1,000 New Hampshire St Business Fin Auth Rev
Alice Peck Day Hlth Sys Ser A............. 6.875 10/01/19 940,380
------------
12,390,971
------------
NEW JERSEY 1.9%
2,240 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig........................... 8.400 04/01/24 2,264,797
2,000 New Jersey Econ Dev Auth Assisted Living
Rev....................................... 6.750 08/01/30 1,769,460
1,000 New Jersey Econ Dev Auth Econ Dev Rev..... 6.375 04/01/18 974,450
1,820 New Jersey Econ Dev Auth Rev Kullman Assoc
Proj Ser A................................ 6.125 06/01/18 1,641,422
2,000 New Jersey Econ Dev Auth Rev Sr Living
Facs Esplandade........................... 7.000 06/01/39 1,798,160
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.................. 8.500 11/01/16 1,058,460
1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.................. 8.625 11/01/25 1,593,840
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 3,626,670
500 New Jersey Econ Dev Auth Rev Sr Mtg Arbor
Glen Ser A Rfdg........................... 6.000 05/15/28 414,820
</TABLE>
See Notes to Financial Statements
25
<PAGE> 73
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$1,650 New Jersey Hlthcare Fac Fin Auth Rev
Raritan Bay Med Cent Issue Rfdg........... 7.250% 07/01/14 $ 1,557,616
1,275 New Jersey St Edl Fac Auth Rev Felician
College of Lodi Ser D..................... 7.375 11/01/22 1,326,089
------------
18,025,784
------------
NEW MEXICO 0.7%
4,000 Albuquerque, NM Retirement Facs Rev Vida
Liena Proj Ser B Rfdg..................... 6.600 12/15/28 3,485,040
2,160 Bernalillo Cnty, NM Multi-Family Hsg
Brentwood Gardens Apt B1.................. 6.600 10/15/28 2,006,273
1,500 New Mexico St Hosp Equip Ln Memorial Med
Cent Inc (ACA Insd)....................... 5.500 06/01/28 1,305,090
------------
6,796,403
------------
NEW YORK 4.4%
1,000 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van
Allen Proj Ser A.......................... 6.875 06/01/39 900,510
2,400 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev................................... 6.375 12/01/37 2,071,680
2,000 Huntington, NY Hsg Auth Sr Hsg Fac Rev
Gurwin Jewish Sr Residences Ser A......... 6.000 05/01/29 1,632,440
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg.............. 7.500 03/01/26 1,560,270
1,000 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev
Empire Sports Proj Ser A.................. 6.250 03/01/28 784,650
3,000 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)
(b)....................................... 6.250 11/15/06 3,191,010
1,500 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)
(b)....................................... 6.375 11/15/07 1,611,825
2,000 New York City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd)
(b)....................................... 6.500 11/15/09 2,159,320
2,000 New York City Indl Dev Agy Field Hotel
Assoc Lp JFK Rfdg......................... 6.000 11/01/28 1,728,920
5,000 New York City Ser A (b)................... 7.000 08/01/07 5,535,500
3,000 New York City Ser D Rfdg (b).............. 8.000 02/01/05 3,362,100
10,330 New York City Subser A1 (Embedded Swap)... 5.585 08/01/12 10,380,824
2,500 New York St Energy Resh & Dev Auth Gas Fac
Rev (Inverse Fltg)........................ 8.224 04/01/20 2,640,625
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 1,010,500
</TABLE>
See Notes to Financial Statements
26
<PAGE> 74
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 750 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent
Ser B..................................... 5.250% 04/01/02 $ 755,295
2,000 Saratoga Cnty, NY Indl Dev Agy Sr Hsg
Rev....................................... 6.875 06/01/39 1,798,780
1,000 Suffolk Cnty, NY Indl Dev Agy Continuing
Care Retirement Cmnty Rev................. 7.250 11/01/28 973,500
------------
42,097,749
------------
NORTH CAROLINA 0.5%
5,510 Charlotte, NC Spl Facs Rev Charlotte
Douglas Intl Rfdg......................... 5.600 07/01/27 4,435,385
------------
NORTH DAKOTA 0.2%
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj...................................... 6.250 12/01/34 855,350
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj...................................... 6.375 12/01/34 870,850
------------
1,726,200
------------
OHIO 1.9%
1,500 Akron Bath Copley, OH St Twp Hosp Dist Rev
Summa Hosp................................ 5.375 11/15/24 1,178,400
3,750 Cleveland, OH Arpt Spl Rev Continental
Airls Inc Proj............................ 5.375 09/15/27 2,980,500
2,250 Cleveland, OH Arpt Spl Rev Continental
Airls Inc Rfdg............................ 5.700 12/01/19 1,942,043
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 2,546,210
2,000 East Liverpool, OH Hosp Rev East Liverpool
City Hosp Ser A (Prerefunded @ 10/01/01)
(b)....................................... 8.125 10/01/11 2,140,640
2,000 Madison Cnty, OH Hosp Impt Rev Madison
Cnty Hosp Proj Rfdg....................... 6.400 08/01/28 1,736,560
2,500 Ohio St Solid Waste Rev CSC Ltd Proj...... 8.500 08/01/22 2,370,875
3,700 Ohio St Solid Waste Rev Rep Engineered
Steels Proj............................... 8.250 10/01/14 1,222,517
1,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj............................... 9.000 06/01/21 330,380
------------
17,993,125
------------
</TABLE>
See Notes to Financial Statements
27
<PAGE> 75
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OKLAHOMA 0.6%
$11,030 McAlester, OK Pub Wks Auth Util Sys Rev
(FSA Insd)................................ * 02/01/30 $ 1,723,438
1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa
Proj Ser A Rfdg........................... 7.000% 04/01/25 936,980
3,250 Tulsa Cnty, OK Pub Facs Auth.............. 6.250 11/01/22 3,222,602
------------
5,883,020
------------
OREGON 1.1%
2,000 Clackamas Cnty, OR Hosp Fac Auth Rev
Willamette View Inc Proj Ser A............ 7.500 11/01/29 1,952,280
1,245 Clatsop Care Cent Hlth Dist OR Rev Sr
Hsg....................................... 6.000 08/01/14 1,106,021
2,145 Clatsop Care Cent Hlth Dist OR Rev Sr
Hsg....................................... 6.875 08/01/28 1,873,786
4,000 Oregon St Hlth Hsg Edl & Cultural Facs
Auth...................................... 7.250 06/01/28 3,780,320
1,750 Salem Keizer, OR Sch Dist No 24J.......... 5.000 06/01/13 1,698,147
------------
10,410,554
------------
PENNSYLVANIA 7.5%
2,000 Allegheny Cnty, PA Ctfs Partn (AMBAC
Insd)..................................... 5.000 12/01/28 1,746,160
1,000 Allegheny Cnty, PA Indl Dev Auth Lease
Rev....................................... 6.625 09/01/24 952,640
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 6,456,300
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks
Vlg Inc Proj Rfdg (Prerefunded @ 05/15/06)
(b)....................................... 7.700 05/15/22 1,153,440
1,900 Bucks Cnty, PA Indl Dev Auth Rev First
Mortgage Hlthcare Fac Chandler............ 6.200 05/01/19 1,667,345
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl
Rev Bethlehem Steel Corp Proj Rfdg........ 7.500 09/01/15 4,053,280
1,500 Cliff House Ctf Trust Var Sts Variable
Ctfs Partn Ser A.......................... 6.625 06/01/27 1,376,760
2,000 Cumberland Cnty, PA Indl Dev Auth Rev
First Mtg Woods Cedar Run Ser A Rfdg...... 6.500 11/01/28 1,693,960
3,000 Dauphin Cnty, PA Genl Auth Rev Office &
Pkg Riverfront Office..................... 6.000 01/01/25 2,729,100
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel &
Conf Cent Hyatt Regency................... 6.200 01/01/29 4,495,650
1,500 Delaware Cnty, PA Auth First Mtg Rev
Riddle Vlg Proj........................... 7.000 06/01/21 1,437,660
1,000 Grove City, PA Area Hosp Auth Hlth Fac
Rev....................................... 6.625 08/15/29 874,410
</TABLE>
See Notes to Financial Statements
28
<PAGE> 76
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$3,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd)............................... 7.390% 06/18/15 $ 3,552,500
1,000 Lancaster Cnty, PA Hosp Auth Rev Hlth Cent
Saint Anne's Home......................... 6.625 04/01/28 898,180
2,000 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Oblig Group..................... 6.000 11/01/23 1,696,500
1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev
Lifepath Inc Proj......................... 6.300 06/01/28 834,250
2,000 McKean Cnty, PA Hosp Auth Hosp Rev
Bradford Hosp Proj (Crossover Rfdg @
10/01/00)................................. 8.875 10/01/20 2,081,240
2,000 Montgomery Cnty, PA Higher Ed & Hlth Auth
Rev....................................... 6.750 07/01/29 1,780,000
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 7,488,228
500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Rfdg......... 7.000 12/01/10 493,850
2,500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Rfdg......... 7.250 12/01/15 2,493,850
6,000 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Rfdg......... 7.400 12/01/20 6,025,140
985 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy........................ 7.750 09/01/24 1,009,329
1,500 Northeastern PA Hosp & Ed Auth Hlthcare
Rev....................................... 7.125 10/01/29 1,456,035
3,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D (b)........ 7.050 12/01/10 3,098,700
5,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)..................................... 9.180 09/01/26 5,912,500
1,000 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev........................ 4.500 07/15/21 824,590
1,500 Scranton Lackawanna, PA Hlth & Welfare
Auth Rev Rfdg............................. 7.250 01/15/17 1,496,880
2,000 Scranton Lackawanna, PA Hlth & Welfare
Auth Rev Rfdg............................. 7.350 01/15/22 2,020,260
------------
71,798,737
------------
RHODE ISLAND 0.2%
1,955 Providence, RI Redev Agy Ctfs Partn Ser
A......................................... 8.000 09/01/24 2,047,217
------------
</TABLE>
See Notes to Financial Statements
29
<PAGE> 77
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
SOUTH CAROLINA 1.3%
$ 115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd) (b)................................. 7.000% 06/01/19 $ 123,592
2,385 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)
(b)....................................... 7.000 06/01/19 2,617,585
3,500 Charleston Cnty, SC Indl Rev Zeigler Coal
Hldgs Rfdg................................ 6.950 08/10/28 2,872,380
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl
Inc Ser 84 (Var Rate Cpn)................. 8.250 06/15/04 1,000,000
2,000 South Carolina Jobs Econ Impt Palmetto
Hlth Alliance Ser A....................... 7.375 12/15/21 1,968,880
4,000 South Carolina St Hsg Fin & Dev Auth
Multi-Family Rev.......................... 6.750 05/01/28 3,788,560
------------
12,370,997
------------
SOUTH DAKOTA 0.3%
805 Keystone, SD Econ Dev Rev Wtr Quality Mgmt
Corp Ser A................................ 5.500 12/15/08 759,437
1,810 Keystone, SD Econ Dev Rev Wtr Quality Mgmt
Corp Ser A................................ 6.000 12/15/18 1,615,678
------------
2,375,115
------------
TENNESSEE 2.3%
1,000 Chattanooga, TN Indl Dev Brd Indl Rev Dev
Mkt Street Proj Rfdg...................... 7.000 12/15/12 988,450
5,000 Chattanooga, TN Indl Dev Brd Indl Rev Dev
Mkt Street Proj Rfdg...................... 7.000 12/15/12 4,942,250
3,000 Elizabethton, TN Hlth & Edl Fac Brd Rev
Rfdg...................................... 7.750 07/01/29 2,979,180
3,000 SCA Tax Exempt Trust Multi-Family Mtg
Memphis Hlth Edl Rev Bond Receipt Ser A6
(FSA Insd)................................ 7.350 01/01/30 3,200,400
6,065 Sullivan Cnty, TN Hlth Edl & Hsg Facs Brd
Rev....................................... 8.410 11/01/19 6,590,229
3,150 Trenton, TN Hlth & Edl Facs Brd Rev
Rha/Trenton Mr Inc Proj Ser A............. 10.000 11/01/19 3,411,639
1,160 Trenton, TN Hlth & Edl Facs Brd Rev
Rha/Trenton Mr Inc Prog Ser B (d)......... 10.000 11/01/20 150,800
------------
22,262,948
------------
</TABLE>
See Notes to Financial Statements
30
<PAGE> 78
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS 10.3%
$1,000 Abia Dev Corp TX Arpt Facs Rev Austin
Belly Port Dev LLC Proj Ser A............. 6.250% 10/01/08 $ 953,600
2,000 Abia Dev Corp TX Arpt Facs Rev Austin
Belly Port Dev LLC Proj Ser A............. 6.500 10/01/23 1,838,440
1,500 Abilene, TX Hlth Facs Dev Sears Methodist
Retirement Ser A.......................... 5.875 11/15/18 1,272,615
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High
Plains Baptist Hosp (Inverse Fltg) (FSA
Insd) (b)................................. 8.936 01/01/22 2,180,000
1,000 Atlanta, TX Hosp Auth Hosp Fac Rev........ 6.700 08/01/19 921,750
2,035 Atlanta, TX Hosp Auth Hosp Fac Rev........ 6.750 08/01/29 1,850,242
1,000 Austin, TX Bergstorm Landhost Entmt Sr Ser
A......................................... 6.750 04/01/27 918,650
1,995 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev.............................. 7.600 12/01/17 1,867,280
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd) (b).... 6.000 11/15/12 1,058,560
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd)........ 6.000 11/15/13 2,502,199
1,000 Brazos River Auth TX Rev Houston Lighting
& Power Co Proj Rfdg (AMBAC Insd)......... 5.050 11/01/18 893,880
665 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg...................................... * 08/01/00 646,992
1,165 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg...................................... * 08/01/01 1,044,621
335 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg...................................... * 08/01/02 276,790
1,825 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg...................................... * 08/01/11 722,134
775 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg...................................... 8.750 08/01/11 775,674
2,670 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg...................................... 8.750 08/01/12 2,672,189
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland
Oil Proj Ser 84 Rfdg (Var Rate Cpn)....... 8.920 04/01/04 2,502,825
3,275 Grapevine Colleyville Indpt Sch Dist TX
Formerly Grapevine TX Indpt Sch Dist To
1979...................................... * 08/15/14 1,456,098
5,000 Houston, TX Arpt Sys Rev Spl Facs
Continental Ser C......................... 5.700 07/15/29 4,141,250
2,500 Houston, TX Arpt Sys Rev Spl Fac
Continental Airl Term Impt Ser B (b)...... 6.125 07/15/27 2,207,500
880 Laredo, TX Ctfs Oblig Ser B (MBIA Insd)... 4.500 02/15/17 754,899
2,655 Leander, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd)................................ * 08/15/18 910,639
4,820 Leander, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Insd)................................ * 08/15/21 1,356,830
</TABLE>
See Notes to Financial Statements
31
<PAGE> 79
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$3,990 Leander, TX Indpt Sch Dist Rfdg........... 4.750% 08/15/12 $ 3,735,638
8,880 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd)..................................... 5.875 05/15/14 9,495,029
3,750 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd)..................................... 5.875 05/15/15 3,986,100
1,500 Lubbock, TX Hlth Facs Dev Corp Rev First
Mtg Carillon Proj A....................... 6.500 07/01/19 1,338,480
2,500 Matagorda Cnty, TX Navigation Dist No 1
Houton Lighting Pwr Co Rfdg (AMBAC Insd).. 5.125 11/01/28 2,223,425
3,355 Meadow Parc Dev Inc TX Multi-Family Rev
Hsg Meadow Parc Apts Proj................. 6.500 12/01/30 3,084,956
1,000 Nacogdoches, TX Indl Dev Auth Inc Pollutn
Ctl Rev................................... 5.300 12/01/11 965,920
1,000 North Central TX Hlth Fac Dev Corp Rev
Retirement Fac Nw Sr Hsg Ser A............ 7.250 11/15/19 945,070
1,000 North Central TX Hlth Fac Dev Corp Rev
Retirement Fac Nw Sr Hsg Ser A............ 7.500 11/15/29 959,840
7,800 Port Corpus Christi, TX Indl Valero Conv
Ser C Rfdg................................ 5.400 04/01/18 6,734,130
1,180 Pottsboro, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Insd)........................... * 08/15/17 429,721
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Insd)........................... * 08/15/20 350,279
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Insd)........................... * 08/15/23 288,486
6,000 Rockwall, TX Indpt Sch Dist Cap Apprec
Rfdg (PSF Insd)........................... * 08/15/18 1,978,740
2,345 Texas Gen Svcs Comm Partn Interests....... 7.250 08/15/11 2,395,460
8,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg
Rev (GNMA Collateralized) (Inverse Fltg).. 6.900 07/02/24 8,287,280
2,985 Texas St Higher Edl Coordinating Brd
College Student Ln (i).................... 0/7.850 10/01/25 2,975,985
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 2,188,040
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 2,175,460
</TABLE>
See Notes to Financial Statements
32
<PAGE> 80
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$5,000 West Side Calhoun Cnty, TX Navig Dist
Solid Waste Disp Union Carbide Chem &
Plastics (b).............................. 8.200% 03/15/21 $ 5,200,400
2,500 Woodhill Pub Fac Corp TX Hsg Woodhill Apts
Proj...................................... 7.500 12/01/29 2,481,975
------------
97,946,071
------------
UTAH 0.5%
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj...................................... 7.800 09/01/15 925,540
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj...................................... 8.000 09/01/20 1,071,043
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj...................................... 7.800 09/01/25 911,710
235 Saint George, UT Indl Dev Rev Kmart Corp
Ser 1984A................................. 10.750 10/15/08 240,170
2,500 Tooele Cnty, UT Pollutn Ctl Rev Laidlaw
Environmental Ser A Rfdg.................. 7.550 07/01/27 750,900
985 Utah St Hsg Fin Agy Single Family Mtg Mezz
A1 (AMBAC Insd) (b)....................... 6.100 07/01/13 1,022,164
------------
4,921,527
------------
VERMONT 0.4%
1,000 Vermont Edl & Hlth Bldgs Fin Agy Rev
Bennington College Proj................... 6.625 10/01/29 960,440
1,015 Vermont Edl & Hlth Bldgs Fin Agy Rev Vt
Council Dev Mental Hlth Ser A............. 6.250 04/01/29 874,839
1,000 Vermont Edl & Hlth Bldgs Fin Agy Rev Vt
Council Dev Mental Hlth Ser A............. 6.000 12/15/09 932,410
1,000 Vermont Edl & Hlth Bldgs Fin Agy Rev Vt
Council Dev Mental Hlth Ser A............. 6.125 12/15/14 900,400
------------
3,668,089
------------
</TABLE>
See Notes to Financial Statements
33
<PAGE> 81
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
VIRGINIA 1.7%
$5,000 Alexandria, VA Redev & Hsg Auth 3001 Pk
Cent Apts Ser A Rfdg...................... 6.375% 04/01/34 $ 4,569,650
1,000 Dulles Town Cent Cmnty Dev Auth Dulles
Town Cent Proj............................ 6.250 03/01/26 939,690
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev... 6.625 07/15/20 2,713,573
1,000 Greensville Cnty, VA Indl Dev Wheeling
Steel Proj Ser A.......................... 7.000 04/01/14 907,330
5,000 Peninsula Ports Auth VA Rev Port Fac
Zeigler Coal Rfdg......................... 6.900 05/02/22 4,112,650
1,500 Pittsylvania Cnty, VA Indl Dev Auth Rev
Exempt Fac Ser A.......................... 7.450 01/01/09 1,541,580
1,700 Virginia Small Business Fin Auth Rev Indl
Dev SIL Clean Wtr Proj.................... 7.250 11/01/24 1,693,081
------------
16,477,554
------------
WASHINGTON 0.9%
1,000 King Cnty, WA Pub Hosp Dist Number 004
Snoqualmie Valley Hosp.................... 7.250 12/01/15 990,180
3,500 Spokane Cnty, WA Indl Dev Corp Solid Waste
Disp Rev.................................. 7.600 03/01/27 3,636,535
2,000 Tacoma, WA Hsg Auth Rev Hsg Wedgewood
Homes Proj................................ 6.000 04/01/28 1,777,280
5,500 Washington St Pub Pwr Supply Comp Interest
Ser C Rfdg (MBIA Insd).................... * 07/01/17 2,027,410
------------
8,431,405
------------
WISCONSIN 1.6%
800 Baldwin, WI Hosp Rev Mtg Ser A............ 6.125 12/01/18 718,016
2,590 Baldwin, WI Hosp Rev Mtg Ser A............ 6.375 12/01/28 2,310,565
3,825 Wisconsin St Hlth & Edl Fac Auth Rev
Chippewa Vly Hosp Ser F Rfdg (b).......... 9.500 11/15/12 4,030,402
2,070 Wisconsin St Hlth & Edl Fac Auth Rev Eau
Claire Manor (d).......................... 9.625 06/01/13 1,704,459
1,115 Wisconsin St Hlth & Edl Fac Auth Rev Spl
Term Middleton Glen Inc Proj.............. 5.750 10/01/18 929,732
2,485 Wisconsin St Hlth & Edl Fac Auth Rev Spl
Term Middleton Glen Inc Proj.............. 5.750 10/01/28 1,997,070
360 Wisconsin St Hlth & Edl Facs Auth Rev Spl
Term Middleton Glen Inc Proj.............. 5.900 10/01/28 295,682
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic
Home Proj................................. 7.500 07/01/26 3,057,510
------------
15,043,436
------------
</TABLE>
See Notes to Financial Statements
34
<PAGE> 82
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PUERTO RICO 0.1%
$1,257 Centro de Recaudaciones de Ingresos Muni
Ctfs Partn PR............................. 6.850% 10/17/03 $ 1,282,772
------------
TOTAL MUNICIPAL BONDS 96.7%.................................. 920,344,951
TAXABLE NOTE 0.2%
2,000 Divine Family Trust Saa................... 6.000 10/29/04 2,000,000
------------
TOTAL LONG-TERM INVESTMENTS 96.9%
(Cost $963,253,947)................................................... 922,344,951
SHORT-TERM INVESTMENTS 2.6%
(Cost $24,700,000).................................................... 24,700,000
------------
TOTAL INVESTMENTS 99.5%
(Cost $987,953,947)................................................... 947,044,951
LIABILITIES IN EXCESS OF OTHER ASSETS 0.5%............................. 5,027,867
------------
NET ASSETS 100.0%...................................................... $952,072,818
============
</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 at 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, as amended. 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) Interest only strip.
(i) Security is a "step up" bond where the coupon increases or steps up at a
predetermined date.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
See Notes to Financial Statements
35
<PAGE> 83
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $987,953,947)....................... $ 947,044,951
Cash........................................................ 23,038
Receivables:
Interest.................................................. 18,449,596
Investments Sold.......................................... 1,650,414
Fund Shares Sold.......................................... 531,223
Options at Market Value (Premiums paid of $119,210)....... 316,406
Other....................................................... 52,828
--------------
Total Assets............................................ 968,068,456
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,736,458
Income Distributions...................................... 2,129,475
Fund Shares Repurchased................................... 1,264,669
Distributor and Affiliates................................ 872,496
Investment Advisory Fee................................... 385,519
Variation Margin on Futures............................... 136,719
Trustees' Deferred Compensation and Retirement Plans........ 242,736
Accrued Expenses............................................ 227,566
--------------
Total Liabilities....................................... 15,995,638
--------------
NET ASSETS.................................................. $ 952,072,818
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,116,594,727
Accumulated Distributions in Excess of Net Investment
Income.................................................... (10,690,288)
Net Unrealized Depreciation................................. (41,542,302)
Accumulated Net Realized Loss............................... (112,289,319)
--------------
NET ASSETS.................................................. $ 952,072,818
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $650,108,061 and 48,410,414 shares of
beneficial interest issued and outstanding)............. $ 13.43
Maximum sales charge (4.75%* of offering price)......... .67
--------------
Maximum offering price to public........................ $ 14.10
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $246,824,640 and 18,383,795 shares of
beneficial interest issued and outstanding)............. $ 13.43
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $55,140,117 and 4,107,265 shares of
beneficial interest issued and outstanding)............. $ 13.43
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
36
<PAGE> 84
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 33,790,277
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $828,776, $1,318,283 and $293,630,
respectively)............................................. 2,440,689
Investment Advisory Fee..................................... 2,407,295
Shareholder Services........................................ 461,096
Legal....................................................... 199,100
Custody..................................................... 49,899
Trustees' Fees and Related Expenses......................... 59,941
Other....................................................... 348,976
------------
Total Operating Expenses................................ 5,966,996
Less Credit Earned on Overnight Cash Balances........... 13,138
------------
Net Operating Expenses.................................. 5,953,858
Interest Expense........................................ 130,939
------------
NET INVESTMENT INCOME....................................... $ 27,705,480
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $19,908)....................................... $ (9,186,327)
Options................................................... 20,946
Futures................................................... 855,615
------------
Net Realized Loss........................................... (8,309,766)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (13,964,340)
------------
End of the Period:
Investments............................................. (40,908,996)
Options................................................. 197,196
Futures................................................. (830,502)
------------
(41,542,302)
------------
Net Unrealized Depreciation During the Period............... (27,577,962)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(35,887,728)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (8,182,248)
============
</TABLE>
See Notes to Financial Statements
37
<PAGE> 85
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
-----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................... $ 27,705,480 $ 59,506,011
Net Realized Loss............................... (8,309,766) (8,381,192)
Net Unrealized Depreciation During the Period... (27,577,962) (82,290,513)
-------------- --------------
Change in Net Assets from Operations............ (8,182,248) (31,165,694)
-------------- --------------
Distributions from Net Investment Income........ (27,705,480) (59,506,011)
Distributions in Excess of Net Investment
Income........................................ (819,025) (851,426)
-------------- --------------
Total Distributions from and in Excess of Net
Investment Income*............................ (28,524,505) (60,357,437)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (36,706,753) (91,523,131)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................... 77,729,303 277,570,061
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 14,943,513 28,001,367
Cost of Shares Repurchased...................... (193,151,191) (238,997,282)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. (100,478,375) 66,574,146
-------------- --------------
TOTAL DECREASE IN NET ASSETS.................... (137,185,128) (24,948,985)
NET ASSETS:
Beginning of the Period......................... 1,089,257,946 1,114,206,931
-------------- --------------
End of the Period (Including accumulated
distributions in excess of net investment
income of $10,690,288 and $9,871,263,
respectively)................................. $ 952,072,818 $1,089,257,946
============== ==============
* Distributions by Class
- ------------------------------------------------
Distributions from and in Excess of Net
Investment Income:
Class A Shares................................ $ (20,340,717) $ (43,068,954)
Class B Shares................................ (6,694,144) (14,016,298)
Class C Shares................................ (1,489,644) (3,272,185)
-------------- --------------
$ (28,524,505) $ (60,357,437)
============== ==============
</TABLE>
See Notes to Financial Statements
38
<PAGE> 86
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $13.909 $15.076 $14.845 $14.474 $14.984 $13.848
------- ------- ------- ------- ------- -------
Net Investment Income.... .365 .807 .643 .895 .963 1.024
Net Realized and
Unrealized Gain/Loss... (.447) (1.164) .217 .376 (.513) 1.072
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.082) (.357) .860 1.271 .450 2.096
------- ------- ------- ------- ------- -------
Less Distributions from and
in Excess of Net
Investment Income........ .398 .810 .629 .900 .960 .960
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD................... $13.429 $13.909 $15.076 $14.845 $14.474 $14.984
======= ======= ======= ======= ======= =======
Total Return (a)........... (.57%)* (2.51%) 6.00%* 9.05% 3.21% 15.52%
Net Assets at End of the
Period (In millions)..... $ 650.1 $ 745.2 $ 771.4 $ 706.3 $ 671.9 $ 665.8
Ratio of Expenses to
Average Net Assets (b)... .96% .96% .92% .94% .99% .95%
Ratio of Net Investment
Income to Average Net
Assets (b)............... 5.69% 5.46% 5.66% 6.09% 6.60% 7.05%
Portfolio Turnover......... 18%* 77% 66%* 63% 59% 59%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(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
39
<PAGE> 87
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $13.904 $15.071 $14.844 $14.474 $14.983 $13.850
------- ------- ------- ------- ------- -------
Net Investment Income...... .334 .686 .545 .774 .843 .908
Net Realized and Unrealized
Gain/Loss................ (.469) (1.156) .229 .384 (.506) 1.071
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. (.135) (.470) .774 1.158 .337 1.979
------- ------- ------- ------- ------- -------
Less Distributions from and
in Excess of Net Investment
Income..................... .343 .697 .547 .788 .846 .846
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD..................... $13.426 $13.904 $15.071 $14.844 $14.474 $14.983
======= ======= ======= ======= ======= =======
Total Return (a)............. (.89%)* (3.25%) 5.35%* 8.23% 2.40% 14.62%
Net Assets at End of the
Period (In millions)....... $ 246.8 $ 282.5 $ 279.6 $ 229.6 $ 173.8 $ 137.9
Ratio of Expenses to Average
Net Assets (b)............. 1.71% 1.73% 1.68% 1.71% 1.75% 1.70%
Ratio of Net Investment
Income to Average Net
Assets (b)................. 4.94% 4.70% 4.90% 5.30% 5.84% 6.25%
Portfolio Turnover........... 18%* 77% 66%* 63% 59% 59%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 4%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
sixth year. If the sales charge was included, total returns would be lower.
(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
40
<PAGE> 88
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $13.904 $15.069 $14.842 $14.474 $14.987 $13.846
------- ------- ------- ------- ------- -------
Net Investment Income.... .334 .686 .549 .778 .851 .910
Net Realized and
Unrealized Gain/Loss... (.470) (1.154) .225 .378 (.518) 1.077
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.136) (.468) .774 1.156 .333 1.987
------- ------- ------- ------- ------- -------
Less Distributions from and
in Excess of Net
Investment Income........ .343 .697 .547 .788 .846 .846
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD................... $13.425 $13.904 $15.069 $14.842 $14.474 $14.987
======= ======= ======= ======= ======= =======
Total Return (a)........... (.89%)* (3.25%) 5.35%* 8.23% 2.33% 14.70%
Net Assets at End of the
Period (In millions)..... $ 55.1 $ 61.5 $ 63.2 $ 38.6 $ 18.8 $ 9.5
Ratio of Expenses to
Average Net Assets (b)... 1.71% 1.73% 1.68% 1.71% 1.75% 1.69%
Ratio of Net Investment
Income to Average Net
Assets (b)............... 4.94% 4.69% 4.90% 5.24% 5.84% 6.19%
Portfolio Turnover......... 18%* 77% 66%* 63% 59% 59%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.
(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> 89
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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
applicable security. Income and expenses of the Fund are allocated on a pro rata
42
<PAGE> 90
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 March 31, 2000, for federal income tax purposes, cost of long- and short-
term investments is $987,953,947, the aggregate gross unrealized appreciation is
$27,719,183 and the aggregate gross unrealized depreciation is $68,628,179,
resulting in net unrealized depreciation on long- and short-term investments of
$40,908,996.
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 six months ended March 31, 2000, the Fund's
custody fee was reduced by $13,138 as a result of credits earned on overnight
cash balances.
43
<PAGE> 91
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .50 of 1%
Over $500 million........................................... .45 of 1%
</TABLE>
For the six months ended March 31, 2000, the Fund recognized expenses of
approximately $22,800 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $46,800 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 six months ended March 31,
2000, the Fund recognized expenses of approximately $300,400. 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.
44
<PAGE> 92
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $780,545,515, $274,438,694 and $61,610,518
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 3,983,486 $ 53,960,072
Class B............................................... 1,219,104 16,562,986
Class C............................................... 530,133 7,206,245
----------- -------------
Total Sales............................................. 5,732,723 $ 77,729,303
=========== =============
Dividend Reinvestment:
Class A............................................... 826,533 $ 11,135,764
Class B............................................... 221,740 2,992,513
Class C............................................... 63,435 815,236
----------- -------------
Total Dividend Reinvestment............................. 1,111,708 $ 14,943,513
=========== =============
Repurchases:
Class A............................................... (9,978,361) $(135,347,895)
Class B............................................... (3,375,906) (45,551,918)
Class C............................................... (910,358) (12,251,378)
----------- -------------
Total Repurchases....................................... (14,264,625) $(193,151,191)
=========== =============
</TABLE>
45
<PAGE> 93
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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 and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares eight years
after the end of the calendar month in which the shares were purchased. Class B
shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
shares received on such shares, automatically convert to Class A shares seven
years after the end of the calendar month in which the shares were purchased.
For the six months ended March 31, 2000 and the year ended September 30, 1999,
85,024 and -0- Class B shares automatically converted to Class A shares,
respectively, and are shown in the above tables as sales of Class A shares and
repurchases of Class B shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan C shares received thereon, automatically
convert to Class A shares ten years after the end of the calendar month in which
the shares are purchased. Class C shares purchased on or after January 1, 1997
do not possess a conversion feature. For the six months ended March 31, 2000 and
the year ended September 30, 1999, no Class C shares converted to Class A
shares. The CDSC for Class B and C shares will
46
<PAGE> 94
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
be imposed on most redemptions made within six years of the purchase for Class B
shares and one year of the purchase for Class C shares 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 six months ended March 31, 2000, Van Kampen, as distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $45,900 and CDSC on redeemed shares of approximately $522,500.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $178,814,028 and $345,203,021,
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.
47
<PAGE> 95
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
Transactions in options for the six months ended March 31, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at September 30, 1999........................... 500 $ 15,486
Options Written and Purchased (Net)......................... 11,800 90,906
Options Terminated in Closing Transactions (Net)............ (1,250) (548,500)
Options Expired (Net)....................................... (10,800) 322,898
------- ---------
Outstanding at March 31, 2000............................... 250 $(119,210)
======= =========
</TABLE>
The description and market value of the option contracts outstanding as of
March 31, 2000, is as follows:
<TABLE>
<CAPTION>
MARKET
EXP. MONTH/ VALUE OF
DESCRIPTION CONTRACTS STRIKE PRICE OPTION
<S> <C> <C> <C>
U.S. TREASURY BOND FUTURES
April 2000 - Purchased Call...................... 250 April/97 $ 316,406
=== =========
</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.
48
<PAGE> 96
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
Transactions in futures contracts for the six months ended March 31, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 590
Futures Opened.............................................. 3,202
Futures Closed.............................................. (3,417)
-------
Outstanding at March 31, 2000............................... 375
=======
</TABLE>
The futures contracts outstanding as of March 31, 2000, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
Short Contracts
Municipal Bond Index Futures--June 2000 (Current notional
value $95,344 per contract)............................. 325 $(745,723)
U.S. Treasury Bond Futures--June 2000 (Current notional
value $97,687 per contract)............................. 50 (84,779)
--- ---------
375 $(830,502)
=== =========
</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, as amended, and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution
49
<PAGE> 97
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 six months ended March 31, 2000, are payments retained by Van
Kampen of approximately $1,101,800.
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 September 30, 2000. 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 .09% is
charged on the unused portion of the credit facility.
The average daily balance of bank borrowings for the six months ended March
31, 2000 was approximately $4,379,174 with an average interest rate of 5.96%. At
March 31, 2000, the Fund did not have any outstanding borrowings under this
agreement.
50
<PAGE> 98
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth*
Mid Cap 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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- - 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.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
51
<PAGE> 99
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN TAX FREE HIGH FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 September 30,
2000, the report, if used with prospective investors, must be accompanied by a
quarterly performance update.
52
<PAGE> 100
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and ratification of
KPMG LLP as the independent public accountants.
1) With regard to the election of the following trustees by shareholders of the
Fund:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 53,727,152 538,764
Jerry D. Choate....................................... 53,734,709 531,207
Linda Hutton Heagy.................................... 53,723,065 942,851
R. Craig Kennedy...................................... 53,717,419 548,497
Mitchell M. Merin..................................... 53,718,709 547,207
Jack E. Nelson........................................ 53,691,244 574,672
Richard F. Powers, III................................ 53,709,471 556,445
Phillip B. Rooney..................................... 53,734,219 531,697
Fernando Sisto........................................ 53,702,398 563,518
Wayne W. Whalen....................................... 53,739,598 526,318
Suzanne H. Woolsey, PhD. ............................. 53,704,853 561,063
Paul G. Yovovich*..................................... 53,734,859 531,057
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accounts
for the Fund, 3,203,163 shares voted for the proposal, 13,119 shares voted
against and 34,163 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment advisor.
53
<PAGE> 101
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE HOLDINGS 6
TOP FIVE INDUSTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 25
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 33
FUND OFFICERS AND IMPORTANT ADDRESSES 34
RESULTS OF SHAREHOLDER VOTES 35
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 102
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 103
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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> 104
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 2.68% 2.45% 2.45%
- -------------------------------------------------------------------------
Six-month total return(2) (.66%) (.55%) 1.45%
- -------------------------------------------------------------------------
One-year total return(2) (4.75%) (4.96%) (3.08%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 4.95% 4.87% 4.88%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.37% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.07% 4.13% 3.72%
- -------------------------------------------------------------------------
Commencement date 12/31/85 05/01/93 08/13/93
- -------------------------------------------------------------------------
Distribution rate(3) 4.49% 3.90% 3.90%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 7.74% 6.72% 6.72%
- -------------------------------------------------------------------------
SEC Yield(5) 4.44% 3.84% 3.86%
- -------------------------------------------------------------------------
</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 Class A shares) or
contingent deferred sales charge ("CDSC") for Class B and C Shares. On purchases
of Class A shares of $1 million or more, a CDSC of 1% may be imposed on certain
redemptions made within one year of purchase. Returns for Class B shares are
calculated without the effect of the maximum 3% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the fourth year. Returns for Class C shares are calculated without the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase. If the sales charges were included, total returns would be
lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (3.25% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C shares.
On purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated with the effect of the maximum 3% CDSC, charged on
certain redemptions made within one year of purchase and declining thereafter to
0% after the fourth year. Returns for Class C shares are calculated with the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase.
(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.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 105
Continued from page 3.
(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 March 31, 2000.
See the Risk/Return Summary section of the current prospectus. There is no
assurance the Fund will achieve its investment objective. The Fund is subject to
investment risks. These risks include, but are not limited to: market risk--the
possibility that the market values of securities owned by the Fund will decline:
credit risk--refers to an issuer's ability to make timely payments of interest
or principal; income risk--the possibility that the income or return of the Fund
may decline due to changes in interest rates; call risk--the possibility that
the issuer will prepay their securities before maturity; municipal securities
risk--the possibility that yields on municipal securities may move differently
than the overall debt securities market; state specific risk--the susceptibility
of investments to political, economic, regulatory or other matter to a specific
state; derivative investments risk--a derivative investment is one whose value
depends on (or is derived from) the value of an underlying asset, interest rate
or index and involves risks different from investment in the underlying
security; and manager risk--management may not be successful in selecting the
best performing securities and the Fund's performance may lag behind that of
similar funds. Please read the Fund's prospectus for more detailed information.
Fund shares, when redeemed, may be worth more or less than their original cost.
Past performance is no guarantee of future results. Investment return and net
asset value will fluctuate with market conditions.
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.
4
<PAGE> 106
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of March 31, 2000
<S> <C> <C>
- - AAA/Aaa............ 100%
[PIE CHART]
<CAPTION>
As of September 30, 1999
<S> <C> <C>
- - AAA/Aaa............ 100%
[PIE CHART]
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0690
11/99 0.0690
12/99 0.0690
1/00 0.0670
2/00 0.0670
3/00 0.0670
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 107
TOP FIVE HOLDINGS
(as a percentage of long-term investments--March 31, 2000)
<TABLE>
<S> <C> <C>
California State Refunding 3.6%
- ---------------------------------------------------------------------
San Mateo County, CA Joint Powers Finance Authority Lease
Revenue Capital Projects Refunding 3.2%
- ---------------------------------------------------------------------
San Jose, CA Finance Authority Revenue Convention Project 3.1%
- ---------------------------------------------------------------------
Westlands, CA Water District Revenue Certificates of
Participation 3.0%
- ---------------------------------------------------------------------
Corona, CA Redevelopment Agency Tax Allocation
Redevelopment Project Area A Refunding 2.8%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Tax District 23.60 25.20
Public Education 17.20 20.00
Public Building 13.80 13.60
Water & Sewer 12.50 6.20
General Purpose 12.00 9.10
</TABLE>
6
<PAGE> 108
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
CALIFORNIA INSURED TAX FREE FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT
SHAPED THE MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE
JOSEPH PIRARO, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1992 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1971. HE IS JOINED BY PETER W. HEGEL,
CHIEF INVESTMENT OFFICER FOR FIXED-INCOME INVESTMENTS. THE FOLLOWING DISCUSSION
REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED MARCH
31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Clearly, steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
decline as interest rates rise, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate a key short-term borrowing rate, to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding treasury debt.
Q HOW DID THE MUNICIPAL
MARKET RESPOND?
A The performance of municipal
bonds has typically correlated to a degree with the taxable Treasury bond
market. Unfortunately, municipals lagged Treasuries in the fourth quarter of
1999. Widespread year 2000 (Y2K) jitters and a strong supply of municipal bond
issuance put a damper on nearly every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are actively making tax-related adjustments to their investment
program. But this year, investors were worried about higher interest rates and
potential Y2K fallout early in the year, so they avoided or pulled out of the
municipal market. Consequently, many municipal bond funds had negative returns
for January.
Municipal bond funds in general have been losing assets lately because
they're competing with the soaring stock
7
<PAGE> 109
market for investors' interest. Also, investors were rattled by recent negative
returns from municipal bonds and the threat of even higher interest rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. With the strength of the economy, fewer issuers see the need to insure
their bonds, so supply in the insured market, which accounted for roughly 50
percent of all new issuance about a year ago, now represents less than 40
percent of the market. Even the municipal market in California, which has been
historically, the top issuer of municipal bonds in the nation, has been
especially tight over the past six months. The combination of a strong Treasury
bond market and the lack of supply in municipals helped make February and March
positive months for the fixed-income markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of their municipal bond investments
while still earning an attractive level of income.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A We've seen tough times in the
health-care sector. With the uncertainties involved in managed care--who pays
for what and how much--and the rising cost of services, many health-care
providers are under tremendous profitability pressures. In this situation,
investors have become concerned about the creditworthiness of the bond issuers,
and many of them have shied away from this sector of the market.
Even within the insured sector, the impact of this uncertainty is evident.
The yield spread between insured health-care issues and insured bonds in other
sectors increased to 15 basis points, up from 5 basis points, over the past six
months. This suggests that investors want a higher yield to compensate for the
higher perceived credit risk of investing in health-care bonds--even those that
are insured. It appears that bad news has tainted the group as a whole, so
investors are less comfortable investing within this sector.
Q HOW DID THESE FACTORS AFFECT
THE WAY YOU MANAGED THE FUND'S PORTFOLIO?
A Our research analysts have been
wary of the health-care sector for some time. We have been forced to be more
selective due to the low supply of insured municipal bonds, so we rely on our
research capabilities to examine the underlying credits and sectors, even though
these are insured issues. California is an especially expensive bond market
compared to other states,
8
<PAGE> 110
as high demand by investors has driven prices higher in the face of relatively
low supply of California municipal bonds. To compensate, we had to look closely
at the value of each sector to identify attractive investment opportunities.
On the whole, the composition of the Fund's portfolio was generally stable
over the six-month reporting period, with the largest allocation of Fund
long-term investments going to tax district, public education, public building,
and water and sewer bonds.
Due to year-end tax selling, we were able to purchase a number of low-
coupon bonds with yields in the range of 4.75 to 5.00 percent at significant
discounts. We determined that this sector of the market was very attractively
priced, so we began buying in January. Since then, these securities have
outperformed the market. Of course, not all the bonds in the Fund performed as
favorably, nor is there any guarantee that any of the bonds mentioned in this
report will continue to perform as well or will be held by the Fund in the
future.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A During the reporting period, the
Fund's total return was above the average for its peer group, primarily because
we were able to identify pockets of value within the marketplace and take
advantage of buying opportunities. As of March 31, 2000, the Fund achieved a
six-month total return of 2.68 percent (Class A shares at net asset value; if
the maximum sales charge of 3.25 percent were included, the return would have
been lower). By comparison, the Lehman Brothers Municipal Bond Index produced a
total return of 2.63 percent for the same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance is no guarantee of future results.
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from state and federal income tax, rather than investing for capital
appreciation.
Although the Fund's monthly tax-exempt dividend was decreased to $.067 from
$.069 per Class A share during the past six months, its distribution rate stood
at 4.49 percent at the end of the reporting period. With this in mind, we'd like
to point out that California investors would have to earn a distribution rate of
7.74 percent on a taxable investment (for an investor in the 42 percent combined
state and federal income tax bracket) to match the tax-exempt yield provided by
the Fund.
9
<PAGE> 111
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
As the economy continues to be strong, many bond issuers have enjoyed
surpluses, causing little pressure to issue new debt. A continuation of weak
supply could lend price support to the municipal market as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three more interest-rate
hikes within the next quarter or two.
Overall, we will continue to manage the Fund with a long-term perspective,
relying on our research.
10
<PAGE> 112
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each are
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest-rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising-rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA rated. Recently, an A rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 113
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 98.8%
$1,045 A B C CA Uni Sch Dist Cap Apprec Ser B
(FGIC Insd) (a)........................... * 08/01/18 $ 367,976
1,000 A B C CA Uni Sch Dist Cap Apprec Ser B
(FGIC Insd) (a)........................... * 08/01/21 290,150
1,000 Abag Fin Auth Nonprft Corp CA Ctfs Partn
Childrens Hosp Med Cent (AMBAC Insd)...... 6.000% 12/01/29 1,028,220
1,925 Alhambra, CA City Elem Sch Dist Cap Apprec
Ser A (FSA Insd).......................... * 09/01/20 590,205
5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impts Proj Ser C (FSA
Insd)..................................... * 09/01/27 983,950
2,590 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impt Proj Ser C (FSA
Insd)..................................... * 09/01/32 375,964
2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev
(Inverse Fltg) (MBIA Insd)................ 8.970 12/28/18 2,275,000
1,000 Antioch Area Pub Fac Fin Agy CA Spl Tax
Cmnty Fac Dist (FGIC Insd)................ 5.000 08/01/18 933,330
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA
Redev Agy Pool Ser A2 (FSA Insd) (b)...... 6.400 12/15/14 3,200,580
1,125 California Cmnty College Fin Auth Lease
Rev Ser A (MBIA Insd)..................... 4.625 10/01/19 985,545
1,100 California Cmnty College Fin Auth Lease
Rev Ser A (MBIA Insd)..................... 6.000 12/01/29 1,131,042
4,000 California Edl Fac Auth Rev Cap Apprec
Loyola Marymount Univ (MBIA Insd)......... * 10/01/28 667,080
2,000 California Hlth Fac Fin Auth Rev Adventist
Hlth Ser A Rfdg (MBIA Insd) (b)........... 6.500 03/01/14 2,069,240
1,625 California Hlth Fac Fin Auth Rev Insd
Sutter Hlth Ser A Rfdg (FSA Insd)......... 5.250 08/15/27 1,497,161
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)............... 5.000 06/01/24 1,787,300
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)............... 5.550 08/15/25 1,932,560
2,000 California Hsg Fin Agy Rev Home Mtg Ser A
(MBIA Insd)............................... 5.850 08/01/16 2,017,660
</TABLE>
See Notes to Financial Statements
12
<PAGE> 114
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$3,000 California Hsg Fin Agy Rev Cap Apprec Home
Mtg Ser K (MBIA Insd)..................... * 08/01/24 $ 650,760
1,000 California Hsg Fin Agy Rev Home Mtg Ser A
(MBIA Insd)............................... * 02/01/16 411,970
1,085 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd) (b)......... 8.100% 03/01/18 1,098,953
1,050 California Spl Dist Assn Fin Corp Ctfs
Partn Spl Dists Fin Pgm Ser DD (FSA
Insd)..................................... 5.625 01/01/27 1,038,439
1,250 California St (FGIC Insd)................. 6.250 09/01/12 1,399,950
2,000 California St (FGIC Insd)................. 4.500 12/01/21 1,684,720
7,750 California St Rfdg (FGIC Insd)............ 5.000 02/01/23 7,056,762
1,000 California St Pub Wks Brd Lease Rev Dept
Hlth Svcs Ser A (MBIA Insd)............... 5.750 11/01/24 1,006,250
1,000 California Statewide Cmntys Dev Auth Ctfs
Partn San Diego St Univ Fndtn Rfdg (AMBAC
Insd)..................................... 5.250 03/01/22 948,230
1,095 Cambell, CA Uni Sch Dist Rfdg (FGIC
Insd)..................................... * 08/01/18 382,845
2,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist
Spl Tax (MBIA Insd)....................... 5.000 09/01/18 1,868,560
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys
Impt Proj Ser A Rfdg (MBIA Insd).......... 7.000 08/01/12 2,357,640
2,195 Castaic Lake Wtr Agy CA Rev Ctfs Partn
(AMBAC Insd) (b).......................... * 08/01/30 366,916
1,205 Channel Islands Beach CA Cmnty Svcs Dist
Ctfs Partn (FSA Insd)..................... 5.700 09/01/21 1,209,555
2,000 Chino Basin, CA Regl Fin Auth Rev Inland
Empire Util Agy Swr Proj (MBIA Insd)...... 5.750 11/01/19 2,033,980
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd)..................................... 6.200 09/01/18 1,148,537
2,350 Chino, CA Uni Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)...................... 6.250 03/01/09 2,525,874
1,500 Chino, CA Uni Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd) (b).................. 6.000 03/01/14 1,565,415
2,010 Clayton, CA Redev Agy Tax Alloc Rev (AMBAC
Insd)..................................... 5.000 08/01/24 1,822,206
1,000 Clovis, CA Pub Fin Auth Refuse Disp Rev
Ldfill Improv Proj Rfdg (AMBAC Insd)...... 5.000 09/01/18 934,280
2,000 Colton, CA Pub Fin Auth Rev Tax Alloc Ser
A (MBIA Insd)............................. 5.000 08/01/18 1,868,840
1,550 Contra Costa, CA Wtr Auth Wtr Treatment
Rev Ser A Rfdg (FGIC Insd)................ 5.750 10/01/14 1,583,511
</TABLE>
See Notes to Financial Statements
13
<PAGE> 115
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,500 Corona, CA Pub Fin Auth Wtr Rev (FGIC
Insd)..................................... 4.750% 09/01/18 $ 1,349,010
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj
Area A Ser A Rfdg (FGIC Insd) (b)......... 6.250 09/01/13 5,463,899
1,200 Duarte, CA Uni Sch Dist Cap Apprec Ser B
(FSA Insd)................................ * 11/01/22 321,708
1,000 El Monte, CA Ctfs Partn Dept Pub Social
Svcs Fac (AMBAC Insd)..................... 4.750 06/01/30 850,530
2,000 Fairfield Suison, CA Swr Dist Swr Rev Ser
A Rfdg (MBIA Insd) (b).................... 6.250 05/01/16 2,071,280
4,000 Fairfield Suisun, CA Uni Sch Dist Spi Tax
Cmnty Fac Dist No.5 New Sch (FSA Insd).... 5.375 08/15/29 3,823,640
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC
Insd) (b)................................. 6.000 10/01/12 1,037,210
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC
Insd)..................................... 6.000 10/01/19 1,427,286
2,000 Folsom, CA Spl Tax Cmnty Fac Dist No 2
Rfdg (Connie Lee Insd).................... 5.250 12/01/19 1,920,480
3,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev (MBIA Insd)........................ * 01/15/17 1,132,980
3,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev (MBIA Insd)........................ * 01/15/18 1,058,100
1,250 Fresno, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd).............................. 4.750 09/01/18 1,124,175
590 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)..................................... 5.900 08/01/17 629,837
630 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)..................................... 5.900 08/01/18 671,712
675 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)..................................... 5.900 08/01/19 716,891
720 Fresno, CA Uni Sch Dist Ser C Rfdg (MBIA
Insd)..................................... 5.900 08/01/20 758,102
725 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd).......................... 5.750 02/01/18 759,285
815 Golden West Schs Fin Auth CA Rev Ser A
Rfdg (MBIA Insd).......................... 5.800 02/01/20 847,739
1,000 Grossmont, CA Union High Sch Dist Ctfs
Partn (FSA Insd).......................... 5.650 09/01/17 1,016,240
20,000 Grossmont, CA Union High Sch Dist Ctfs
Partn (MBIA Insd)......................... * 11/15/21 4,727,400
</TABLE>
See Notes to Financial Statements
14
<PAGE> 116
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 500 Hanford, CA Jt Union High Sch Dist Cap
Apprec Ser B (MBIA Insd).................. * 08/01/15 $ 216,790
765 Hanford, CA Jt Union High Sch Dist Cap
Apprec Ser B (MBIA Insd).................. * 08/01/16 310,131
510 Hanford, CA Jt Union High Sch Dist Cap
Apprec Ser B (MBIA Insd).................. * 08/01/18 181,841
805 Hanford, CA Jt Union High Sch Dist Cap
Apprec Ser B (MBIA Insd).................. * 08/01/22 219,024
810 Hanford, CA Jt Union High Sch Dist Cap
Apprec Ser B (MBIA Insd).................. * 08/01/23 207,344
815 Hanford, CA Jt Union High Sch Dist Cap
Apprec Ser B (MBIA Insd).................. * 08/01/24 196,236
4,000 Hayward, CA Ctfs Partn Civic Cent Proj
(MBIA Insd)............................... 5.250% 08/01/26 3,742,840
1,250 Hemet, CA Uni Sch Dist Ctfs Partn
Nutrition Cent Proj (FSA Insd)............ 5.875 04/01/27 1,262,962
2,000 Inglewood, CA Redev Agy Tax Alloc Merged
Redev Proj Ser A Rfdg (AMBAC Insd)........ 5.250 05/01/23 1,898,660
1,000 Kern, CA Cmnty College Dist Ctfs Partn
Rfdg (MBIA Insd).......................... 5.000 01/01/18 934,570
1,000 Lancaster, CA Redev Agy Lease Rev Pub Cap
Impt Proj Rfdg (AMBAC Insd)............... 5.000 12/01/28 895,810
2,000 Long Beach, CA Bond Fin Auth Lease Rev
Rainbow Harbor Refing Proj A (AMBAC
Insd)..................................... 5.250 05/01/24 1,891,540
5,835 Los Angeles Cnty, CA Ctfs Partn Disney Pkg
Proj Rfdg (AMBAC Insd).................... 4.750 03/01/23 5,066,647
3,000 Los Angeles Cnty, CA Met Trans Auth Sales
Tax Rev Prop A First Tier Sr Ser C Rfdg
(AMBAC Insd).............................. 5.000 07/01/23 2,729,250
1,000 Los Angeles Cnty, CA Met Trans Auth Sales
Tax Prop C Second Ser Ser A (FSA Insd).... 4.750 07/01/26 863,460
2,020 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)..... * 08/01/18 710,030
1,265 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)..... * 08/01/24 303,360
1,320 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)..... * 08/01/25 297,779
2,460 Los Angeles Cnty, CA Schs Regionalized
Business Svcs Ctfs Partn (AMBAC Insd)..... * 08/01/28 462,947
550 Los Angeles Cnty, CA Tran Comm Lease Rev
Dia RR Lease Ltd (FSA Insd) (b)........... 7.375 12/15/06 572,941
3,750 Los Angeles, CA Wastewtr Sys Rev Ser A
(FGIC Insd)............................... 5.000 06/01/28 3,358,687
</TABLE>
See Notes to Financial Statements
15
<PAGE> 117
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,380 Los Angeles, CA Mtg Rev Security 8 Asstd
Proj Ser A Rfdg (MBIA Insd)............... 6.100% 07/01/25 $ 2,367,576
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser
E (MBIA Insd)............................. 6.000 07/01/22 502,240
1,275 Mammoth, CA Uni Sch Dist Ser B (AMBAC
Insd)..................................... * 08/01/23 321,976
1,000 Marin, CA Emergency Radio Auth Rev Pub
Safety & Emergency Radio (AMBAC Insd)..... 4.750 08/15/21 879,480
4,305 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev (AMBAC Insd)..................... * 08/01/30 647,300
4,520 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev (AMBAC Insd)..................... * 08/01/31 638,224
1,230 Mountain View Los Altos, CA Uni High Sch
Dist Ser D (FSA Insd)..................... * 08/01/20 380,451
1,325 Mountain View Los Altos, CA Uni High Sch
Dist Ser D (FSA Insd)..................... * 08/01/17 498,929
1,250 North City West, CA Sch Fac Fin Auth Spl
Tax Ser B. Rfdg (FSA Insd)................ 5.750 09/01/15 1,287,300
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec
Proj 1 Ser A Rfdg (Prerefunded @ 07/01/21)
(AMBAC Insd).............................. 7.500 07/01/23 485,468
1,000 Pajaro Vly, CA Uni Sch Dist Ctfs Partn Sch
Fac Brdg Fdg Pgm (FSA Insd)............... 5.850 09/01/32 1,007,640
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev
(Inverse Fltg) (MBIA Insd) (b)............ 8.455 04/01/22 3,258,750
1,000 Palmdale, CA Wtr Dist Rev Ctfs Partn Rfdg
(FGIC Insd)............................... 5.000 10/01/18 933,060
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA
Insd) .................................... 6.100 03/01/16 1,037,300
1,000 Pico Rivera, CA Wtr Auth Rev Wtr Sys Proj
Ser A (MBIA Insd)......................... 5.500 05/01/19 1,006,430
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm
Rfdg (MBIA Insd).......................... 6.000 04/01/19 1,453,690
2,000 Rancho Cucamonga, CA Redev Agy Tax Alloc
(FSA Insd)................................ 5.250 09/01/20 1,916,540
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac Dist
883 Ser A Rfdg (AMBAC Insd)............... 6.000 09/01/17 1,740,329
1,000 Redding, CA Elec Sys Rev Ctfs Partn
(Inverse Fltg) (MBIA Insd) (b)............ 8.548 07/01/22 1,138,750
2,485 Redlands, CA Redev Agy Tax Alloc Redev
Proj Ser A Rfdg (MBIA Insd)............... 4.750 08/01/21 2,185,756
2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1
Rfdg (FSA Insd)........................... 5.625 09/01/18 2,015,880
</TABLE>
See Notes to Financial Statements
16
<PAGE> 118
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,905 Richmond, CA Wastewtr Rev Cap Apprec (FGIC
Insd)..................................... * 08/01/26 $ 610,079
1,000 Riverside Cnty, CA Ctfs Partn Historic
Courthouse Proj (MBIA Insd)............... 5.875% 11/01/27 1,011,330
1,070 Riverside, CA Elec Rev Rfdg (AMBAC
Insd)..................................... 5.000 10/01/18 999,541
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd)............ * 08/01/31 274,640
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd)............ * 08/01/33 243,419
1,755 Rohnert Pk, CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd)............ * 08/01/35 215,619
1,000 Roseville, CA Fin Auth Loc Agy Rev
Northeast Cmnty Fac Dist Bd Ser A Rfdg
(FSA Insd)................................ 5.000 09/01/21 918,050
1,000 Sacramento Cnty, CA Ctfs Partn Pub Fac
Proj Rfdg (AMBAC Insd).................... 4.750 10/01/27 857,880
1,000 Sacramento, CA City Fin Auth Lease Rev CA
EPA Bldg Ser A (AMBAC Insd)............... 4.750 05/01/23 870,150
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd) (b)........... 6.820 07/01/16 2,443,750
2,000 San Diego Cnty, CA Wtr Rev Ctfs Ser A
(FGIC Insd)............................... 4.750 05/01/18 1,796,600
1,000 San Diego, CA Indl Dev Rev San Diego Gas &
Elec Ser A (MBIA Insd).................... 6.400 09/01/18 1,052,590
5,000 San Diego, CA Uni Sch Dist Cap Apprec Ser
A (FGIC Insd)............................. * 07/01/19 1,658,650
1,000 San Francisco, CA Bay Area Trans Dist
Sales Tax Rev (AMBAC Insd)................ 4.750 07/01/23 869,670
1,045 San Francisco, CA Uni Sch Dist Ctfs Partn
(AMBAC Insd).............................. 4.750 08/01/24 903,413
1,000 San Gabriel, CA Uni Sch Dist Ctfs Partn
(FSA Insd)................................ 6.000 09/01/15 1,032,830
2,525 San Joaquin Cnty, CA Ctfs Partn Genl Hosp
Proj Rfdg (MBIA Insd)..................... 5.000 09/01/18 2,353,552
5,750 San Jose, CA Fin Auth Rev Convention Proj
Ser C (FSA Insd) (b)...................... 6.375 09/01/13 5,995,180
2,000 San Jose, CA Redev Tax Alloc Merged Area
Redev Proj (AMBAC Insd)................... 4.750 08/01/23 1,738,900
1,815 San Leandro, CA Ctfs Partn Library & Fire
Stations Fin (AMBAC Insd)................. 5.750 11/01/29 1,821,752
5,080 San Marcos, CA Redev Agy Tax Alloc (FSA
Insd)..................................... 5.375 08/01/25 4,882,693
7,250 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease
Rev Cap Proj Ser A Rfdg (FSA Insd)........ 4.750 07/15/23 6,304,310
</TABLE>
See Notes to Financial Statements
17
<PAGE> 119
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,500 San Rafael, CA Redev Agency Tax Alloc
(AMBAC Insd).............................. 5.000% 12/01/22 $ 1,368,090
2,000 Santa Ana, CA Uni Sch Dist Ctfs Part Fin
Proj Ser A (FSA Insd) (a)................. 5.000 04/01/18 1,868,240
1,660 Santa Clara Cnty, CA Fin Auth Lease Rev
Multiple Fac Proj Ser B (AMBAC Insd)...... 5.500 05/15/07 1,724,093
1,000 Santa Fe Springs, CA Cmnty Dev Commn Tax
Alloc Cons Redev Proj Ser A Rfdg (MBIA
Insd)..................................... 5.000 09/01/17 941,710
2,000 Santa Monica- Malibu Uni Sch Dist CA Cap
Apprec (FGIC Insd)........................ * 08/01/23 512,080
570 Temecula Vly, CA Uni Sch Dist Ctfs Partn
Rfdg (FSA Insd)........................... 6.000 09/01/18 589,933
2,000 Torrance, CA Hosp Rev Torrance Mem Hosp
Rfdg (MBIA Insd).......................... 6.750 01/01/12 2,010,800
6,620 Westlands, CA Wtr Dist Rev Ctfs Partn Ser
A (AMBAC Insd)............................ 5.000 03/01/29 5,910,998
------------
TOTAL LONG-TERM INVESTMENTS 98.8%
(Cost $191,173,957)................................................. 194,611,120
SHORT-TERM INVESTMENTS 1.5%
(Cost $2,900,000)................................................... 2,900,000
------------
TOTAL INVESTMENTS 100.3%
(Cost $194,073,957)................................................. 197,511,120
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%)......................... (639,044)
------------
NET ASSETS 100.0%.................................................... $196,872,076
============
</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 and open futures transactions.
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
18
<PAGE> 120
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $194,073,957)....................... $197,511,120
Cash........................................................ 19,580
Receivables:
Interest.................................................. 2,043,519
Fund Shares Sold.......................................... 494,680
Other....................................................... 24,857
------------
Total Assets............................................ 200,093,756
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,323,926
Income Distributions...................................... 289,892
Distributor and Affiliates................................ 147,178
Investment Advisory Fee................................... 78,359
Variation Margin on Futures............................... 75,625
Fund Shares Repurchased................................... 57,557
Trustees' Deferred Compensation and Retirement Plans........ 213,205
Accrued Expenses............................................ 35,938
------------
Total Liabilities....................................... 3,221,680
------------
NET ASSETS.................................................. $196,872,076
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $196,953,814
Net Unrealized Appreciation................................. 3,351,946
Accumulated Distributions in Excess of Net Investment
Income.................................................... (193,899)
Accumulated Net Realized Loss............................... (3,239,785)
------------
NET ASSETS.................................................. $196,872,076
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $145,575,255 and 8,404,226 shares of
beneficial interest issued and outstanding)............. $ 17.32
Maximum sales charge (3.25%* of offering price)......... .58
------------
Maximum offering price to public........................ $ 17.90
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $44,937,993 and 2,592,667 shares of
beneficial interest issued and outstanding)............. $ 17.33
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $6,358,828 and 367,030 shares of
beneficial interest issued and outstanding)............. $ 17.33
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
19
<PAGE> 121
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 5,866,434
===========
EXPENSES:
Investment Advisory Fee..................................... 475,231
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $181,635, $222,755 and $34,020,
respectively)............................................. 438,410
Shareholder Services........................................ 84,364
Trustees' Fees and Related Expenses......................... 47,237
Legal....................................................... 10,315
Custody..................................................... 27,567
Insurance................................................... 1,592
Other....................................................... 78,928
-----------
Total Expenses.......................................... 1,163,644
Less Credits Earned on Cash Balances.................... 10,767
-----------
Net Expenses............................................ 1,152,877
-----------
NET INVESTMENT INCOME....................................... $ 4,713,557
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(1,152,409)
Futures................................................... (458,927)
-----------
Net Realized Loss........................................... (1,611,336)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 1,324,073
-----------
End of the Period:
Investments............................................. 3,437,163
Futures................................................. (85,217)
-----------
3,351,946
-----------
Net Unrealized Appreciation During the Period............... 2,027,873
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 416,537
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 5,130,094
===========
</TABLE>
See Notes to Financial Statements
20
<PAGE> 122
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 4,713,557 $ 9,137,935
Net Realized Gain/Loss.............................. (1,611,336) 559,638
Net Unrealized Appreciation/Depreciation During the
Period............................................ 2,027,873 (17,714,915)
------------ ------------
Change in Net Assets from Operations................ 5,130,094 (8,017,342)
------------ ------------
Distributions from Net Investment Income............ (4,630,504) (9,390,470)
Distributions in Excess of Net Investment Income.... -0- (276,952)
------------ ------------
Total Distributions from and in Excess of Net
Investment Income*................................ (4,630,504) (9,667,422)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ 499,590 (17,684,764)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 25,573,481 169,414,699
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 2,768,627 5,772,779
Cost of Shares Repurchased.......................... (46,683,212) (138,683,257)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.. (18,341,104) 36,504,221
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............... (17,841,514) 18,819,457
NET ASSETS:
Beginning of the Period............................. 214,713,590 195,894,133
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $193,899 and $276,952, respectively)........... $196,872,076 $214,713,590
============ ============
* Distributions by Class:
- ----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $ (3,593,522) $ (7,590,523)
Class B Shares.................................... (899,498) (1,810,361)
Class C Shares.................................... (137,484) (266,538)
------------ ------------
$ (4,630,504) $ (9,667,422)
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 123
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $17.276 $18.768 $18.294 $17.605 $17.736 $15.802
------- ------- ------- ------- ------- -------
Net Investment Income............. .413 .824 .638 .880 .857 .884
Net Realized and Unrealized
Gain/Loss....................... .041 (1.447) .498 .658 (.145) 1.938
------- ------- ------- ------- ------- -------
Total from Investment Operations... .454 (.623) 1.136 1.538 .712 2.822
Less Distributions from and in
Excess of Net Investment Income... .408 .869 .662 .849 .843 .888
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
THE PERIOD........................ $17.322 $17.276 $18.768 $18.294 $17.605 $17.736
======= ======= ======= ======= ======= =======
Total Return (a)................... 2.68%** (3.44%) 6.38%** 8.93% 4.20% 18.28%
Net Assets at End of the Period (In
millions)......................... $ 145.6 $ 162.0 $ 151.0 $ 140.7 $ 142.5 $ 147.6
Ratio of Expenses to Average Net
Assets* (b)....................... .97% .92% .88% .96% 1.02% .89%
Ratio of Net Investment Income to
Average Net Assets*............... 4.90% 4.52% 4.66% 4.96% 4.94% 5.23%
Portfolio Turnover................. 30%** 44% 21%** 46% 35% 42%
* 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 (b)....................... N/A N/A N/A N/A 1.03% 1.05%
Ratio of Net Investment Income to
Average Net Assets............... N/A N/A N/A N/A 4.94% 5.07%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 3.25% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.
(b) The Ratios of Expenses to Average Net Assets do not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by -.01% for the six months ended
March 31, 2000.
See Notes to Financial Statements
22
<PAGE> 124
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $17.260 $18.758 $18.289 $17.603 $17.736 $15.805
------- ------- ------- ------- ------- -------
Net Investment Income............. .350 .684 .526 .741 .720 .766
Net Realized and Unrealized
Gain/Loss....................... .064 (1.447) .506 .662 (.142) 1.926
------- ------- ------- ------- ------- -------
Total from Investment Operations... .414 (.763) 1.032 1.403 .578 2.692
Less Distributions from and in
Excess of Net Investment Income... .341 .735 .563 .717 .711 .761
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
THE PERIOD........................ $17.333 $17.260 $18.758 $18.289 $17.603 $17.736
======= ======= ======= ======= ======= =======
Total Return (a)................... 2.45%** (4.20%) 5.76%** 8.19% 3.35% 17.33%
Net Assets at End of the Period (In
millions)......................... $ 44.9 $ 45.3 $ 40.1 $ 31.0 $ 28.6 $ 24.6
Ratio of Expenses to Average Net
Assets* (b)....................... 1.72% 1.68% 1.64% 1.72% 1.79% 1.61%
Ratio of Net Investment Income to
Average Net Assets*............... 4.15% 3.76% 3.89% 4.18% 4.17% 4.51%
Portfolio Turnover................. 30%** 44% 21%** 46% 35% 42%
* 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 (b)........................ N/A N/A N/A N/A 1.79% 1.77%
Ratio of Net Investment Income to
Average Net Assets................ N/A N/A N/A N/A 4.16% 4.35%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 3%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fourth year. If the sales charge was
included, total returns would be lower.
(b) The Ratios of Expenses to Average Net Assets do not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by -.01% for the six months ended
March 31, 2000.
See Notes to Financial Statements
23
<PAGE> 125
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $17.256 $18.754 $18.286 $17.602 $17.736 $15.798
------- ------- ------- ------- ------- -------
Net Investment Income............. .343 .694 .529 .727 .722 .758
Net Realized and Unrealized
Gain/Loss....................... .067 (1.457) .502 .674 (.145) 1.941
------- ------- ------- ------- ------- -------
Total from Investment Operations... .410 (.763) 1.031 1.401 .577 2.699
Less Distributions from and in
Excess of Net Investment Income... .341 .735 .563 .717 .711 .761
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
THE PERIOD........................ $17.325 $17.256 $18.754 $18.286 $17.602 $17.736
======= ======= ======= ======= ======= =======
Total Return (a)................... 2.45%** (4.15%) 5.70%** 8.19% 3.35% 17.40%
Net Assets at End of the Period (In
millions)......................... $ 6.4 $ 7.4 $ 4.8 $ 3.8 $ 2.2 $ 1.8
Ratio of Expenses to Average Net
Assets*........................... 1.72% 1.69% 1.63% 1.71% 1.79% 1.60%
Ratio of Net Investment Income to
Average Net Assets* (b)........... 4.15% 3.75% 3.87% 4.15% 4.16% 4.50%
Portfolio Turnover................. 30%** 44% 21%** 46% 35% 42%
* 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 (b)....................... N/A N/A N/A N/A 1.80% 1.75%
Ratio of Net Investment Income to
Average Net Assets............... N/A N/A N/A N/A 4.16% 4.34%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(b) The Ratios of Expenses to Average Net Assets do not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratios would decrease by -.01% for the six months ended
March 31, 2000.
See Notes to Financial Statements
24
<PAGE> 126
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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
applicable security. Income and expenses of the Fund are allocated on a pro rata
25
<PAGE> 127
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of the deferral of
losses relating to wash sale transactions.
At March 31, 2000, for federal income tax purposes, cost of long- and
short-term investments is $194,110,515; the aggregate gross unrealized
appreciation is $6,358,761 and the aggregate gross unrealized depreciation is
$2,958,156, resulting in net unrealized appreciation on long- and short-term
investments of $3,400,605.
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.
G. EXPENSE REDUCTIONS During the year ended March 31, 2000, the Fund's custody
fee was reduced by $10,767 as a result of credits earned on overnight cash
balances.
26
<PAGE> 128
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 DAILY 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $5,500 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $23,200 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 six months ended March 31,
2000, the Fund recognized expenses of approximately $60,900. 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.
27
<PAGE> 129
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $143,157,251, $46,694,779 and $7,101,784
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 1,139,950 $ 19,152,708
Class B................................................. 327,086 5,525,827
Class C................................................. 52,646 894,946
---------- ------------
Total Sales............................................... 1,519,682 $ 25,573,481
========== ============
Dividend Reinvestment:
Class A................................................. 123,592 $ 2,087,648
Class B................................................. 35,256 595,352
Class C................................................. 5,074 85,627
---------- ------------
Total Dividend Reinvestment............................... 163,922 $ 2,768,627
========== ============
Repurchases:
Class A................................................. (2,234,151) $(37,990,275)
Class B................................................. (395,199) (6,646,745)
Class C................................................. (121,777) (2,046,192)
---------- ------------
Total Repurchases......................................... (2,751,127) $(46,683,212)
========== ============
</TABLE>
28
<PAGE> 130
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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 and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares eight years
after the end of the calendar month in which the shares were purchased. Class B
shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
shares received on such shares, automatically convert to Class A shares seven
years after the end of the calendar month in which the shares were purchased.
For the six months ended March 31, 2000 and the year ended September 30, 1999,
1,221 and 9,117 Class B shares automatically converted to Class A shares,
respectively, and are shown in the above tables as sales of Class A shares and
repurchases of Class B shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan C shares received thereon, automatically
convert to Class A shares ten years after the end of the calendar month in which
the shares are purchased. Class C shares purchased on or after January 1, 1997
do not possess a conversion feature. For the six months ended March 31, 2000 and
the year ended September 30, 1999, no Class C shares converted to Class A
shares. The CDSC will be imposed on most
29
<PAGE> 131
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
redemptions made within six years of the purchase for Class B shares and one
year of the purchase for Class C shares as detailed in the following schedule.
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 March 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$2,600 and CDSC on redeemed shares of approximately $55,500. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $59,462,930 and $76,605,048,
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 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.
30
<PAGE> 132
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened.............................................. 540
Futures Closed.............................................. (320)
----
Outstanding at March 31, 2000............................... 220
====
</TABLE>
The futures contracts outstanding as of March 31, 2000, and the description
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DESCRIPTION CONTRACTS (DEPRECIATION)
<S> <C> <C>
Short Contracts--Municipal Bond Index Futures June 2000
(Current notional value $95,344 per contract)............. 220 $(85,217)
=== ========
</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
31
<PAGE> 133
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
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 six months ended March 31, 2000, are payments retained by Van Kampen of
approximately $195,000.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rate percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
32
<PAGE> 134
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Equity
Aggressive Growth
American Value
Emerging Growth
Enterprise
Equity Growth
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 [COMPUTER ICON]
- - 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.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Footnote goes here, if needed.
33
<PAGE> 135
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940 as amended.
(C) Van Kampen Funds Inc., 2000. 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 August 31,
2000, the report, if used with prospective investors, must be accompanied by a
monthly performance update.
34
<PAGE> 136
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and independent
public accountants.
1) With regard to the election of the following trustees by the shareholders:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan...................................... 7,320,897 88,278
Jerry D. Choate........................................ 7,327,859 81,316
Linda Hutton Heagy..................................... 7,326,351 82,824
R. Craig Kennedy....................................... 7,328,595 80,580
Mitchell M. Merin...................................... 7,325,537 83,637
Jack E. Nelson......................................... 7,328,638 80,536
Richard F. Powers, III................................. 7,329,351 79,823
Phillip B. Rooney...................................... 7,328,638 80,536
Fernando Sisto......................................... 7,326,635 82,540
Wayne W. Whalen........................................ 7,325,537 83,637
Suzanne H. Woolsey..................................... 7,327,005 82,170
Paul G. Yovovich*...................................... 7,328,638 80,536
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP to act as independent public
accountants for the fund, 7,234,357 shares voted in favor of the proposal,
12,906 shares voted against, 161,912 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
35
<PAGE> 137
YOUR NOTES:
36
<PAGE> 138
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE STATES 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS 12
FINANCIAL STATEMENTS 36
NOTES TO FINANCIAL STATEMENTS 42
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 50
FUND OFFICERS AND IMPORTANT ADDRESSES 51
RESULTS OF SHAREHOLDER VOTES 52
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 139
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 140
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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> 141
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 0.21% (0.11%) (0.18%)
- -------------------------------------------------------------------------
Six-month total return(2) (4.53%) (4.01%) (1.16%)
- -------------------------------------------------------------------------
One-year total return(2) (8.37%) (8.13%) (5.42%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 3.44% 3.43% 3.65%
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 5.69% 4.19%(3) 3.10%
- -------------------------------------------------------------------------
Commencement date 08/01/90 08/24/92 08/13/93
- -------------------------------------------------------------------------
Distribution rate(4) 5.47% 4.98% 4.98%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 8.55% 7.78% 7.78%
- -------------------------------------------------------------------------
SEC Yield(6) 5.34% 4.82% 4.83%
- -------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A shares) or
contingent deferred sales charge ("CDSC") for Class B and C shares. On purchases
of Class A shares of $1 million or more, a CDSC of 1% may be imposed on certain
redemptions made within one year of purchase. Returns for Class B shares are
calculated without the effect of the maximum 4% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the sixth year. Returns for Class C shares are calculated without the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase. If the sales charges were included, total returns would be
lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C shares.
On purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated with the effect of the maximum 4% CDSC, charged on
certain redemptions made within one year of purchase and declining thereafter to
0% after the sixth year. Returns for Class C shares are calculated with the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares were
purchased. See footnote 3 in the Notes to Financial Statements for additional
information.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 142
Continued from page 3.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(5) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(6) 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 March 31, 2000.
Income may subject certain individuals to the federal alternative minimum tax.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary of
the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 143
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of March 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
<S> <C>
AAA/Aaa 42.60
AA/Aa 4.80
A/A 10.60
BBB/Baa 11.00
BB/Ba 1.10
B/B 0.1
Non-Rated 29.80
</TABLE>
As of September 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
<S> <C>
AAA/Aaa 47.00
AA/Aa 7.50
A/A 8.60
BBB/Baa 12.50
BB/Ba 1.20
Non-Rated 23.20
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION HISTORY
--------------------
<S> <C>
10/99 0.0705
11/99 0.0705
12/99 0.0705
1/00 0.0675
2/00 0.0675
3/00 0.0675
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 144
TOP FIVE STATES
(as a percentage of long-term investments -- March 31, 2000)
<TABLE>
<S> <C> <C>
Illinois 13.9%
- ---------------------------------------------------------------------
Texas 9.2%
- ---------------------------------------------------------------------
California 7.3%
- ---------------------------------------------------------------------
Pennsylvania 6.8%
- ---------------------------------------------------------------------
New York 6.4%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Health Care 17.9 15
Industrial Revenue 13 11.9
General Purpose 10.2 7.7
Transportation 8.5 9.3
Public Building 6.4 11.2
</TABLE>
6
<PAGE> 145
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
MUNICIPAL INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE TIMOTHY D.
HANEY, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE JANUARY 2000 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 DISCUSSION
REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED MARCH
31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
decline as interest rates rise, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate, a key short-term borrowing rate, to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding Treasury debt.
Q HOW DID THE MUNICIPAL MARKET
RESPOND TO THE BOND RALLY?
A Unfortunately, municipals lagged
the Treasury market in the fourth quarter of 1999. Widespread year 2000 (Y2K)
jitters and a strong supply of municipal bond issuance put a damper on nearly
every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are typically making tax-related adjustments to their investment
programs during that time. But this year, investors were worried about higher
interest rates and potential Y2K fallout early in the year, so they avoided or
pulled out of the municipal market. Consequently, many municipal bond funds had
negative returns for January.
Generally, municipal bond funds have been losing assets lately as they have
competed with the stock market for investors' interest. Also, investors
7
<PAGE> 146
were rattled by recent negative returns from municipal bonds and the threat of
even higher interest rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. The combination of a strong Treasury bond market and the lack of supply in
municipals helped make February and March positive months for the fixed-income
markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of their municipal bond investments
while still earning an attractive level of income.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A Lower-rated and nonrated bonds
gave us a few headaches as interest rates went up (driving prices down) and
yield spreads widened significantly. For example, the difference between the
yield offered on a BBB rated municipal bond and an insured AAA rated municipal
bond increased from less than half a percentage point to well over a full
percentage point. In a nutshell, the prices of lower-rated and nonrated bonds
dropped more sharply than did those of higher-rated bonds.
This was especially true in the health-care sector. In fact, at one time we
saw BBB rated hospital bonds trading with a spread of 1.75 percentage points
over AAA rated insured hospital bonds. This is a reflection of the tough times
we've seen in the health-care sector. With the uncertainties involved in managed
care--who will pay for what and how much--and the rising cost of services, many
health-care providers are under tremendous pressure to remain profitable. In
this situation, investors have become concerned about the creditworthiness of
the bond issuers, and many of them have shied away from this sector of the
market.
We also ran into some credit-quality concerns within the nonrated portion of
the Fund's holdings. A handful of large corporate-backed deals declined in value
when their issuers encountered financial difficulties.
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?
A In general, we continued to
manage the Fund with a long-term perspective, positioning the portfolio to take
advantage of the cyclical nature of the markets.
Late in 1999, we took steps to shorten the Fund's duration, which means we
reduced its sensitivity to interest rate movements. This is a common strategy
that's often used during periods of rising interest rates, because it helps
protect the value of the portfolio as bond prices decline.
8
<PAGE> 147
We also took steps to increase the diversification of the Fund, especially
within our allocations to lower-rated and nonrated bonds. This is not to say
that we allocated a smaller percentage of the Fund's assets to this sector, but
that we divided up the amount allocated among a greater number of securities.
Our goal here is to maintain the Fund's strong income component, while reducing
the impact that any one security's performance might have on the portfolio.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A The Fund's total return was below
average for its peer group, primarily because of the portfolio's emphasis on
lower-rated and nonrated bonds. As of March 31, 2000, the Fund achieved a
six-month total return of 0.21 percent (Class A shares at net asset value; if
the maximum sales charge of 4.75 percent were included, the return would have
been lower). By comparison, the Lehman Brothers Municipal Bond Index produced a
total return of 2.63 percent for the same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance does not guarantee future results.
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from federal income tax, rather than investing for capital
appreciation.
The Fund's monthly tax-exempt dividend was decreased to $0.0675 from $0.0705
per Class A share in January of 2000, reflecting the lower average yield of
bonds in the Fund. Keep in mind that even though rates have spiked during the
past six months, many of the securities in the Fund were purchased during
periods of much higher interest rates. As the bonds mature or are called, they
are replaced at today's yields.
Despite this situation, the Fund's distribution rate stood at 5.47 percent
at the end of the reporting period. With this in mind, we'd like to point out
that investors would have to earn 8.55 percent on a taxable investment (for an
investor in the 36 percent federal income tax bracket) to match the tax-exempt
yield provided by the Fund.
9
<PAGE> 148
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
We've seen quite a few credit-rating upgrades, indicating that the rating
agencies are optimistic about the credit strength of municipal bond
issuers--most likely because the economy continues to be strong. Ironically,
since many bond issuers have surpluses from the strong economy, there isn't much
pressure to issue new debt. A continuation of weak supply could lend price
support to the municipal market as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three further
interest-rate hikes within the next quarter or two.
Going forward, we will consider moving some of the Fund's exposure to
nonrated and lower-rated bonds from the 30-year maturity sector to the 5- to
10-year maturity sector. We believe the risk/return profile for shorter-maturity
bonds is very attractive.
Overall, we will continue to manage the Fund with a long-term perspective,
relying on our research.
10
<PAGE> 149
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each are
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest-rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising-rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA rated. Recently, an A rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 150
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 96.6%
ALABAMA 1.3%
$ 2,100 Alabama St Indl Dev Auth Rev UNR-ROHN Inc
Expansion Proj.............................. 7.500% 09/15/11 $ 2,163,273
2,930 Alabama Wtr Pollutn Ctl Auth Revolving Fd Ln
Ser A (AMBAC Insd) (b)...................... 6.750 08/15/17 3,115,586
350 Bessemer, AL Indl Dev Brd ROHN Inc Proj..... 9.000 09/15/01 358,032
1,750 Bessemer, AL Indl Dev Brd ROHN Inc Proj..... 9.500 09/15/11 1,999,130
240 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg (f)......... 6.950 01/01/20 78,196
1,000 Montgomery, AL Med Clinic Brd Jackson Hosp &
Clinic (AMBAC Insd)......................... 5.875 03/01/16 1,014,470
2,000 West Jefferson Cnty, AL Amusement & Pub Pk
Auth First Mtg Visionland Proj.............. 6.375 02/01/29 1,463,380
------------
10,192,067
------------
ALASKA 0.8%
10 Alaska Energy Auth Pwr Rev Bradley Lake Proj
Ser 1 (BIGI Insd)........................... 6.250 07/01/21 10,003
1,000 Alaska Indl Dev & Expt Auth Pwr Rev Upper
Lynn Canal Regl Pwr......................... 5.700 01/01/12 890,000
1,800 Alaska Indl Dev & Expt Auth Pwr Rev Upper
Lynn Canal Regl Pwr......................... 5.875 01/01/32 1,492,056
1,650 Juneau, AK City & Borough
Nonrecourse Rev............................. 6.875 12/01/25 1,534,814
3,265 North Slope Borough, AK Cap Apprec Ser A
(MBIA Insd)................................. * 06/30/10 1,875,938
1,000 Valdez, AK Marine Term Rev Sohio Pipeline
Rfdg........................................ 7.125 12/01/25 1,055,740
------------
6,858,551
------------
ARIZONA 2.4%
1,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev Rfdg................................ 6.500 07/01/09 1,031,390
1,000 Peoria, AZ Indl Dev Auth Rev Sierra Winds
Life Ser A Rfdg............................. 6.500 08/15/31 883,590
580 Pima Cnty, AZ Indl Dev Auth Single Family
Mtg Rev (GNMA Collateralized)............... 6.625 11/01/14 589,947
</TABLE>
See Notes to Financial Statements
12
<PAGE> 151
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ARIZONA (CONTINUED)
$ 5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A
(b)......................................... 9.500% 07/01/10 $ 5,389,493
500 Scottsdale, AZ Indl Dev Auth Rev First Mtg
Westminster Vlg Ser A Rfdg.................. 8.250 06/01/15 529,630
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................ 6.000 09/01/12 1,974,769
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................ 6.125 09/01/17 1,818,373
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev
Lockheed Aermod Cent Inc.................... 8.700 09/01/19 7,241,640
------------
19,458,832
------------
ARKANSAS 0.9%
4,935 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser A
(d)......................................... 7.500 01/31/06 4,241,139
5,470 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt
Ser B (d) (f)............................... 7.500 01/31/06 1,367,500
1,835 Jackson Cnty, AR Hlthcare Fac Brd First Mtg
Hosp Rev Newport Hosp & Clinic Inc.......... 7.375 11/01/11 1,784,189
------------
7,392,828
------------
CALIFORNIA 7.0%
4,990 California Edl Fac Auth Rev College of
Osteopathic Med Pacific (Prerefunded @
06/01/03)................................... 7.500 06/01/18 5,411,655
2,880 California Edl Fac Auth Rev Univ of La
Verne....................................... 6.300 04/01/09 2,977,632
4,170 Delano, CA Ctfs Partn Ser A (Prerefunded @
01/01/03) (b)............................... 9.250 01/01/22 4,725,903
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)................................ * 09/01/10 1,498,538
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)................................ * 09/01/11 3,089,016
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)................................ * 09/01/13 1,774,851
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)................................ * 09/01/14 2,299,388
850 Fairfield, CA Hsg Auth Mtg Rev Creekside
Estates Proj Rfdg (Prerefunded @
08/01/02)................................... 7.875 02/01/15 928,872
3,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev (MBIA Insd).......................... * 01/15/17 1,132,980
21,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev...................................... * 01/15/24 4,654,440
</TABLE>
See Notes to Financial Statements
13
<PAGE> 152
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$54,635 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev...................................... * 01/15/32 $ 7,195,429
15,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev...................................... * 01/15/38 1,335,150
3,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev...................................... * 01/15/27 1,533,450
15,000 Foothill/Eastern Tran Corridor Agy CA Toll
Rd Rev...................................... * 01/15/30 2,247,450
2,825 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev Cap Apprec (AMBAC Insd)............ * 09/01/15 1,206,586
1,155 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev Cap Apprec (AMBAC Insd)............ * 09/01/19 378,794
1,265 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev Cap Apprec (AMBAC Insd)............ * 09/01/22 341,702
1,380 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev Cap Apprec (AMBAC Insd)............ * 09/01/25 310,555
3,500 Midpeninsula Regl Open Space Dist CA Fin
Auth Rev Cap Apprec (AMBAC Insd)............ * 09/01/25 738,710
5,255 Murrieta Vly, CA Uni Sch Dist Ser A
(FGIC Insd)................................. * 09/01/22 1,422,581
1,650 Riverside Cnty, CA Air Force Vlg West Inc
Ser A Rfdg (Prerefunded @ 06/15/02)......... 8.125% 06/15/20 1,805,314
9,035 San Diego Cnty, CA Wtr Auth Rev Ctfs Partn
Ser A (FGIC Insd)........................... 4.500 05/01/24 7,494,984
6,805 San Ramon Vly, CA Uni Sch Dist Ser A (FGIC
Insd)....................................... * 07/01/17 2,574,468
------------
57,078,448
------------
COLORADO 3.2%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A
(b)......................................... 8.875 08/01/11 3,650,053
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A
(b)......................................... 8.875 08/01/12 5,228,201
300 Berry Creek Metro Dist CO Rfdg & Impt....... 8.250 12/01/11 313,308
200 Berry Creek Metro Dist CO Rfdg & Impt
(Prerefunded @ 12/01/01).................... 8.250 12/01/11 213,538
1,000 Edgewater, CO Redev Auth Tax
Increment Rev (Prerefunded @ 12/01/03)...... 6.750 12/01/08 1,066,390
1,320 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (MBIA Insd)........................... * 12/15/14 598,488
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (MBIA Insd)........................... * 12/15/15 606,908
</TABLE>
See Notes to Financial Statements
14
<PAGE> 153
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 1,420 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (MBIA Insd)........................... * 12/15/16 $ 569,022
1,330 El Paso Cnty, CO Sch Dist No 003 Widefield
Ser A (MBIA Insd)........................... * 12/15/18 468,572
3,690 Jefferson Cnty, CO Residential Mtg Rev...... 11.50% 09/01/12 5,708,762
5,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg (LOC: Meridian Assoc
East)....................................... 7.500 12/01/11 5,213,500
1,915 Northern Metro Dist CO Adams Cnty Rfdg...... 6.500 12/01/16 1,894,644
------------
25,531,386
------------
CONNECTICUT 1.8%
3,005 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Pgm AHF/Hartford (Prerefunded @
11/01/04) (b)............................... 7.125 11/01/14 3,323,830
495 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A--Private Placement (a).......... 6.500 09/01/06 538,273
2,530 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A--Private Placement (a).......... 6.400 09/01/11 2,629,809
2,470 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A--Private Placement (Prerefunded
@ 09/01/07) (a)............................. 6.400 09/01/11 2,709,541
4,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144A--Private Placement (a).......... 5.750 09/01/18 3,724,920
1,500 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144A--Private Placement (a).......... 5.750 09/01/27 1,366,215
------------
14,292,588
------------
DISTRICT OF COLUMBIA 0.7%
2,500 District of Columbia Rev Natl Pub Radio Ser
A (b)....................................... 7.700 01/01/23 2,584,025
3,000 Washington Dist of Columbia Convention Cent
Auth Dedicated Tax Rev (AMBAC Insd)......... 5.250 10/01/12 2,993,190
------------
5,577,215
------------
FLORIDA 3.9%
275 Atlantic Beach, FL Rev Fleet Landing Proj
Ser A Rfdg & Impt........................... 7.500 10/01/02 285,626
500 Atlantic Beach, FL Rev Fleet Landing Proj
Ser A Rfdg & Impt........................... 7.875 10/01/08 560,030
1,405 Broward Cnty, FL Res Recovery Rev Waste
Energy North Proj........................... 7.950 12/01/08 1,450,297
1,840 Broward Cnty, FL Res Recovery Rev Waste
Energy South Proj........................... 7.950 12/01/08 1,899,322
</TABLE>
See Notes to Financial Statements
15
<PAGE> 154
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 2,500 Cocoa, FL Wtr & Swr Rev Rfdg (FGIC Insd).... 4.500% 10/01/22 $ 2,093,075
9,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)...................... * 02/01/18 3,128,760
1,800 Florida Hsg Fin Corp Rev Hsg Beacon Hill
Apts Ser C.................................. 6.610 07/01/38 1,668,654
3,000 Florida Hsg Fin Corp Rev Hsg Cypress Trace
Apts Ser G.................................. 6.600 07/01/38 2,800,500
2,000 Florida Hsg Fin Corp Rev Hsg Westchase Apts
Ser B....................................... 6.610 07/01/38 1,864,860
560 Florida St Brd Edl Cap Outlay Pub Edl
Ser A Rfdg.................................. 7.250 06/01/23 574,011
590 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg (Prerefunded @ 06/01/00)............... 7.250 06/01/23 604,786
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg................... 8.750 07/01/26 1,629,975
595 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd)....................................... 6.000 10/01/16 596,666
405 Orange Cnty, FL Tourist Dev Tax Rev
(Prerefunded @ 10/01/00) (AMBAC Insd)....... 6.000 10/01/16 408,819
4,095 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Pk
(Prerefunded @ 07/01/02).................... 10.000 07/01/22 4,593,566
5,000 Sarasota Cnty, FL Pub Hosp Brd Miles
Sarasota Mem Hosp Proj Ser A (Embedded Cap)
(MBIA Insd)................................. 3.903 10/01/21 4,682,950
980 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj............... 7.500 05/01/18 998,610
835 Tampa Palms, FL Open Space & Tran Cmnty Dev
Dist Rev Cap Impt Area 7 Proj............... 8.500 05/01/17 883,422
1,000 University Square Cmnty Dev Dist FL Cap Impt
Rev......................................... 6.750 05/01/20 981,300
------------
31,705,229
------------
GEORGIA 4.4%
2,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev Proj Ser A................. 6.750 07/01/30 1,887,080
2,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev......................................... 6.500 02/01/28 1,875,620
2,000 George L Smith II GA Wrld Congress Cent Auth
Rev Domed Stadium Proj Rfdg (MBIA Insd)
(c)......................................... 5.500 07/01/20 1,916,220
</TABLE>
See Notes to Financial Statements
16
<PAGE> 155
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$24,000 Georgia Loc Govt Ctfs Partn Grantor Tr Ser A
(MBIA Insd)................................. 4.750% 06/01/28 $ 20,406,960
1,500 Georgia Muni Elec Auth Pwr Rev Ser X (MBIA
Insd)....................................... 6.500 01/01/20 1,655,145
9,070 Municipal Elec Auth GA Proj One Sub Ser A
(MBIA Insd)................................. 4.500 01/01/19 7,581,613
------------
35,322,638
------------
HAWAII 1.8%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA
Insd)....................................... 6.350 07/01/07 4,278,633
2,350 Hawaii St Dept Trans Spl Fac Rev Continental
Airls Inc................................... 9.700 06/01/20 2,408,867
2,365 Hawaii St Dept Trans Spl Fac Rev Continental
Airls Inc. ................................. 5.625 11/15/27 1,944,976
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd)... 6.350 07/01/07 1,562,232
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd)... 6.400 07/01/08 1,654,567
500 Hawaii St Harbor Cap Impt Rev (MBIA Insd)... 7.000 07/01/17 512,580
4,500 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)................................. * 07/01/15 1,895,670
------------
14,257,525
------------
ILLINOIS 13.4%
4,035 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj (b).................... 9.250 02/01/12 4,346,300
1,310 Bridgeview, IL Tax Increment Rev Rfdg....... 9.000 01/01/11 1,502,203
6,375 Broadview, IL Tax Increment Rev Sr Lien
(Prerefunded @ 07/01/04).................... 8.250 07/01/13 7,104,746
3,000 Chicago, IL Lakefront Millenium Pkg Fac
(MBIA Insd) (g)............................. 0/5.650 01/01/19 2,023,800
13,600 Chicago, IL Brd Edl Cap Apprec Sch Reform B
1 (FGIC Insd)............................... * 12/01/22 3,491,256
6,800 Chicago, IL Brd Edl Cap Apprec Sch Reform
Ser A (FGIC Insd)........................... * 12/01/19 2,126,088
5,000 Chicago, IL Brd Edl Cap Apprec Sch Reform
Ser A (FGIC Insd)........................... * 12/01/20 1,464,700
6,375 Chicago, IL Brd Edl Cap Apprec Sch Reform
Ser A (FGIC Insd)........................... * 12/01/21 1,748,726
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr
Chicago..................................... 7.000 01/01/11 1,148,030
6,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Proj Ser B..................... 5.200 04/01/11 5,439,360
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc (b)........................ 8.500 05/01/18 4,086,120
</TABLE>
See Notes to Financial Statements
17
<PAGE> 156
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 4,555 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B...................... 8.950% 05/01/18 $ 4,754,418
1,760 Chicago, IL Single Family Mtg Rev Ser A
(GNMA Collateralized)....................... 7.000 09/01/27 1,854,794
405 Chicago, IL Tax Increment Alloc Santn Drain
& Ship Canal Ser A.......................... 7.375 01/01/05 412,241
1,000 Chicago, IL Tax Increment Alloc Santn Drain
& Ship Canal Ser A.......................... 7.750 01/01/14 1,038,960
1,000 Cook Cnty, IL Cmnty College Dist No 508
Chicago Ctfs Partn (FGIC Insd).............. 8.750 01/01/07 1,204,530
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................. * 12/01/07 1,515,557
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................. * 12/01/08 1,433,337
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................. * 12/01/09 1,353,224
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................. * 12/01/10 1,277,687
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)............................. * 12/01/11 1,204,074
1,000 Crestwood, IL Tax Increment Rev Rfdg........ 7.250 12/01/08 1,031,310
1,000 Hodgkins, IL Tax Increment.................. 9.500 12/01/09 1,093,610
1,500 Hodgkins, IL Tax Increment Ser A Rfdg....... 7.625 12/01/13 1,582,110
1,450 Hoopeston, IL Hosp Cap Impt Rev Hoopeston
Cmnty Mem Hosp Rfdg......................... 6.550 11/15/29 1,297,098
1,500 Huntley, IL Increment Alloc Rev Huntley
Redev Proj Ser A............................ 8.500 12/01/15 1,653,990
1,000 Huntley, IL Spl Svc Area No 10 Spl Tax Ser
A........................................... 6.500 03/01/29 930,920
505 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................ 8.000 11/15/06 524,629
2,000 Illinois Dev Fin Auth Solid Waste
Disposal Rev................................ 5.950 12/01/24 1,849,820
1,000 Illinois Edl Fac Auth Rev Lake Forest
College (Prerefunded @ 10/01/01) (FSA
Insd)....................................... 6.750 10/01/21 1,050,620
1,000 Illinois Edl Fac Auth Rev Northwestern Univ
Ser 1985 (Prerefunded @ 12/01/01)........... 6.900 12/01/21 1,054,310
1,000 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj............................. 7.500 08/15/26 1,018,180
1,440 Illinois Hlth Fac Auth Rev Silver Cross Hosp
& Med Rfdg.................................. 5.500 08/15/19 1,253,203
</TABLE>
See Notes to Financial Statements
18
<PAGE> 157
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,000 Illinois Hlth Fac Auth Rev Silver Cross Hosp
& Med Rfdg.................................. 5.500% 08/15/25 $ 2,529,750
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj B (Prerefunded @ 10/01/02)....... 9.000 10/01/22 2,228,560
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj Ser A (Prerefunded @ 10/01/02)... 9.500 10/01/22 4,649,400
1,500 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Ser A Rfdg............................ 7.400 08/15/23 1,504,440
460 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D....................................... 9.500 11/15/15 484,702
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem
Hosp (b).................................... 6.750 08/15/11 1,044,920
2,600 Illinois Hlth Fac Auth Rev Utd Med Cent
(Prerefunded @ 07/01/03) (b)................ 8.375 07/01/12 2,855,580
250 Illinois Hsg Dev Auth Residential Mtg Rev
(Inverse Fltg).............................. 9.410 02/13/18 264,375
5,750 Metropolitan Pier & Expo Auth IL Dedicated
St Tax Rev (FGIC Insd)...................... 5.250 12/15/28 5,276,143
2,800 Regional Tran Auth IL Ser A (AMBAC Insd).... 8.000 06/01/17 3,540,096
3,773 Robbins, IL Res Recovery Rev Restructuring
Proj Ser A (f).............................. 8.375 10/15/16 1,698,047
1,477 Robbins, IL Res Recovery Rev Restructuring
Proj Ser B (f).............................. 8.375 10/15/16 664,453
2,532 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C.................................. 7.250 10/15/24 2,379,749
586 Robbins, IL Res Recovery Rev Restructuring
Proj Ser C.................................. 7.250 10/15/09 562,118
591 Robbins, IL Res Recovery Rev Restructuring
Proj Ser D.................................. * 10/15/09 277,594
650 Round Lake Beach, IL Tax Increment
Rev Rfdg.................................... 7.200 12/01/04 678,958
500 Round Lake Beach, IL Tax Increment
Rev Rfdg.................................... 7.500 12/01/13 528,540
1,470 Saint Charles, IL Indl Dev Rev Tri-City
Cent Proj................................... 7.500 11/01/13 1,484,156
7,185 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)....................................... * 10/01/20 2,030,697
7,910 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)....................................... * 10/01/25 1,606,521
8,260 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)....................................... * 10/01/27 1,478,870
8,655 Saint Clair Cnty, IL Cap Apprec (FGIC
Insd)....................................... * 10/01/29 1,364,980
1,000 Southern IL Univ Rev Cap Apprec Hsg & Aux
Ser A (MBIA Insd)........................... * 04/01/18 349,890
</TABLE>
See Notes to Financial Statements
19
<PAGE> 158
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,240 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A
(MBIA Insd)................................. 5.800% 04/01/10 $ 1,260,671
2,370 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)....................................... * 12/01/14 1,042,302
4,270 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)....................................... * 12/01/15 1,756,806
------------
108,412,269
------------
INDIANA 2.5%
1,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14.................................. 6.700 11/01/12 915,350
570 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc.................................... 7.000 07/01/12 602,741
2,180 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc (Prerefunded @ 07/01/02)........... 7.000 07/01/12 2,321,308
1,650 Indiana Bond Bank Spl Pgm Hendricks Redev
Ser B (LOC: Canadian Imperial Bank Insd).... 6.125 02/01/17 1,668,892
3,125 Indiana Bond Bank Spl Pgm Hendricks Redev
Ser B (LOC: Canadian Imperial Bank Insd).... 6.200 02/01/23 3,154,469
1,995 Indiana Hlth Fac Fin Auth Rev Hoosier Care
Proj Ser A.................................. 7.125 06/01/34 1,816,308
980 Indiana Hlth Fac Fin Auth Rev Metro Hlth/IN
Inc Proj.................................... 6.300 12/01/23 843,790
2,000 Indiana Hlth Fac Fin Auth Rev Metro Hlth/IN
Inc Proj.................................... 6.400 12/01/33 1,694,840
550 Indianapolis, IN Loc Pub Impt Bond Bank
Ser D....................................... 6.750 02/01/14 617,523
5,000 Jasper Cnty, IN Econ Dev Rev................ 5.600 04/01/29 4,261,200
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/11 56,315
140 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/12 51,997
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/13 46,246
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/14 41,080
130 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/15 37,883
135 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/16 36,285
</TABLE>
See Notes to Financial Statements
20
<PAGE> 159
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 225 Saint Joseph Cnty, IN Redev Dist Tax
Increment Rev Ser B......................... * 06/30/17 $ 55,787
1,500 Wells Cnty, IN Hosp Auth Rev Caylor-Nickel
Med Cent Inc Rfdg........................... 8.500% 04/15/03 1,644,195
------------
19,866,209
------------
IOWA 0.8%
1,945 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)............................. 6.000 07/01/07 2,043,203
2,400 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)............................. 5.750 07/01/17 2,407,440
2,000 Iowa Fin Auth Multi-Family Rev Hsg Hamlet
Apts Proj A Rfdg (GNMA Collateralized)...... 6.150 05/01/32 2,006,760
------------
6,457,403
------------
KANSAS 0.1%
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser
A (Prerefunded @ 11/15/04).................. 7.750 11/15/24 1,122,120
------------
KENTUCKY 0.9%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds
Inc Rfdg.................................... 6.550 03/01/09 980,800
2,800 Jefferson Cnty, KY Hosp Rev (Inverse Fltg)
(MBIA Insd)................................. 7.364 10/09/08 3,052,000
1,200 Jefferson Cnty, KY Hosp Rev (Inverse Fltg)
(Prerefunded @ 10/01/02) (MBIA Insd)........ 7.364 10/01/08 1,321,500
850 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA
Gtd)........................................ 7.450 01/01/23 876,877
1,000 Kentucky St Tpk Auth Toll Rd Rev Ser A...... 5.500 07/01/07 1,001,050
------------
7,232,227
------------
LOUISIANA 1.8%
500 Hodge, LA Util Rev Stone Container Corp Ser
1990........................................ 9.000 03/01/10 510,690
5,755 Jefferson, LA Sales Tax Dist Spl Sales Tax
Rev (FSA Insd).............................. * 12/01/15 2,393,159
1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev
Advanced Polymer Proj Ser 1985.............. 10.000 11/15/04 2,350,986
1,000 Lake Charles, LA Harbor & Terminal Dist Port
Fac Rev Trunkline Rfdg...................... 7.750 08/15/22 1,075,100
2,215 Louisiana Pub Fac Auth Rev Indl Dev Beverly
Enterprise Inc Rfdg......................... 8.250 09/01/08 2,323,136
3,000 Louisiana St Hlth Edl Auth Rev Lambeth House
Ser A Rfdg.................................. 5.250 01/01/05 2,870,670
</TABLE>
See Notes to Financial Statements
21
<PAGE> 160
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$ 1,000 New Orleans, LA Rfdg (FGIC Insd)............ 5.500% 12/01/21 $ 974,600
700 Port New Orleans, LA Indl Dev Rev Avondale
Inds Inc Proj Rfdg.......................... 8.250 06/01/04 730,786
1,400 West Feliciana Parish, LA Pollutn Ctl Rev
Gulf States Util Co Proj Ser A.............. 7.500 05/01/15 1,464,960
------------
14,694,087
------------
MARYLAND 0.4%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser A Rfdg.................. 7.550 06/01/17 1,531,530
1,650 Maryland St Econ Dev Corp Student Hsg Rev
Collegiate Hsg Towson Ser A................. 5.750 06/01/29 1,466,405
------------
2,997,935
------------
MASSACHUSETTS 2.4%
1,000 Boston, MA Rev Boston City Hosp Ser A (FHA
Gtd) (Prerefunded @ 08/15/00)............... 7.625 02/15/21 1,030,310
1,235 Massachusetts Edl Ln Auth Rev Edl Ln Rev
Muni Forwards Issue E Ser A (AMBAC Insd).... 7.000 01/01/10 1,285,820
1,000 Massachusetts St Dev Fin Agy Rev Hillcrest
Edl Cent Inc................................ 6.375 07/01/29 954,120
1,000 Massachusetts St Dev Fin Agy Rev Hlthcare
Fac Alliance Ser A.......................... 7.100 07/01/32 938,840
6,200 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd)................................. 5.000 07/01/13 5,840,896
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl
Cent Inc Proj (Prerefunded @ 07/01/05)...... 8.450 07/01/18 1,666,185
5,000 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj.......................... 8.625 10/01/23 5,341,350
970 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth Assoc Proj
(Prerefunded @ 06/01/04).................... 8.800 06/01/14 1,182,100
1,000 Massachusetts St Indl Fin Agy Rev Wtr
Treatment American Hingham.................. 6.600 12/01/15 1,011,370
------------
19,250,991
------------
MICHIGAN 2.2%
3,500 Detroit, MI Downtown Dev Auth Tax Increment
Rev (Prerefunded @ 07/01/06) (b)............ 6.200 07/01/17 3,771,215
1,000 Detroit, MI Loc Dev Fin Auth Ser C.......... 6.850 05/01/21 968,030
650 Grand Traverse Cnty, MI Hosp Fin Auth Hosp
Rev Ser A Rfdg (AMBAC Insd)................. 6.250 07/01/12 674,284
</TABLE>
See Notes to Financial Statements
22
<PAGE> 161
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$ 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 $ 1,417,945
1,500 Grand Valley, MI St Univ Rev Gen (FGIC
Insd)....................................... 5.500 02/01/18 1,502,415
1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmty Hlth Cent.................... 5.250 05/15/26 1,028,034
7,710 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fiber Proj (e)................. 8.000 12/01/27 3,855,046
4,500 Michigan St Strategic Fd Solid Waste Disp
Rev Genesee Pwr Station Proj................ 7.500 01/01/21 4,635,090
------------
17,852,059
------------
MINNESOTA 0.1%
1,000 North Saint Paul, MN Multi-Family Rev Hsg
Cottages North Saint Paul Rfdg.............. 9.250 02/01/22 1,034,650
------------
MISSISSIPPI 0.8%
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn
Ctl Rev Weyerhaeuser Co Rfdg................ 6.700 04/01/22 5,358,800
1,120 Ridgeland, MS Urban Renewal Rev The Orchard
Ltd Proj Ser A Rfdg......................... 7.750 12/01/15 1,146,656
------------
6,505,456
------------
MISSOURI 1.5%
1,000 Kansas City, MO Multi-Family Hsg Rev Vlg
Green Apts Proj............................. 6.250 04/01/30 916,930
2,835 Kansas City, MO Port Auth Fac Riverfront
Park Proj Ser A (b)......................... 5.750 10/01/06 2,906,726
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev
John Knox Vlg Proj Rfdg & Impt.............. 7.125 08/15/12 2,053,480
1,145 Missouri St Econ Dev Export & Infrastructure
Brd Med Office Fac Rev (MBIA Insd).......... 7.250 06/01/04 1,200,933
3,920 Missouri St Econ Dev Export & Infrastructure
Brd Med Office Fac Rev (Prerefunded @
06/01/04) (MBIA Insd)....................... 7.250 06/01/14 4,338,852
805 Saint Louis, MO Tax Increment Rev Scullin
Redev Area Ser A............................ 10.000 08/01/10 953,933
------------
12,370,854
------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 162
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEBRASKA 0.6%
$ 800 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........ 6.700% 09/15/24 $ 838,000
700 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........ 10.669 09/10/30 736,750
2,900 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........ 9.507 10/17/23 3,077,625
------------
4,652,375
------------
NEW HAMPSHIRE 1.1%
1,555 New Hampshire Higher Edl & Hlth Fac Auth
Rev......................................... 8.800 06/01/09 1,716,860
890 New Hampshire Higher Edl & Hlth Fac Auth Rev
Daniel Webster College Issue Rfdg........... 6.100 07/01/09 857,364
1,985 New Hampshire Higher Edl & Hlth Fac Auth Rev
Daniel Webster College Issue Rfdg
(Prerefunded @ 07/01/04).................... 7.625 07/01/16 2,186,676
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
New London Hosp Assn Proj................... 7.500 06/01/05 1,051,470
955 New Hampshire St Business Fin Auth Elec Fac
Rev Plymouth Cogeneration................... 7.750 06/01/14 969,525
1,000 New Hampshire St Business Fin Auth Rev Alice
Peck Day Hlth Sys Ser A..................... 6.875 10/01/19 940,380
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg
(FGIC Insd)................................. 6.750 11/01/11 1,101,160
------------
8,823,435
------------
NEW JERSEY 4.3%
400 Atlantic City, NJ Brd Edl Sch (Prerefunded @
12/01/02) (AMBAC Insd)...................... 6.125 12/01/11 421,344
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty Gtd
(Prerefunded @ 10/01/04) (MBIA Insd)........ 6.150 10/01/14 267,395
2,000 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrig...................................... 8.400 04/01/24 2,022,140
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth
House Proj (Prerefunded @ 12/01/04) (AMBAC
Insd)....................................... 6.600 12/01/07 272,327
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd)..... 5.375 09/01/10 377,000
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac
Rfdg (MBIA Insd)............................ 6.600 12/01/21 261,703
250 Lacey Muni Util Auth NJ Wtr Rev (Prerefunded
@ 12/01/04) (MBIA Insd)..................... 6.250 12/01/24 268,820
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A
Rfdg (MBIA Insd)............................ 6.250 08/15/10 6,585,582
</TABLE>
See Notes to Financial Statements
24
<PAGE> 163
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 500 New Jersey Econ Dev Auth Dist Heating &
Cooling Rev Trigen Trenton Ser A............ 6.200% 12/01/10 $ 490,790
2,000 New Jersey Econ Dev Auth Holt Hauling &
Warehsg Rev Ser G Rfdg...................... 8.400 12/15/15 2,011,020
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub
Svcs Elec & Gas Co Proj A (MBIA Insd)....... 6.400 05/01/32 216,434
1,900 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.................... 8.500 11/01/16 2,011,074
350 New Jersey Econ Dev Auth Rev RWJ Hlthcare
Corp (FSA Insd)............................. 6.250 07/01/14 366,229
1,000 New Jersey Econ Dev Auth Rev United
Methodist Homes............................. 7.500 07/01/20 1,127,280
1,000 New Jersey Econ Dev Auth Rev United
Methodist Homes Oblig Ser A
(Prerefunded @ 07/01/05).................... 7.500 07/01/25 1,127,280
2,000 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj.................. 6.250 09/15/19 1,876,060
50 New Jersey Econ Dev Auth Spl Fac Rev
Continental Airls Inc Proj.................. 6.250 09/15/29 46,044
300 New Jersey Econ Dev Auth Wtr Fac Rev
Hackensack Wtr Co Proj B Rfdg (MBIA Insd)... 5.900 03/01/24 300,708
170 New Jersey Hlthcare Fac Fin Auth Rev (AMBAC
Insd)....................................... 6.250 07/01/21 175,969
230 New Jersey Hlthcare Fac Fin Auth Rev
(Prerefunded @ 07/01/04) (AMBAC Insd)....... 6.250 07/01/21 245,461
490 New Jersey Hlthcare Fac Fin Auth Rev
Atlantic City Med Cent Ser C Rfdg........... 6.800 07/01/11 513,525
700 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd).......... 7.000 07/01/04 754,740
400 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd).......... 7.000 07/01/06 440,984
250 New Jersey Hlthcare Fac Fin Auth Rev Genl
Hosp Cent at Passaic (FSA Insd)............. 6.000 07/01/06 264,560
250 New Jersey Hlthcare Fac Fin Auth Rev Genl
Hosp Cent at Passaic (FSA Insd)............. 6.750 07/01/19 282,150
500 New Jersey Hlthcare Fac Fin Auth Rev
Southern Ocean Cnty Hosp Ser A.............. 6.125 07/01/13 462,755
400 New Jersey Sports & Exposition Auth
Convention Cent Luxury Tax Rev Ser A Rfdg
(MBIA Insd)................................. 6.250 07/01/20 420,480
</TABLE>
See Notes to Financial Statements
25
<PAGE> 164
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 200 New Jersey St Edl Fac Auth Rev Caldwell
College Ser A............................... 7.250% 07/01/25 $ 207,134
250 New Jersey St Edl Fac Auth Rev Glassboro St
College Ser A (Prerefunded @ 07/01/01) (MBIA
Insd)....................................... 6.700 07/01/21 261,555
270 New Jersey St Hsg & Mtg Fin Agy Rev Home
Buyer Ser K (MBIA Insd)..................... 6.375 10/01/26 276,593
500 New Jersey St Hsg & Mtg Fin Agy Rev Home
Buyer Ser O (MBIA Insd)..................... 6.300 10/01/23 509,860
3,480 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg
(MBIA Insd) (b)............................. 6.500 01/01/16 3,877,138
5,735 New Jersey St Tran Corp Fed Tran Admin
Grants Ser A................................ 5.750 09/15/10 6,009,534
300 Union City, NJ (FSA Insd)................... 6.375 11/01/10 332,136
------------
35,083,804
------------
NEW MEXICO 0.4%
2,600 Albuquerque, NM Retirement Fac Rev La Vida
Llena Proj Ser B Rfdg....................... 6.600 12/15/28 2,265,276
1,000 Farmington, NM Pollutn Ctl Rev Pub Service
Co RMK Ser A Rfdg........................... 5.800 04/01/22 896,130
------------
3,161,406
------------
NEW YORK 6.2%
1,000 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev Woodcrest Estates Fac Ser A......... 6.375 12/01/37 863,200
5,000 Metropolitan Tran Auth NY Svcs Contract Tran
Fac Ser 5 Rfdg.............................. 7.000 07/01/12 5,217,850
1,000 New York City Indl Dev Agy Field Hotel Assoc
Lp JFK Rfdg................................. 6.000 11/01/28 864,460
1,000 New York City Indl Dev Agy Laguardia Assoc
Lp Proj Rfdg................................ 6.000 11/01/28 864,460
1,000 New York City Indl Dev Agy Civic Fac
Marymount Manhattan College Proj............ 7.000 07/01/23 1,060,190
4,100 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser B (b)........................... 5.000 06/15/17 3,747,687
5,000 New York City Ser A (b)..................... 7.000 08/01/07 5,535,500
945 New York City Ser C
(Prerefunded @ 08/01/02).................... 6.500 08/01/04 995,094
4,055 New York City Ser C (b)..................... 6.500 08/01/04 4,242,179
640 New York City Ser C Subser C1
(Prerefunded @ 08/01/02).................... 7.500 08/01/20 688,352
2,000 New York City Ser D Rfdg (b)................ 8.000 02/01/05 2,241,400
</TABLE>
See Notes to Financial Statements
26
<PAGE> 165
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,200 New York City Ser E (b)..................... 5.700% 08/01/08 $ 2,259,136
2,750 New York St Dorm Auth Rev Court Fac Lease
Ser A....................................... 5.500 05/15/10 2,761,358
2,295 New York St Dorm Auth Rev Mental Hlth Svcs
Fac Ser A................................... 5.750 02/15/11 2,338,720
2,285 New York St Dorm Auth Rev Mental Hlth Svcs
Fac Ser A................................... 5.750 02/15/12 2,318,909
2,500 New York St Energy Resh & Dev Auth Gas Fac
Rev (Inverse Fltg).......................... 8.224 04/01/20 2,640,625
3,000 New York St Energy Resh & Dev Auth Gas Fac
Rev Brooklyn Union Gas Co Ser B
(Inverse Fltg).............................. 9.260 07/01/26 3,292,500
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 2,163,980
185 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A......................... 7.750 08/15/11 193,393
175 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser C......................... 7.300 02/15/21 183,684
2,400 New York St Urban Dev Corp Rev Correctional
Cap Fac Rfdg................................ 5.625 01/01/07 2,440,704
1,000 Peekskill, NY Indl Dev Agy Sr Drum Hill Sr
Living Proj................................. 6.375 10/01/28 869,440
1,200 Port Auth NY & NJ Cons 95th Ser............. 6.125 07/15/22 1,219,236
1,500 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A............. 6.375 12/01/17 1,392,870
------------
50,394,927
------------
OHIO 1.3%
1,220 Cleveland Cuyahoga Cnty, OH Port Auth Rev
Dev Port Cleveland Bond Fd Ser A............ 5.750 05/15/20 1,066,683
755 Cleveland Cuyahoga Cnty, OH Port Auth Rev
Dev Port Cleveland Bond Fd Ser A............ 5.800 05/15/27 667,503
500 Cleveland, OH Pkg Fac Rev Impt (Prerefunded
@ 09/15/02)................................. 8.000 09/15/12 545,420
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings
Hall........................................ 7.300 11/15/23 1,010,330
220 Fairfield, OH Econ Dev Rev Beverly
Enterprises Inc Proj Rfdg................... 8.500 01/01/03 225,942
1,750 Franklin Cnty, OH Hlthcare Friendship Vlg
Dublin, OH Rfdg............................. 5.625 11/01/22 1,488,445
</TABLE>
See Notes to Financial Statements
27
<PAGE> 166
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 1,000 Madison Cnty, OH Hosp Impt Rev Madison Cnty
Hosp Proj Rfdg.............................. 6.400% 08/01/28 $ 868,280
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding
Ltd Partn Proj Rfdg (AMBAC Insd)............ 6.375 04/01/29 1,025,070
2,000 Ohio St Solid Waste Rev CSC Ltd Poj......... 8.500 08/01/22 1,896,700
4,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj................................. 8.250 10/01/14 1,321,640
2,000 Ohio St Solid Waste Rev Rep Engineered
Steels Proj................................. 9.000 06/01/21 660,760
------------
10,776,773
------------
OKLAHOMA 0.6%
1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt
(FSA Insd).................................. 5.250 12/01/22 2,024,372
1,675 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized)............... 7.997 08/01/18 1,775,182
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc......................................... 7.600 12/01/30 1,028,310
------------
4,827,864
------------
OREGON 0.4%
1,000 Clackamas Cnty, OR Hosp Fac Auth Rev
Willamette View Inc Proj Ser A.............. 7.500 11/01/29 976,140
2,000 Oregon St Hlth Hsg Edl & Cultural
Facs Auth................................... 7.250 06/01/28 1,890,160
475 Salem, OR Hosp Fac Auth Rev Cap
Manor Inc................................... 7.500 12/01/24 483,123
------------
3,349,423
------------
PENNSYLVANIA 6.5%
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth
Sys Rev (AMBAC Insd)........................ 5.650 05/15/20 4,796,700
1,000 Cliff House Ctf Trust Var Sts Ctfs Partn Ser
A........................................... 6.625 06/01/27 917,840
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel & Conf
Cent Hyatt Regency.......................... 6.200 01/01/29 4,495,650
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd)................................. 7.390 06/18/15 2,537,500
1,000 Lehigh Cnty, PA Indl Dev Auth Lifepath
Inc Proj.................................... 6.100 06/01/18 857,350
875 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg...... 8.000 08/01/12 899,771
1,180 Luzerne Cnty, PA Indl Dev Auth First Mtg
Gross Rev Rfdg.............................. 7.875 12/01/13 1,220,769
</TABLE>
See Notes to Financial Statements
28
<PAGE> 167
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY 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 $ 1,560,930
1,000 Montgomery Cnty, PA Higher Edl & Hlth
Auth Rev.................................... 6.750 07/01/29 890,000
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth
Hosp Rev (Embedded Swap) (AMBAC Insd)....... 7.040 06/01/12 3,077,550
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev................................... 6.300 01/01/13 923,630
5,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Rfdg (Inverse Fltg) (AMBAC
Insd)....................................... 9.180 09/01/26 5,912,500
3,500 Pennsylvania St Higher Edl Fac Auth College
& Univ Rev.................................. 4.500 07/15/21 2,886,065
3,150 Philadelphia, PA Auth For Indl Dev Rev Coml
Dev RMK Rfdg................................ 7.750 12/01/17 3,322,463
660 Philadelphia, PA Hosp & Higher Edl Fac Auth
Hosp Rev.................................... 7.250 03/01/24 642,794
11,000 Pittsburgh & Allegheny Cnty PA Pub
Auditorium Auth Excise Tax Rev
(AMBAC Insd)................................ 4.500 02/01/29 8,832,120
5,465 Pittsburgh, PA Wtr & Swr Auth Rev Ser C (FSA
Insd)....................................... 5.125 09/01/23 4,948,120
1,450 Ridley Park, PA Hosp Auth Rev Taylor Hosp
Ser A Rfdg Hosp Auth Rev Ser 1993A.......... 6.000 12/01/13 1,519,890
1,000 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Allied Svcs Rehab Hosp Ser A............ 7.375 07/15/08 1,043,030
500 Scranton Lackawanna, PA Hlth & Welfare Auth
Rev Moses Taylor Hosp Proj
(Prerefunded @ 07/01/01).................... 8.250 07/01/09 531,125
1,215 Southern Chester Cnty, PA Hlth & Higher Edl
Auth Mtg Southern Chester Cnty Med Ser A.... 6.100 06/01/03 1,207,479
------------
53,023,276
------------
RHODE ISLAND 0.3%
1,950 Providence, RI Redev Agy Ctfs Partn Ser A... 8.000 09/01/24 2,041,981
555 West Warwick, RI Ser A...................... 7.300 07/15/08 593,212
------------
2,635,193
------------
SOUTH CAROLINA 1.7%
2,000 Charleston Cnty, SC Indl Rev Zeigler
Coal Hldg................................... 6.950 08/10/28 1,641,360
</TABLE>
See Notes to Financial Statements
29
<PAGE> 168
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 1,070 Piedmont Muni Pwr Agy SC Elec Rev........... 5.000% 01/01/25 $ 827,089
11,420 South Carolina Tran Infrastructure Bank
Rev......................................... 6.146 10/01/15 11,492,288
------------
13,960,737
------------
SOUTH DAKOTA 0.4%
2,500 South Dakota St Hlth & Edl Fac Auth Rev..... 5.650 04/01/22 2,038,750
1,000 South Dakota St Hlth & Edl Fac Auth Rev
Huron Regl Med Cent......................... 7.250 04/01/20 1,017,010
------------
3,055,760
------------
TENNESSEE 0.8%
4,000 Elizabethton, TN Hlth & Edl Fac Brd Rev Hosp
First Mtg Ser B............................. 7.750 07/01/29 3,972,240
2,000 Springfield, TN Hlth & Edl Jesse Holman
Jones Hosp Proj (Prerefunded @ 04/01/06).... 8.500 04/01/24 2,392,800
------------
6,365,040
------------
TEXAS 8.9%
1,000 Abia Dev Corp TX Arpt Fac Rev Austin Belly
Port Dev Proj A............................. 6.500 10/01/23 919,220
5,730 Austin, TX Rev Sub Ser A Rfdg (MBIA Insd)... * 05/15/16 2,261,631
1,000 Austin-Bergstorm Landhost Enterprises Inc TX
Arpt Hotel Sr Ser A......................... 6.750 04/01/27 918,650
130 Bell Cnty, TX Hlth Fac Dev Corp Rev
Hosp Proj................................... 9.250 07/01/08 134,138
1,995 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev................................ 7.600 12/01/17 1,867,280
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev
Saint Luke's Lutheran Hosp.................. 7.000 05/01/21 580,150
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 1,621,710
232 Bexar Cnty, TX Hsg Fin Corp Rev Ser A (GNMA
Collateralized)............................. 8.200 04/01/22 236,928
3,100 Brazos River Auth TX Rev Houston Inds Inc
Proj Ser D Rfdg (MBIA Insd)................. 4.900 10/01/15 2,827,014
1,675 Cedar Hill, TX Indpt Sch Dist Cap
Apprec Rfdg................................. * 08/15/15 665,779
625 Clear Creek, TX Indpt Sch Dist (Prerefunded
@ 02/01/01) (b)............................. 6.250 02/01/11 635,569
250 Coastal Wtr Auth TX Conveyance Sys Rev
(AMBAC Insd)................................ 6.250 12/15/17 253,090
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc................. 7.500 11/01/25 960,830
</TABLE>
See Notes to Financial Statements
30
<PAGE> 169
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 250 El Paso, TX Hsg Auth Multi-Family Rev
Ser A....................................... 6.250% 12/01/09 $ 254,190
65 Galveston, TX Ppty Fin Auth Single Family
Mtg Rev Ser A............................... 8.500 09/01/11 69,620
7,350 Grapevine Colleyville Indpt Sch Dist TX..... * 08/15/11 3,952,536
250 Guadalupe Blanco River Auth TX Indl Dev Corp
Pollutn Ctl Rev............................. 6.350 07/01/22 257,743
1,250 Harris Cnty, TX Hlth Fac Dev Corp Mem Hosp
Sys Proj Rfdg............................... 7.125 06/01/15 1,327,062
250 Harris Cnty, TX Muni Util Dist No 120
(Prerefunded @ 08/01/01).................... 8.000 08/01/14 260,930
375 Harris Cnty, TX Sch Hlthcare Corp Sys Rev
(Prerefunded @ 07/01/01).................... 7.100 07/01/21 393,851
5,045 Leander, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Gtd)................................... * 08/15/19 1,617,175
250 Lockhart, TX Correctional Fac Fin Corp Rev
(Prerefunded @ 04/01/01) (MBIA Insd)........ 6.625 04/01/12 255,865
7,500 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd Insd).................................. 6.919 05/15/14 8,019,450
6,250 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd Insd).................................. 6.919 05/15/15 6,643,500
3,250 Lower Co River Auth TX Rev Ser A Rfdg (FSA
Insd Insd).................................. 6.919 05/15/16 3,424,135
2,000 Montgomery Cnty, TX Muni Util Dist No 47
Wtrwks & Swr (AMBAC Insd)................... 4.750 10/01/24 1,695,960
3,500 North Central TX Hlth Fac Dev Corp Rev
Presbyterian Hlthcare Sys Ser C (Inverse
Fltg) (Prerefunded @ 06/19/01) (MBIA
Insd)....................................... 8.925 06/22/21 3,819,375
750 Northwest Harris Cnty, TX Muni Util Dist No
23 (Prerefunded @ 04/01/01)................. 8.100 10/01/15 777,705
3,560 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg
(PSF Gtd)................................... * 08/15/20 1,038,452
250 San Antonio, TX Hlth Fac Dev Corp Rev Encore
Nursing Cent Partn.......................... 8.250 12/01/19 263,780
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt................................. 7.000 05/15/28 237,785
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt (Prerefunded @ 05/15/03)........ 7.000 05/15/28 268,933
227 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................ 7.000 08/01/09 232,443
</TABLE>
See Notes to Financial Statements
31
<PAGE> 170
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 500 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................ 7.000% 08/01/19 $ 510,750
500 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................ 7.000 08/01/24 510,750
839 Texas Genl Svcs Cmnty Partn Lease Purchase
Ctfs........................................ 7.500 02/15/13 857,166
90 Texas Hsg Agy Single Family Mtg Rev Ser A
Rfdg........................................ 7.150 09/01/12 93,211
5,430 Texas St College Student Ln................. 5.000 08/01/23 4,676,262
6,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg
Rev Coll Ser C Rfdg (Inverse Fltg) (GNMA
Collateralized)............................. 9.400 07/02/24 6,427,500
140 Texas St Higher Edl Brd College Sr Lien..... 7.700 10/01/25 144,732
4,025 Texas St Higher Edl Coordinating Brd College
Student Ln.................................. * 10/01/25 4,012,844
1,000 Texas St Veterans Hsg Assist................ 6.800 12/01/10 1,030,600
990 Texas St Veterans Hsg Assist (MBIA Insd).... 6.800 12/01/23 1,027,462
2,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics.... 8.200 03/15/21 2,340,180
1,000 Woodhill Pub Fac Corp TX Hsg-Woodhill
Apts Proj................................... 7.500 12/01/29 992,790
3,245 Wylie, TX Indt Sch Dist Cap Apprec Rfdg (PSF
Gtd)........................................ * 08/15/26 653,478
------------
71,970,204
------------
UTAH 2.4%
2,995 Bountiful, UT Hosp Rev South Davis Cmnty
Hosp Proj (Prerefunded @ 06/15/04).......... 9.500 12/15/18 3,583,248
1,340 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.................................... 7.800 09/01/15 1,240,224
1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.................................... 8.000 09/01/20 919,350
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................ 7.800 09/01/25 911,710
11,000 Salt Lake City, UT Hosp Rev IHC
Hosp Inc Rfdg............................... 6.970 02/15/12 11,709,610
285 Utah St Hsg Fin Agy Single Family Mtg Sr Ser
A1 (FHA Gtd)................................ 7.100 07/01/14 291,734
390 Utah St Hsg Fin Agy Single Family Mtg Sr Ser
A2 (FHA Gtd)................................ 7.200 01/01/27 405,943
------------
19,061,819
------------
</TABLE>
See Notes to Financial Statements
32
<PAGE> 171
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
VERMONT 0.1%
$ 1,000 Vermont Edl & Hlth Bldgs Fing Agy Rev
Bennington College Proj..................... 6.625% 10/01/29 $ 960,440
------------
VIRGINIA 2.7%
4,000 Alexandria, VA Redev & Hsg Auth 3001 Pk Cent
Apts Ser A Rfdg............................. 6.375 04/01/34 3,655,720
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 3,233,769
2,000 Fairfax Cnty, VA Pk Auth Pk Fac Rev......... 6.625 07/15/14 2,072,160
1,750 Fredericksburg Va Indl Dev Auth Hosp Facs
Rev (Prerefunded @ 08/15/01) (FGIC Insd).... 9.063 08/15/23 1,916,250
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd)...... 6.800 03/01/14 2,222,438
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)...... 6.900 03/01/19 1,065,380
3,000 Peninsula Ports Auth VA Rev Port Fac Zeigler
Coal Rfdg................................... 6.900 05/02/22 2,467,590
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke
Mem Hosp Rfdg Ser B (MBIA Insd)............. 6.250 07/01/20 5,074,700
------------
21,708,007
------------
WASHINGTON 0.8%
1,250 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev (FGIC Insd)................... 7.125 07/01/16 1,454,725
1,555 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser C Rfdg (FSA Insd)......... 5.375 07/01/15 1,518,504
3,750 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev Ser C Rfdg (FSA Insd)......... 5.375 07/01/15 3,661,988
------------
6,635,217
------------
WEST VIRGINIA 0.9%
4,000 West VA St Hosp Fin Auth Hosp Rev Bears &
Bulls WV Univ Med Corp Rfdg (MBIA Insd)..... 6.100 01/01/18 4,045,560
1,500 West VA St Hosp Fin Auth Hosp Rev Hosp Rev
Bulls (MBIA Insd)........................... 8.440 01/01/18 1,521,525
5,250 West Virginia Str Cap Apprec-
Infrastructure A............................ * 11/01/19 1,694,070
------------
7,261,155
------------
WISCONSIN 0.6%
750 Jefferson, WI Swr Sys Wtrwrks & Elec Sys Mtg
Rev (Prerefunded @ 07/01/01)................ 7.400 07/01/16 775,748
1,150 Wisconsin Hsg & Econ Dev Auth Home Ownership
Rev Rfdg (Inverse Fltg)..................... 9.763 10/25/22 1,226,187
</TABLE>
See Notes to Financial Statements
33
<PAGE> 172
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$ 480 Wisconsin St Hlth & Edl Fac Auth Rev Hess
Mem Hosp Assn (ACA Insd).................... 7.200% 11/01/05 $ 499,670
2,000 Wisconsin St Hlth & Edl Milwaukee Catholic
Home Proj................................... 7.500 07/01/26 2,038,340
------------
4,539,945
------------
GUAM 0.0%
250 Guam Govt Ser A............................. 5.750 09/01/04 250,105
------------
PUERTO RICO 0.3%
200 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser V Rfdg.................................. 6.625 07/01/12 209,696
1,250 Puerto Rico Comwlth Hwy & Tran Auth Tran Rev
Ser A....................................... 4.750 07/01/38 1,028,562
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T
(Prerefunded @ 07/01/04).................... 6.375 07/01/24 271,053
250 Puerto Rico Elec Pwr Auth Pwr Rev
Ser U Rfdg.................................. 6.000 07/01/14 257,510
310 Puerto Rico Hsg Bank & Fin Agy Single Family
Mtg Rev (GNMA Collateralized)............... 6.250 04/01/29 311,550
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl &
Hlth Fac Ser M Rfdg (FSA Insd).............. 5.750 07/01/15 305,883
------------
2,384,254
------------
MARIANA ISLANDS 0.2%
500 Northern Mariana Islands Pub Sch Sys Proj
Ser A....................................... 5.125 10/01/06 507,450
500 Northern Mariana Islands Pub Sch Sys Proj
Ser A....................................... 5.125 10/01/07 506,835
500 Northern Mariana Islands Pub Sch Sys Proj
Ser A....................................... 5.125 10/01/08 505,495
------------
1,519,780
------------
TOTAL LONG-TERM INVESTMENTS 96.6%
(Cost $790,424,795)...................................................... 781,864,506
SHORT-TERM INVESTMENTS 1.2%
(Cost $9,600,000)........................................................ 9,600,000
------------
TOTAL INVESTMENTS 97.8%
(Cost $800,024,795)...................................................... 791,464,506
OTHER ASSETS IN EXCESS OF LIABILITIES 2.2%................................ 17,926,059
------------
NET ASSETS 100.0%......................................................... $809,390,565
============
</TABLE>
See Notes to Financial Statements
34
<PAGE> 173
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
* 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 except 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.
(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) Non-income producing security.
(g) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
ACA--American Capital Access
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
35
<PAGE> 174
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $800,024,795)....................... $ 791,464,506
Cash........................................................ 79,419
Receivables:
Interest.................................................. 13,490,412
Investments Sold.......................................... 10,661,325
Fund Shares Sold.......................................... 280,773
Other....................................................... 45,577
--------------
Total Assets............................................ 816,022,012
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,917,380
Income Distributions...................................... 1,565,843
Fund Shares Repurchased................................... 1,363,210
Distributor and Affiliates................................ 816,614
Investment Advisory Fee................................... 328,920
Trustees' Deferred Compensation and Retirement Plans........ 290,913
Accrued Expenses............................................ 348,567
--------------
Total Liabilities....................................... 6,631,447
--------------
NET ASSETS.................................................. $ 809,390,565
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 843,496,496
Accumulated Distributions in Excess of Net Investment
Income.................................................... (558,840)
Net Unrealized Depreciation................................. (8,560,289)
Accumulated Net Realized Loss............................... (24,986,802)
--------------
NET ASSETS.................................................. $ 809,390,565
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $715,757,786 and 50,724,866 shares of
beneficial interest issued and outstanding)............. $ 14.11
Maximum sales charge (4.75%* of offering price)......... .70
--------------
Maximum offering price to public........................ $ 14.81
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $78,460,517 and 5,562,148 shares of
beneficial interest issued and outstanding)............. $ 14.11
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $15,172,262 and 1,076,555 shares of
beneficial interest issued and outstanding)............. $ 14.09
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
36
<PAGE> 175
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 27,362,834
------------
EXPENSES:
Investment Advisory Fee..................................... 2,022,770
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $893,003, $459,412 and $82,592)............. 1,435,007
Shareholder Services........................................ 379,734
Legal....................................................... 26,115
Custody..................................................... 50,879
Trustees' Fees and Related Expenses......................... 68,679
Other....................................................... 233,700
------------
Total Operating Expenses................................ 4,216,884
Less Credits Earned on Overnight Cash Balances.......... 16,214
------------
Net Operating Expenses.................................. 4,200,670
Interest Expense........................................ 88,086
------------
NET INVESTMENT INCOME....................................... $ 23,074,078
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (8,860,564)
Options................................................... 12,713
Futures................................................... 983,206
------------
Net Realized Loss........................................... (7,864,645)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 6,301,745
End of the Period:
Investments........................................... (8,560,289)
------------
Net Unrealized Depreciation During the Period............... (14,862,034)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(22,726,679)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 347,399
============
</TABLE>
See Notes to Financial Statements
37
<PAGE> 176
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 23,074,078 $ 50,038,687
Net Realized Loss................................. (7,864,645) (5,874,518)
Net Unrealized Depreciation During the Period..... (14,862,034) (84,600,975)
-------------- --------------
Change in Net Assets from Operations.............. 347,399 (40,436,806)
-------------- --------------
Distributions from Net Investment Income.......... (23,765,685) (51,629,129)
Distributions in Excess of Net Investment
Income.......................................... (558,840) -0-
-------------- --------------
Total Distributions from and in Excess of Net
Investment Income*.............................. (24,324,525) (51,629,129)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (23,977,126) (92,065,935)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 97,182,189 753,276,652
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 15,089,571 27,273,773
Cost of Shares Repurchased........................ (180,489,033) (789,074,743)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... (68,217,273) (8,524,318)
-------------- --------------
TOTAL DECREASE IN NET ASSETS...................... (92,194,399) (100,590,253)
NET ASSETS:
Beginning of the Period........................... 901,584,964 1,002,175,217
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of
($558,840) and $691,607, respectively).......... $ 809,390,565 $ 901,584,964
============== ==============
* Distributions by Class:
- --------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................. $ (21,569,385) $ (43,701,298)
Class B Shares.................................. (2,334,816) (7,150,083)
Class C Shares.................................. (420,324) (777,748)
-------------- --------------
$ (24,324,525) $ (51,629,129)
============== ==============
</TABLE>
See Notes to Financial Statements
38
<PAGE> 177
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $14.503 $15.991 $15.767 $15.267 $15.549 $14.261
------- ------- ------- ------- ------- -------
Net Investment Income.......... .392 .819 .664 .852 .898 .874
Net Realized and Unrealized
Gain/Loss.................... (.370) (1.461) .195 .500 (.298) 1.296
------- ------- ------- ------- ------- -------
Total from Investment
Operations..................... .022 (.642) .859 1.352 .600 2.170
Less Distributions from and in
Excess of Net
Investment Income.............. .414 .846 .635 .852 .882 .882
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD......................... $14.111 $14.503 $15.991 $15.767 $15.267 $15.549
======= ======= ======= ======= ======= =======
Total Return (a)................. .21%* (4.25%) 5.62%* 9.14% 4.07% 15.61%
Net Assets at End of the Period
(In millions).................. $ 715.8 $ 777.5 $ 788.7 $ 766.2 $ 792.3 $ 839.7
Ratio of Operating Expenses to
Average Net Assets (b)......... .90% .88% .84% .89% .94% .99%
Ratio of Interest Expense to
Average Net Assets............. .02% .17% .03% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (b)......... 5.53% 5.34% 5.63% 5.54% 5.93% 5.86%
Portfolio Turnover............... 18%* 116% 89%* 104% 73% 61%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.
(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
39
<PAGE> 178
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $14.490 $15.982 $15.764 $15.267 $15.549 $14.261
------- ------- ------- ------- ------- -------
Net Investment Income.......... .344 .713 .572 .734 .783 .762
Net Realized and Unrealized
Gain/Loss.................... (.369) (1.473) .195 .501 (.297) 1.294
------- ------- ------- ------- ------- -------
Total from Investment
Operations..................... (.025) (.760) .767 1.235 .486 2.056
Less Distributions from and in
Excess of Net
Investment Income.............. .359 .732 .549 .738 .768 .768
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD......................... $14.106 $14.490 $15.982 $15.764 $15.267 $15.549
======= ======= ======= ======= ======= =======
Total Return (a)................. (0.11%)* (4.95%) 5.05%* 8.27% 3.29% 14.74%
Net Assets at End of the Period
(In millions).................. $ 78.5 $106.6 $197.9 $211.2 $211.0 $216.6
Ratio of Operating Expenses to
Average Net Assets (b)......... 1.65% 1.63% 1.62% 1.65% 1.70% 1.73%
Ratio of Interest Expense to
Average Net Assets............. .02% .17% .03% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (b)......... 4.78% 4.57% 4.85% 4.78% 5.17% 5.09%
Portfolio Turnover............... 18%* 116% 89%* 104% 73% 61%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the sixth year. If the sales charge was
included, total returns would be lower.
(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
40
<PAGE> 179
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD......................... $14.476 $15.964 $15.747 $15.254 $15.545 $14.262
------- ------- ------- ------- ------- -------
Net Investment Income.......... .339 .699 .570 .730 .782 .771
Net Realized and Unrealized
Gain/Loss.................... (.363) (1.455) .196 .501 (.305) 1.280
------- ------- ------- ------- ------- -------
Total from Investment
Operations..................... (.024) (.756) .766 1.231 .477 2.051
Less Distributions from and in
Excess of Net
Investment Income.............. .359 .732 .549 .738 .768 .768
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD......................... $14.093 $14.476 $15.964 $15.747 $15.254 $15.545
======= ======= ======= ======= ======= =======
Total Return (a)................. (0.18%)* (4.90%) 4.99%* 8.34% 3.16% 14.74%
Net Assets at End of the Period
(In millions).................. $ 15.2 $ 17.5 $ 15.5 $ 15.3 $ 12.9 $ 11.2
Ratio of Operating Expenses to
Average Net Assets (b)......... 1.65% 1.63% 1.62% 1.66% 1.70% 1.72%
Ratio of Interest Expense to
Average net Assets............. .02% .17% .03% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets (b)......... 4.78% 4.55% 4.86% 4.75% 5.17% 5.24%
Portfolio Turnover............... 18%* 116% 89%* 104% 73% 61%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(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
41
<PAGE> 180
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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
applicable security. Income and expenses of the Fund are allocated on a pro rata
42
<PAGE> 181
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 March 31, 2000, for federal income tax purposes, cost of long- and
short-term investments is $799,599,789; the aggregate gross unrealized
appreciation is $29,872,214 and the aggregate gross unrealized depreciation is
$38,007,497, resulting in net unrealized depreciation on long- and short-term
investments of $8,135,283.
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. EXPENSE REDUCTIONS During the six months ended March 31, 2000, the Fund's
custody fee was reduced by $16,214 as a result of credits earned on overnight
cash balances.
43
<PAGE> 182
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 DAILY NET ASSETS
<S> <C>
First $500 million.......................................... .50 of 1%
Over $500 million........................................... .45 of 1%
</TABLE>
For the six months ended March 31, 2000, the Fund recognized expenses of
approximately $15,700 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $49,400 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 six months ended March 31,
2000, the Fund recognized expenses of approximately $273,200. 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.
44
<PAGE> 183
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $743,225,245, $83,794,292 and $16,476,959
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 6,206,423 $ 87,431,871
Class B............................................... 569,086 8,042,828
Class C............................................... 120,696 1,707,490
----------- -------------
Total Sales............................................. 6,896,205 $ 97,182,189
=========== =============
Dividend Reinvestment:
Class A............................................... 957,377 $ 13,467,879
Class B............................................... 94,115 1,326,244
Class C............................................... 20,976 295,448
----------- -------------
Total Dividend Reinvestment............................. 1,072,468 $ 15,089,571
=========== =============
Repurchases:
Class A............................................... (10,048,903) $(142,046,231)
Class B............................................... (2,455,069) (34,584,265)
Class C............................................... (274,169) (3,858,537)
----------- -------------
Total Repurchases....................................... (12,778,141) $(180,489,033)
=========== =============
</TABLE>
45
<PAGE> 184
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended March 31, 2000 and the year ended September 30, 1999, 1,261,259 and
5,171,230 Class B shares converted to Class A shares, respectively and are shown
in the above tables as sales of Class A shares and repurchases of Class B
shares. Class C shares purchased before January 1, 1997, and any dividend
reinvestment plan Class C shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Class C shares purchased on or after January 1, 1997 do
not possess a conversion feature. For the six months ended March 31, 2000 and
the year ended September 30, 1999, no Class C shares converted to Class A
shares. The CDSC will be imposed on most
46
<PAGE> 185
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 six months ended March 31, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $33,900 and CDSC on redeemed shares of approximately $163,200.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $155,025,730 and $321,595,321,
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.
47
<PAGE> 186
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
Transactions in options for the six months ended March 31, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at September 30, 1999........................... 500 $ 15,486
Options Written and Purchased (Net)......................... 10,750 104,069
Options Terminated in Closing Transactions (Net)............ (750) (302,531)
Options Expired (Net)....................................... (10,500) 182,976
------- ---------
Outstanding at March 31, 2000............................... -0- $ -0-
======= =========
</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).
Transactions in futures contracts for the six months ended March 31, 2000
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 525
Futures Opened.............................................. 2,085
Futures Closed.............................................. (2,610)
------
Outstanding at March 31, 2000............................... -0-
======
</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
48
<PAGE> 187
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
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, as amended 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 six months ended March 31, 2000, are payments retained by Van
Kampen of approximately $412,000.
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 September 30, 2000. 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 .09% is
charged on the unused portion of the credit facility.
The average daily balance of bank borrowings for the six months ended March
31, 2000 was approximately $2,948,400 with an average interest rate of 5.96%. At
March 31, 2000, the Fund did not have any outstanding borrowings under the
agreement.
49
<PAGE> 188
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth*
Mid Cap 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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- - 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.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
50
<PAGE> 189
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
SEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 August 31,
2000, the report, if used with prospective investors, must be accompanied by a
monthly performance update, if applicable.
51
<PAGE> 190
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the ratification
of KPMG LLP as the independent public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 41,962,328 456,793
Jerry D. Choate....................................... 41,963,328 456,063
Linda Hutton Heagy.................................... 41,963,328 448,537
R. Craig Kennedy...................................... 41,963,328 449,889
Mitchell M. Merin..................................... 41,963,328 447,792
Jack E. Nelson........................................ 41,963,328 450,816
Richard F. Powers, III................................ 41,963,328 445,536
Phillip B. Rooney..................................... 41,963,328 445,611
Fernando Sisto........................................ 41,963,328 464,145
Wayne W. Whalen....................................... 41,963,328 451,310
Suzanne H. Woolsey ................................... 41,963,328 448,500
Paul G. Yovovich*..................................... 41,963,328 440,872
</TABLE>
* On April 14, 2000, Paul Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accountants
for the Fund, 41,112,533 shares voted for the proposal, 156,558 shares voted
against and 694,237 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
52
<PAGE> 191
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE STATES 6
TOP FIVE INDUSTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 18
NOTES TO FINANCIAL STATEMENTS 24
FUND OFFICERS AND IMPORTANT ADDRESSES 32
RESULTS OF SHAREHOLDER VOTE 33
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 192
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 193
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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> 194
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 0.32% (0.06%) (0.06%)
- -------------------------------------------------------------------------
Six-month total return(2) (2.91%) (3.00%) (1.04%)
- -------------------------------------------------------------------------
One-year total return(2) (4.46%) (4.79%) (2.91%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 4.52% 4.45% 4.45%
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 4.85% 4.73%(3) 3.75%
- -------------------------------------------------------------------------
Commencement date 05/28/93 05/28/93 10/19/93
- -------------------------------------------------------------------------
Distribution rate(4) 4.70% 4.10% 4.10%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(5) 7.34% 6.41% 6.41%
- -------------------------------------------------------------------------
SEC Yield(6) 4.81% 4.20% 4.20%
- -------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B shares are calculated without the
effect of the maximum 3% CDSC, charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the fourth year. Returns
for Class C shares are calculated without the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charges were included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (3.25% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C shares.
On purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated with the effect of the maximum 3% CDSC, charged on
certain redemptions made within one year of purchase and declining thereafter to
0% after the fourth year. Returns for Class C shares are calculated with the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares were
purchased.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(5) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 195
Continued from page 3.
(6) 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 March 31, 2000.
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 is no guarantee of 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.
4
<PAGE> 196
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of March 31, 2000
[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 March 31, 2000 39.10 10.40 2.60 19.50 0.80 0.40
<CAPTION>
NON-RATED
---------
<S> <C>
As of March 31, 2000 27.20
</TABLE>
As of September 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA CCC/CAA NON-RATED
------- ----- --- ------- ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 39.40 7.20 5.40 20.90 0.80 0.40 25.90
1999
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0430
11/99 0.0430
12/99 0.0430
1/00 0.0405
2/00 0.0405
3/00 0.0405
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 197
TOP FIVE STATES
(as a percentage of long-term investments -- March 31, 2000)
<TABLE>
<S> <C> <C>
New York 9.8%
- ---------------------------------------------------------------------
New Jersey 8.4%
- ---------------------------------------------------------------------
Ohio 8.4%
- ---------------------------------------------------------------------
Illinois 7.0%
- ---------------------------------------------------------------------
Alabama 6.6%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Health Care 18.90 21.00
Industrial Revenue 16.00 11.90
General Purpose 15.20 13.30
Multi-Family Housing 10.30 14.30
Public Building 7.40 8.40
</TABLE>
6
<PAGE> 198
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
INTERMEDIATE TERM MUNICIPAL INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES
THAT SHAPED THE MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE
TIMOTHY D. HANEY, PORTFOLIO MANAGER, WHO 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 DISCUSSION
REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED MARCH
31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
generally decline as interest rates rise, and vice versa.) The Federal Reserve
Board increased short-term interest rates three times since last September,
driving the federal funds rate, a key short-term borrowing rate, to its highest
level since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding Treasury debt.
Q HOW DID THE MUNICIPAL
MARKET RESPOND?
A The performance of municipal
bonds has typically correlated to a degree with the taxable Treasury bond
market. Unfortunately, municipals lagged Treasuries in the fourth quarter of
1999. Widespread year 2000 (Y2K) jitters and a strong supply of municipal bond
issuance put a damper on nearly every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are actively making tax-related adjustments to their investment
program. But this year, investors were worried about higher interest rates and
potential Y2K fallout early in the year, so many of them avoided or pulled out
of the municipal market. Consequently, many municipal bond funds had negative
returns for January.
7
<PAGE> 199
Municipal bond funds in general were losing assets during the period because
investors were rattled by recent negative returns from municipal bonds and the
threat of even higher interest rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. The combination of a strong Treasury bond market and the lack of supply in
municipals helped make February and March positive months for the fixed-income
markets.
Longer-term securities fared slightly better than the intermediate-term
sector in which the Fund is most heavily invested. Over the past six months, as
the Fed drove up short-term interest rates, 30-year municipal bonds were up a
bit while prices on 10-year and 5-year municipals declined slightly.
Still, the income component of municipals is very competitive relative to
Treasuries, as 10-year AAA rated municipals were providing roughly 1 percent of
the yield available on the 10-year Treasury bond as of the end of March. This
suggests that investors can enjoy the tax-exempt status of their municipal bond
investments while still earning an attractive level of income.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A Lower-rated and nonrated bonds
gave us a few headaches as interest rates went up (driving prices down) and
yield spreads widened significantly. For example, the difference between the
yield offered on a BBB rated municipal bond and an insured AAA rated municipal
bond increased from less than half a percentage point to well over a full
percentage point.
This was especially true in the health-care sector. In fact, at one time we
saw BBB rated hospital bonds trading with a spread of 1.75 percentage points
over AAA rated insured hospital bonds. This is a reflection of the tough times
we've seen in the health-care sector. With the uncertainties involved in managed
care--who pays for what and how much--and the rising cost of services, many
health-care providers are under tremendous profitability pressures. In this
situation, investors have become concerned about the creditworthiness of the
bond issuers, and many of them shied away from this sector of the market.
In a nutshell, the prices of lower-rated and nonrated bonds dropped more
sharply than those of higher-rated bonds, so our holdings in these sectors
hindered the Fund's performance relative to its peer group.
8
<PAGE> 200
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?
A We significantly increased the
Fund's allocation to securities with maturities of five years or less, as the
prices of shorter-term securities have tended to hold up better during periods
of rising interest rates. At the end of the period, just over 20 percent of the
portfolio was invested in such securities, up from just 11 percent in September.
Our exposure to the troubled health-care sector remained fairly stable at
approximately 19 percent of the Fund's long-term investments, though we continue
to monitor these issues closely to preserve value and seek out attractive
investment opportunities.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A For the reporting period, the
Fund's total return fell slightly below average for its peer group, primarily
because of the portfolio's holdings in lower-rated and nonrated bonds. As of
March 31, 2000, the Fund achieved a six-month total return of 0.32 percent
(Class A shares at net asset value; if the maximum sales charge of 3.25 percent
were included, the return would have been lower). By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 2.63 percent for the
same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include
any commissions or sales charges that would be paid by an investor purchasing
the securities it represents. Such costs would lower the performance of the
index. It is not possible to invest directly in an index. Please refer to the
chart and footnotes on page 3 for additional Fund performance results. Past
performance does not guarantee future results.
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe people tend to invest
in a fund like this with a long-term perspective, and expect to hold their
shares for some time, seeking a steady source of monthly income that is exempt
from federal income tax, rather than investing for capital appreciation.
The Fund's monthly tax-exempt dividend was decreased to $.0405 from $.0430
per Class A share in January 2000, reflecting a decline in the average yield of
bonds in the Fund. Keep in mind that even though interest rates have spiked
during the past six months, many of the securities in the Fund were purchased
during periods of much higher interest rates. As these bonds mature or are
called, they are replaced with bonds bearing today's comparatively lower yields.
Despite this situation, the Fund's distribution rate over the six month
period stood at 4.70 percent at the end of the reporting period. With this in
mind, we'd like to point out that
9
<PAGE> 201
investors would have to earn a distribution rate of 7.34 percent on a taxable
investment (for an investor in the 36 percent federal income tax bracket) to
match the tax-exempt yield provided by the Fund.
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
We've seen quite a few credit-rating upgrades, indicating that the rating
agencies are optimistic about the credit strength of municipal bond
issuers--most likely because the economy continues to be strong and the coffers
are full. Ironically, since many bond issuers have surpluses from the strong
economy, there isn't much pressure to issue new debt. A continuation of weak
supply could lend price support to the municipal market as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three more interest-rate
hikes within the next quarter or two.
Going forward, we will rely on our research efforts to uncover attractive
values, even in the most challenging sectors, such as health care. We will
maintain a portion of the Fund in lower-rated and nonrated bonds, as these
securities contribute greatly to the income component of the portfolio. In
short, we will continue to manage the Fund with a long-term perspective, relying
on our research.
10
<PAGE> 202
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each is
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 203
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 102.6%
ALABAMA 6.8%
$2,410 Tuscaloosa, AL (b).......................... 5.450% 01/01/14 $ 2,403,541
465 West Jefferson Cnty, AL Amusement & Pub Pk
Auth Rev (Prerefunded @ 12/01/06)........... 7.500 12/01/08 514,895
-----------
2,918,436
-----------
ALASKA 0.6%
250 Seward, AK Rev AK Sealife Cent Proj......... 7.100 10/01/05 251,870
-----------
ARIZONA 3.6%
500 Maricopa Cnty, AZ Indl Dev Auth Sr Living
Fac Rev..................................... 7.250 04/01/05 496,095
990 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease
Oblig Irvington Proj Tucson Ser A Rfdg (FSA
Insd) (c)................................... 7.250 07/15/10 1,052,459
-----------
1,548,554
-----------
CALIFORNIA 3.3%
305 California Edl Fac Auth Rev Pacific Grad
Sch......................................... 6.950 11/01/07 303,524
1,000 California St (AMBAC Insd).................. 6.400 09/01/08 1,111,790
-----------
1,415,314
-----------
COLORADO 4.7%
310 Colorado Hlth Fac Auth Rev Sr Living Fac
Eaton Terrace Ser A......................... 6.800 07/01/09 298,753
84 Colorado Hsg Fin Auth Single Family Pgm
Ser E....................................... 8.125 12/01/24 87,578
1,000 Denver, CO City & Cnty Arpt Rev Ser A....... 7.400 11/15/04 1,080,250
1,000 Metropolitan Football Stadium Cap Apprec Ser
A (MBIA Insd)............................... * 01/01/12 523,790
-----------
1,990,371
-----------
CONNECTICUT 1.4%
145 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A (Escrowed to Maturity), 144A--Private
Placement (a)............................... 6.500 09/01/06 157,676
445 New Haven, CT Indl Fac Rev Adj Govt Cent
Thermal Energies............................ 7.250 07/01/09 446,424
-----------
604,100
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 204
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FLORIDA 5.6%
$1,150 Florida Hsg Fin Agy Hsg Maitland Club Apts
Ser B1 (AMBAC Insd)......................... 6.750% 08/01/14 $ 1,206,833
190 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Cent Partner Rfdg................... 8.125 12/01/07 199,089
225 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg................... 8.125 07/01/06 233,062
300 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg................................... 7.125 11/01/06 323,709
440 Westchase East Cmnty Dev Dist FL Cap Impt
Rev......................................... 7.250 05/01/03 442,508
-----------
2,405,201
-----------
GEORGIA 4.6%
1,440 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg
Rev North Hill Apts Proj Rfdg (FNMA
Collateralized) (c)......................... 6.625 01/01/25 1,508,587
500 Forsyth Cnty, GA Hosp Auth Rev Antic Ctfs GA
Baptist Hlthcare Sys Proj................... 6.000 10/01/08 464,140
-----------
1,972,727
-----------
ILLINOIS 7.2%
350 Bedford Park, IL Tax Increment 71st & Cicero
Proj Rfdg................................... 7.000 01/01/06 359,181
500 Carol Stream, IL First Mtg Rev Windsor Pk
Mnr Proj.................................... 6.500 12/01/07 497,445
405 Chicago, IL Tax Increment Allocation San
Drainage & Ship Canal Ser A................. 7.375 01/01/05 412,241
545 Clay Cnty, IL Hosp Rev...................... 5.500 12/01/10 483,655
90 Danville, IL Single Family Mtg Rev Rfdg..... 7.300 11/01/10 92,435
330 Huntley, IL Spl Svc Area No 7 Spl Tax....... 6.000 03/01/09 314,401
620 Illinois Hlth Fac Auth Rev Holy Cross Hosp
Proj Ser 94-A............................... 6.250 03/01/04 619,386
300 Peoria, IL Spl Tax WeaverRidge Spl Svc
Area........................................ 7.625 02/01/08 310,185
-----------
3,088,929
-----------
KENTUCKY 1.2%
500 Kenton Cnty, KY Arpt Brd Rev Rfg (MBIA
Insd)....................................... 5.900 03/01/05 517,725
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 205
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
LOUISIANA 1.7%
$ 210 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev.................................... 7.500% 05/26/06 $ 207,839
500 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A............................ 7.200 01/01/03 499,380
-----------
707,219
-----------
MASSACHUSETTS 3.7%
500 Massachusetts St Hlth & Edl Fac Auth Rev
Cent New England Hlth Sys Ser A............. 6.125 08/01/13 451,580
500 Massachusetts St Hlth & Edl
North Adams Regl Hosp Ser C................. 6.250 07/01/04 511,710
190 Massachusetts St Indl Fin Agy Rev East
Boston Neighborhood Proj.................... 7.250 07/01/06 180,409
465 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth................................. 6.200 06/01/08 436,086
-----------
1,579,785
-----------
MICHIGAN 4.0%
440 John Tolfree Hlth Sys Corp Mich Mtg Rev..... 5.450 09/15/06 414,990
1,500 Michigan St Strategic Fd Ltd Oblig Rev
United Waste Sys Proj....................... 5.200 04/01/10 1,282,980
-----------
1,697,970
-----------
MINNESOTA 1.7%
500 Dakota Cnty, MN Hsg & Redev Auth Multi-
Family Hsg Rev Affordable Hsg View Pointe
Proj........................................ 6.000 11/01/09 475,505
270 Minneapolis, MN Multi-Family Rev Hsg Belmont
Apts Proj................................... 7.000 11/01/06 269,557
-----------
745,062
-----------
MISSOURI 4.6%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A
(FSA Insd).................................. 7.000 09/01/12 1,610,760
400 West Plains, MO Indl Dev Auth Hosp Rev
Ozarks Med Ctr.............................. 6.300 11/15/11 365,180
-----------
1,975,940
-----------
MONTANA 1.2%
500 Crow Fin Auth MT Tribal Purp Rev............ 5.400 10/01/07 501,680
-----------
NEBRASKA 2.0%
1,000 American Pub Energy Agy NE Gas Sup Rev NE
Pub Gas Agy Proj Ser A (AMBAC Insd)......... 4.375 06/01/10 864,820
-----------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 206
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY 8.7%
$ 500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn
Pt Marine Terminal A........................ 7.375% 06/01/07 $ 509,425
1,415 Evesham, NJ Muni Utils Auth Rev Ser A (MBIA
Insd) (b)................................... 5.500 07/01/06 1,459,728
250 New Jersey Econ Dev Auth Rev Sr Mtg Arbor
Glen Proj Ser A (Escrowed to Maturity)...... 8.000 05/15/04 274,482
115 New Jersey Hlthcare Facs Fing Auth
Rev--Palisades.............................. 7.500 07/01/06 119,591
225 New Jersey Hlthcare Facs Fing Auth
Rev--Palisades (Prerefunded @ 07/01/02)..... 7.500 07/01/06 237,290
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd).......... 7.000 07/01/06 1,102,460
-----------
3,702,976
-----------
NEW YORK 10.0%
500 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev Woodcrest Estates Fac Ser A......... 5.875 12/01/09 462,100
500 New York City Ser A......................... 7.000 08/01/07 553,550
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 1,070,340
1,105 Niagara Falls, NY City Sch Dist (FSA
Insd)....................................... 5.600 06/15/12 1,137,366
1,000 Niagara Falls, NY Pub Impt (MBIA Insd)...... 6.900 03/01/20 1,070,870
-----------
4,294,226
-----------
NORTH CAROLINA 1.5%
630 North Carolina Eastn Muni Pwr Agy Pwr Sys
Rev Ser D................................... 6.450 01/01/14 644,629
-----------
OHIO 8.6%
455 Cleveland & Cuyahoga Cntys, OH Port Auth Dev
Port Cleveland Bd Fd Ser B.................. 6.500 05/15/05 454,859
500 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson
Retirement Cmnty Ser A Rfdg................. 7.000 11/15/10 498,835
500 Dayton, OH Spl Facs Rev Afco Cargo Day LLC
Proj........................................ 6.000 04/01/09 475,175
250 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp
Rfdg........................................ 6.375 05/15/11 239,058
400 Montgomery Cnty, OH Hosp Rev Grandview Hosp
& Med Cent Rfdg............................. 5.250 12/01/01 403,340
</TABLE>
See Notes to Financial Statements
15
<PAGE> 207
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$1,000 Ohio St Air Quality Dev Auth Rev Owens
Corning Fiberglass Proj Rfdg................ 6.250% 06/01/04 $ 999,280
645 Sandusky Cnty, OH Hosp Fac Rev Mem
Hosp Rfdg................................... 5.000 01/01/06 612,698
-----------
3,683,245
-----------
OKLAHOMA 0.8%
365 Shawnee, OK Hosp Auth Hosp Midamerica
Hlthcare Inc Rfdg........................... 5.750 10/01/03 360,127
-----------
OREGON 3.2%
1,465 Multnomah Cnty, OR Ctfs Partn Ser A......... 4.200 08/01/08 1,352,166
-----------
PENNSYLVANIA 2.2%
225 Erie, PA Higher Edl Bldg Auth College Rev
Mercyhurst College Proj A Rfdg.............. 5.300 03/15/03 224,030
250 Philadelphia, PA Auth For Indl Dev Revs
First Mtg--Crime Prevention Assn............ 6.000 04/01/09 238,233
500 Southern Chester Cnty, PA Hlth & Higher Ed
Auth Mtg Ser A.............................. 6.100 06/01/03 496,905
-----------
959,168
-----------
TENNESSEE 4.0%
1,500 Franklin, TN Spl Sch Dist Cap Apprec
(FSA Insd).................................. * 06/01/15 638,640
1,300 Municipal Energy Acq Corp TN Gas Rev (FSA
Insd)....................................... 4.125 03/01/09 1,073,696
-----------
1,712,336
-----------
TEXAS 1.4%
290 Austin, TX Util Sys Rev Rfdg (AMBAC Insd)... 6.500 11/15/05 311,733
300 San Antonio, TX Hsg Fin Corp Multi-Family
Hsg Rev Beverly Oaks Arpt Proj Ser A........ 7.500 02/01/10 299,541
-----------
611,274
-----------
UTAH 1.7%
705 Utah St Hsg Fin Agy Single Family Mtg Mezz
Ser A (FHA Gtd)............................. 7.150 07/01/12 726,904
-----------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 208
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
VIRGINIA 1.2%
$ 500 Pittsylvania Cnty, VA Indl Dev Auth Rev
Exempt Fac Ser A............................ 7.450% 01/01/09 $ 513,860
-----------
U.S. VIRGIN ISLANDS 1.4%
600 Virgin Islands Pub Fin Auth Rev Sr Lien Fd
Ln Nts Ser C................................ 5.500 10/01/07 596,184
-----------
TOTAL LONG-TERM INVESTMENTS 102.6%
(Cost $43,928,260).................................................... 43,942,798
SHORT-TERM INVESTMENTS 4.0%
(Cost $1,700,000)..................................................... 1,700,000
-----------
TOTAL INVESTMENTS 106.6%
(Cost $45,628,260).................................................... 45,642,798
LIABILITIES IN EXCESS OF OTHER ASSETS (6.6%)........................... (2,821,804)
-----------
NET ASSETS 100.0%...................................................... $42,820,994
===========
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. 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
17
<PAGE> 209
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $45,628,260)........................ $45,642,798
Cash........................................................ 14,323
Receivables:
Investments Sold.......................................... 1,286,263
Interest.................................................. 680,965
Fund Shares Sold.......................................... 451,784
Other....................................................... 1,014
-----------
Total Assets............................................ 48,077,147
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,866,656
Income Distributions...................................... 74,009
Distributor and Affiliates................................ 34,748
Investment Advisory Fee................................... 18,127
Fund Shares Repurchased................................... 16,102
Trustees' Deferred Compensation and Retirement Plans........ 177,318
Accrued Expenses............................................ 69,193
-----------
Total Liabilities....................................... 5,256,153
-----------
NET ASSETS.................................................. $42,820,994
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $43,170,724
Net Unrealized Appreciation................................. 14,538
Accumulated Net Realized Loss............................... (168,150)
Accumulated Distributions in Excess of Net Investment
Income.................................................... (196,118)
-----------
NET ASSETS.................................................. $42,820,994
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $29,480,256 and 2,947,668 shares of
beneficial interest issued and outstanding)............. $ 10.00
Maximum sales charge (3.25%* of offering price)......... .34
-----------
Maximum offering price to public........................ $ 10.34
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $8,420,261 and 843,399 shares of
beneficial interest issued and outstanding)............. $ 9.98
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,920,477 and 492,865 shares of
beneficial interest issued and outstanding)............. $ 9.98
===========
</TABLE>
* On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
18
<PAGE> 210
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,338,313
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $36,367, $48,232 and $26,286,
respectively)............................................. 110,885
Investment Advisory Fee..................................... 109,583
Trustees' Fees and Related Expenses......................... 42,709
Shareholder Reports......................................... 30,285
Shareholder Services........................................ 23,599
Custody..................................................... 12,885
Legal....................................................... 2,862
Other....................................................... 48,270
----------
Total Expenses.......................................... 381,078
Less Credits Earned on Cash Balances.................... 223
----------
Net Expenses............................................ 380,855
----------
NET INVESTMENT INCOME....................................... $ 957,458
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 92,854
Futures................................................... (79,672)
----------
Net Realized Gain........................................... 13,182
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 892,640
End of the Period......................................... 14,538
----------
Net Unrealized Depreciation During the Period............... (878,102)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (864,920)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 92,538
==========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 211
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 957,458 $ 1,848,623
Net Realized Gain.................................. 13,182 118,720
Net Unrealized Depreciation During the Period...... (878,102) (2,191,813)
------------ ------------
Change in Net Assets from Operations............... 92,538 (224,470)
------------ ------------
Distributions from Net Investment Income........... (957,458) (1,881,557)
Distributions in Excess of Net Investment Income... (101,548) (94,570)
------------ ------------
Distributions from and in Excess of Net Investment
Income*.......................................... (1,059,006) (1,976,127)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES....................................... (966,468) (2,200,597)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......................... 10,161,688 22,415,763
Net Asset Value of Shares Issued Through Dividend
Reinvestment..................................... 691,634 1,287,591
Cost of Shares Repurchased......................... (12,597,576) (15,031,256)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS..................................... (1,744,254) 8,672,098
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS.............. (2,710,722) 6,471,501
NET ASSETS:
Beginning of the Period............................ 45,531,716 39,060,215
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $196,118 and $94,570, respectively)........... $ 42,820,994 $ 45,531,716
============ ============
* Distributions by Class
- ---------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares................................... $ (738,098) $ (1,205,493)
Class B Shares................................... (208,221) (581,561)
Class C Shares................................... (112,687) (189,073)
------------ ------------
$ (1,059,006) $ (1,976,127)
============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 212
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 (B) 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $10.220 $10.728 $10.536 $10.213 $10.264 $ 9.330
------- ------- ------- ------- ------- -------
Net Investment Income.... .230 .471 .358 .480 .455 .508
Net Realized and
Unrealized Gain/Loss... (.198) (.475) .199 .317 (.032) .900
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... .032 (.004) .557 .797 .423 1.408
Less Distributions from and
in Excess of Net
Investment Income........ .251 .504 .365 .474 .474 .474
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD................... $10.001 $10.220 $10.728 $10.536 $10.213 $10.264
======= ======= ======= ======= ======= =======
Total Return* (a).......... 0.32%** (0.10%) 5.36%** 8.08% 4.27% 15.31%
Net Assets at End of the
Period (In millions)..... $ 29.5 $ 29.5 $ 20.6 $ 12.9 $ 12.5 $ 15.6
Ratio of Expenses to
Average Net Assets*...... 1.49% 1.28% 1.30% 1.52% 1.56% 1.00%
Ratio of Net Investment
Income to Average Net
Assets*.................. 4.60% 4.49% 4.61% 4.67% 4.45% 5.10%
Portfolio Turnover......... 34%** 65% 15%** 37% 45% 75%
* 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 1.67% 1.74% 1.61%
Ratio of Net Investment
Income to Average Net
Assets................... N/A N/A N/A 4.52% 4.27% 4.49%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 3.25% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(b) Based on average shares outstanding.
N/A = Not Applicable
See Notes to Financial Statements
21
<PAGE> 213
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 (B) 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $10.203 $10.714 $10.526 $10.209 $10.263 $ 9.319
------- ------- ------- ------- ------- -------
Net Investment Income.... .191 .392 .308 .402 .375 .430
Net Realized and
Unrealized Gain/Loss... (.198) (.475) .191 .317 (.027) .916
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.007) (.083) .499 .719 .348 1.346
Less Distributions from and
in Excess of Net
Investment Income........ .212 .428 .311 .402 .402 .402
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD................... $ 9.984 $10.203 $10.714 $10.526 $10.209 $10.263
======= ======= ======= ======= ======= =======
Total Return* (a).......... (0.06%)** (0.81%) 4.74%** 7.23% 3.54% 14.62%
Net Assets at End of the
Period (In millions)..... $ 8.4 $ 10.4 $ 15.2 $ 16.4 $ 16.4 $ 17.5
Ratio of Expenses to
Average Net Assets*...... 2.22% 1.97% 2.06% 2.28% 2.32% 1.75%
Ratio of Net Investment
Income to Average Net
Assets*.................. 3.87% 3.80% 3.90% 3.91% 3.69% 4.33%
Portfolio Turnover......... 34%** 65% 15%** 37% 45% 75%
* 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 2.42% 2.50% 2.36%
Ratio of Net Investment
Income to Average Net
Assets................... N/A N/A N/A 3.77% 3.51% 3.72%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 3%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
fourth year. If the sales charge was included, total returns would be lower.
(b) Based on average shares outstanding.
N/A = Not Applicable
See Notes to Financial Statements
22
<PAGE> 214
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 (B) 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $10.202 $10.712 $10.525 $10.206 $10.260 $ 9.314
------- ------- ------- ------- ------- -------
Net Investment Income.... .193 .399 .308 .402 .374 .430
Net Realized and
Unrealized Gain/Loss... (.200) (.481) .190 .319 (.026) .918
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.007) (.082) .498 .721 .348 1.348
Less Distributions from and
in Excess of Net
Investment Income........ .212 .428 .311 .402 .402 .402
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD................... $ 9.983 $10.202 $10.712 $10.525 $10.206 $10.260
======= ======= ======= ======= ======= =======
Total Return* (a).......... (0.06%)** (0.81%) 4.74%** 7.23% 3.54% 14.74%
Net Assets at End of the
Period (In millions)..... $ 4.9 $ 5.6 $ 3.3 $ 3.1 $ 5.8 $ 4.9
Ratio of Expenses to
Average Net Assets*...... 2.23% 2.02% 2.06% 2.29% 2.32% 1.74%
Ratio of Net Investment
Income to Average Net
Assets*.................. 3.86% 3.75% 3.89% 3.88% 3.70% 4.36%
Portfolio Turnover......... 34%** 65% 15%** 37% 45% 75%
* 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 2.43% 2.50% 2.34%
Ratio of Net Investment
Income to Average Net
Assets................... N/A N/A N/A 3.74% 3.52% 3.75%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.
(b) Based on average shares outstanding.
N/A = Not Applicable
See Notes to Financial Statements
23
<PAGE> 215
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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, which is considered to approximate market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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
applicable security. Income and expenses of the Fund are allocated on a pro rata
24
<PAGE> 216
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 March 31, 2000, for federal income tax purposes, cost of long- and short-
term investments is $45,628,260; the aggregate gross unrealized appreciation is
$1,065,210 and the aggregate gross unrealized depreciation is $1,050,672,
resulting in net unrealized appreciation on long- and short-term investments of
$14,538.
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 six months ended March 31, 2000, the Fund's
custody fee was reduced by $223 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 DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .500 of 1%
Over $500 million........................................... .450 of 1%
</TABLE>
25
<PAGE> 217
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
For the six months ended March 31, 2000, the Fund recognized expenses of
approximately $1,000 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 six months ended March 31, 2000, the Fund recognized expenses of
approximately $8,700 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 six months ended March 31,
2000, the Fund recognized expenses of approximately $13,600. 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.
26
<PAGE> 218
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $30,228,405, $8,149,438 and $4,792,881 for
Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 677,990 $ 6,800,148
Class B................................................. 239,328 2,388,886
Class C................................................. 97,286 972,654
---------- ------------
Total Sales............................................... 1,014,604 $ 10,161,688
========== ============
Dividend Reinvestment:
Class A................................................. 48,332 $ 483,761
Class B................................................. 11,939 119,312
Class C................................................. 8,866 88,561
---------- ------------
Total Dividend Reinvestment............................... 69,137 $ 691,634
========== ============
Repurchases:
Class A................................................. (664,992) $ (6,682,323)
Class B................................................. (431,307) (4,299,354)
Class C................................................. (161,349) (1,615,899)
---------- ------------
Total Repurchases......................................... (1,257,648) $(12,597,576)
========== ============
</TABLE>
27
<PAGE> 219
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
28
<PAGE> 220
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended March 31, 2000, 226,603 Class B shares converted to Class A shares and are
shown in the above table as sales of Class A shares and repurchases of Class B
shares. Class C shares purchased before January 1, 1997, and any dividend
reinvestment plan Class C shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
Shares were purchased. Class C shares purchased on or after January 1, 1997 do
not possess a conversion feature. For the six month ended March 31, 2000 no
Class C shares 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 shares and one year of the purchase for Class C shares 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 six months ended March 31, 2000, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $600 and CDSC on redeemed shares of approximately $9,900. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $15,348,774 and $18,124,611,
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.
29
<PAGE> 221
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 or generate potential gain. 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 a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
The Fund may invest 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 Notes. 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 for the six months ended March 31, 2000
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures opened.............................................. 30
Futures closed.............................................. (30)
---
Outstanding at March 31, 2000............................... -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, as amended, 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 six months ended March 31, 2000, are payments retained by Van Kampen of
approximately $52,800.
30
<PAGE> 222
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650,000,000 committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
31
<PAGE> 223
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 August 31,
2000, the report must be accompanied by a quarterly performance update, if
applicable.
32
<PAGE> 224
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the selection of
independent public accountants.
1) With regard to the election of the following trustees by the shareholders of
the Fund:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan...................................... 3,139,250 4,650
Jerry D. Choate........................................ 3,139,261 4,639
Linda Hutton Heagy..................................... 3,139,261 4,639
R. Craig Kennedy....................................... 3,139,261 4,639
Mitchell M. Merin...................................... 3,139,261 4,639
Jack E. Nelson......................................... 3,139,250 4,650
Richard F. Powers, III................................. 3,139,261 4,639
Phillip B. Rooney...................................... 3,139,261 4,639
Fernando Sisto......................................... 3,136,809 7,091
Wayne W. Whalen........................................ 3,139,261 4,639
Suzanne H. Woolsey..................................... 3,139,261 4,639
Paul G. Yovovich*...................................... 3,139,261 4,639
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accountants
for the Fund, 3,137,607 shares voted for the proposal, 3,354 shares voted
against the proposal and 2,939 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
33
<PAGE> 225
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE HOLDINGS 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 22
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
RESULTS OF SHAREHOLDER VOTES 32
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 226
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 227
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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> 228
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based
on NAV(1) 2.47% 2.07% 2.13%
- -------------------------------------------------------------------------
Six-month total return(2) (2.41%) (1.93%) 1.13%
- -------------------------------------------------------------------------
One-year total return(2) (6.74%) (6.57%) (3.71%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 4.30% 4.29% 4.59%
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 4.71% 4.69% 4.85%
- -------------------------------------------------------------------------
Commencement date 07/29/94 07/29/94 07/29/94
- -------------------------------------------------------------------------
Distribution rate(3) 4.71% 4.16% 4.15%
- -------------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 7.36% 6.50% 6.48%
- -------------------------------------------------------------------------
SEC Yield(5) 5.12% 4.63% 4.63%
- -------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B shares are calculated without the
effect of the maximum 4% CDSC, charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the sixth year. Returns
for Class C shares are calculated without the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charges were included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
shares of $1 million or more, a CDSC of 1% may be imposed on certain redemptions
made within one year of purchase. Returns for Class B shares are calculated with
the effect of the maximum 4% CDSC, charged on certain redemptions made within
one year of purchase and declining thereafter to 0% after the sixth year.
Returns for Class C shares are calculated with the effect of the maximum 1%
CDSC, charged on certain redemptions made within one year of purchase.
(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%.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 229
Continued from page 3.
(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 March 31, 2000. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 4.36%, 3.84%, and 3.83% for Classes A, B and C, respectively, and total
returns would have been lower.
A portion of the interest income from the Fund 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 is no guarantee of 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.
While the Fund attempts to achieve its investment objective by investing
primarily in a portfolio of Florida municipal securities that are insured at the
time of purchase, this 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.
4
<PAGE> 230
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of March 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA
------- ----- --- -------
<S> <C> <C> <C> <C>
As of March 31, 2000 96.20 0.80 1.20 1.80
</TABLE>
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>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0600
11/99 0.0600
12/99 0.0600
1/00 0.0600
2/00 0.0600
3/00 0.0600
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 231
TOP FIVE HOLDINGS
(as a percentage of long-term investments--March 31, 2000)
<TABLE>
<S> <C> <C>
Sunrise, Florida, Utility System Revenue Refunding 7.3%
- ---------------------------------------------------------------------
Florida State Board of Education Lottery Revenue 5.3%
- ---------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education Refunding 4.4%
- ---------------------------------------------------------------------
Florida State Turnpike Authority Turnpike Revenue 3.3%
- ---------------------------------------------------------------------
Florida State Board of Education Capital Outlay Public
Education 3.3%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Public Education 18.50 18.50
Water & Sewer 12.30 12.00
Retail Electric/Gas/Telephone 11.20 9.40
Transportation 11.00 9.80
General Purpose 10.10 6.30
</TABLE>
6
<PAGE> 232
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN FLORIDA
INSURED TAX FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT
SHAPED THE MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE
THOMAS M. BYRON, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1997 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1981. HE IS JOINED BY PETER W. HEGEL,
CHIEF INVESTMENT OFFICER FOR FIXED-INCOME INVESTMENTS. THE FOLLOWING DISCUSSION
REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE DURING THE SIX MONTHS ENDED MARCH
31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
decline as interest rates rise, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate, a key short-term borrowing rate, to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings.
Treasury bonds, for example, declined steadily through the first quarter of
2000, but rose significantly by the end of the reporting period--a rally that
may have been strengthened by the government's plan to buy back a significant
amount of its outstanding Treasury debt.
Q HOW DID THE MUNICIPAL MARKET
RESPOND TO THE BOND RALLY?
A The performance of municipal
bonds has typically correlated to a degree with the taxable Treasury bond
market. Unfortunately, municipals lagged Treasuries in the fourth quarter of
1999. Widespread year 2000 (Y2K) jitters and a strong supply of municipal bond
issuance put a damper on nearly every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are typically making tax-related adjustments to their investment
program during that time. But this year, investors were worried about higher
interest rates and potential Y2K fallout early in the year, so they avoided or
pulled out of the municipal market. Consequently, many municipal bond funds had
negative returns for January.
Generally, municipal bond funds have been losing assets lately as they have
competed with the soaring stock market for investors' interest. Also, investors
were rattled by recent
7
<PAGE> 233
negative returns from municipal bonds and the threat of even higher interest
rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. Nationally, supply in the insured municipal market, which accounted for
roughly 50 percent of all new issuance about a year ago, now represents just
over 40 percent of the market. The combination of a strong Treasury bond market
and the lack of supply in municipals helped make February and March positive
months for the fixed-income markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of municipal bond investments while
still earning an attractive level of income.
Q WHICH SECTORS OF THE
MARKET WERE YOU MOST CONCERNED ABOUT?
A We've seen tough times in the
health-care sector. With the uncertainties involved in managed care--who will
pay for what and how much--and the rising cost of services, many health-care
providers are under tremendous pressure to remain profitable. In this situation,
investors have become concerned about the creditworthiness of the bond issuers,
and many of them have shied away from this sector of the market.
Even within the insured sector, the impact of the uncertainty involved in
managed care is evident. The yield spread between insured health-care issues and
insured bonds in other sectors increased to 15 basis points, up from 5 basis
points, over the past six months. This suggests that investors want a higher
yield to compensate for the higher perceived credit risk of investing in
health-care bonds--even those bonds that are insured. Bad news has tainted the
group as a whole, so investors are less comfortable investing within this
sector.
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?
A Our research analysts have been
wary of the health-care sector for some time. We have been forced to be more
selective due to the low supply of insured municipal bonds, so we rely on our
research capabilities to examine the underlying credits and sectors, even though
these are insured issues. Less than 8 percent of the Fund's long-term
investments were allocated to this sector as of March 31, down slightly over the
course of the reporting period.
We may invest up to 20 percent of the Fund's assets in uninsured bonds
(Florida municipal securities rated "investment grade" at the time of purchase
by an NRSO). As interest rates went up (driving prices down)
8
<PAGE> 234
and yield spreads widened significantly, the prices of uninsured bonds dropped
more sharply than those of insured bonds, so we shifted roughly 10 percent of
the portfolio back into insured bonds. Over the course of the reporting period,
the Fund's allocation to insured bonds increased from 86 percent to more than 96
percent. As a result, only 2 percent of long-term investments were allocated to
BBB rated bonds as of March 31, down from 6 percent in September.
The sector composition of the Fund's portfolio was changed over the
six-month reporting period, increasing our allocations in the general purpose,
public building, and retail electric sectors. The higher education, other care,
and airport sectors decreased over the period. The portion of AMT bonds (bonds
that are subject to the federal alternative minimum tax) was decreased to 11
percent, down from 15 percent at the start of the period.
The portfolio continues to be very tax-efficient. In addition to holding
fewer AMT bonds, we were able to take advantage of some tax-loss selling to help
offset the taxable portion of previous gains.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A During the reporting period, the
Fund's total return was above the average for its peer group, primarily because
we reduced our allocation to uninsured bonds and limited the Fund's exposure to
the health-care sector. As of March 31, 2000, the Fund achieved a six-month
total return of 2.47 percent (Class A shares at net asset value; if the maximum
sales charge of 4.75 percent were included, the return would have been lower).
By comparison, the Lehman Brothers Municipal Bond Index produced a total return
of 2.63 percent for the same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance does not guarantee future results.
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from federal income tax, rather than investing for capital
appreciation.
The Fund's monthly tax-exempt dividend remained steady at $.0600 per Class A
share during the past six months, translating into a distribution rate of 4.71
percent at the end of the reporting period. With this in mind, we'd like to
point out that investors would have to earn a distribution rate of 7.36 percent
on a taxable investment (for an investor in the 36 percent federal income-tax
bracket) to match the tax-exempt yield provided by the Fund.
9
<PAGE> 235
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A New issue supply is down in the
Florida municipal market, but it is still predominately made up of insured
bonds. Despite the phasing out of the state's intangibles tax, demand for
Florida municipal bonds should remain strong.
Florida's economy is sound, buoyed by the retirement and tourism industries.
We've seen quite a few credit-rating upgrades nationally, indicating that the
rating agencies are optimistic about the credit strength of municipal bond
issuers--most likely because the economy continues to be strong. Ironically,
since many bond issuers have surpluses from the strong economy, there isn't much
pressure to issue new debt. A continuation of weak supply could lend price
support to the municipal market as a whole.
One of the key factors in the near term will be the strength of the stock
market. If we see continued volatility in stocks, and perhaps a major
correction, the competition for assets may swing in favor of the fixed-income
markets, such as Treasuries and municipals.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three further
interest-rate hikes within the next quarter or two.
Overall, we will continue to manage the Fund with a long-term perspective,
positioning the portfolio to take advantage of the cyclical nature of the
markets.
10
<PAGE> 236
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each is
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 237
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 96.7%
FLORIDA 94.5%
$ 690 Bay Cnty, FL Sch Brd Ctfs Partn (AMBAC
Insd)........................................ 4.750% 07/01/17 $ 616,115
500 Bay Cnty, FL Wtr Sys Rev (AMBAC Insd) (a).... 5.700 09/01/30 496,615
1,850 Boca Raton, FL Cmnty Redev Agy Tax Increment
Rev Mizner Pk Proj Rfdg (FSA Insd)........... * 03/01/15 801,716
465 Brevard Cnty, FL Hsg Fin Auth Single Family
Mtg Rev (GNMA Collateralized)................ 6.650 09/01/21 482,675
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd)
(b).......................................... 5.750 12/01/13 664,261
1,000 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd) (b)............................. 5.400 07/01/12 1,010,370
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp
Ser A Rfdg (FSA Insd) (b).................... 6.500 08/15/12 525,380
1,000 Dade Cnty, FL Aviation Rev Ser B (MBIA
Insd)........................................ 5.600 10/01/26 984,400
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of Miami
Ser B (MBIA Insd)............................ 5.750 04/01/20 1,007,320
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 05/01/04) (MBIA Insd) (b)..... 6.000 05/01/14 525,820
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd)........................................ 5.375 10/01/16 744,330
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC
Insd) (b).................................... 5.750 11/15/10 924,696
1,000 Escambia Cnty, FL Util Auth Util Sys Rev Ser
B (FGIC Insd)................................ * 01/01/15 437,430
1,200 Florida Ports Fin Comm Rev St Trans Trust Fd
Intermodal Pgm (FGIC Insd)................... 5.500 10/01/29 1,146,984
3,250 Florida St Brd of Edl Cap Outlay Pub Edl Ser
A Rfdg (FGIC Insd)........................... 4.500 06/01/23 2,702,375
2,000 Florida St Brd of Edl Cap Outlay Pub Edl Ser
C (FGIC Insd)................................ 5.750 06/01/29 2,000,640
1,000 Florida St Brd of Edl Lottery Rev Ser A (FGIC
Insd)........................................ 6.000 07/01/14 1,059,090
1,000 Florida St Brd of Edl Lottery Rev Ser B (FGIC
Insd)........................................ 5.750 07/01/08 1,051,140
3,250 Florida St Brd of Edl Lottery Rev Ser B (FGIC
Insd)........................................ 5.250 07/01/13 3,245,125
</TABLE>
See Notes to Financial Statements
12
<PAGE> 238
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$2,000 Florida St Brd of Regts Univ Sys Impt Rev
(AMBAC Insd)................................. 4.500% 07/01/23 $ 1,664,620
1,750 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser A (FGIC
Insd)........................................ 5.375 07/01/10 1,791,405
1,750 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser A (AMBAC
Insd) (b).................................... 5.000 07/01/12 1,725,447
1,000 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser A Rfdg
(FSA Insd)................................... 5.500 07/01/09 1,033,970
1,500 Florida St Div Bond Fin Dept Genl Svcs Rev
Dept Envrnmtl Protn Presvtn 2000 Ser B (FSA
Insd)........................................ 5.250 07/01/11 1,510,260
2,000 Florida St Tpk Auth Tpk Rev Dept Trans Ser B
(MBIA Insd).................................. 5.000 07/01/16 1,886,120
2,500 Florida St Tpk Auth Tpk Rev Ser A (FSA
Insd)........................................ 4.500 07/01/28 2,035,450
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA
Insd) (b).................................... 5.700 10/01/15 1,014,990
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA
Insd) (b).................................... 6.100 10/01/18 1,035,430
1,000 Jacksonville, FL Elec Auth Rev Saint John's
Pwr-2 Ser 7 Rfdg (MBIA Insd) (b)............. 5.500 10/01/14 1,003,620
1,000 Jacksonville, FL Wtr & Swr Rev Utd Wtr FL
Proj (AMBAC Insd) (b)........................ 6.350 08/01/25 1,038,600
1,000 Lakeland, FL Elec & Wtr Rev Rfdg Ser A (MBIA
Insd)........................................ 5.000 10/01/28 888,600
685 Lee Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi-Cnty Pgm Ser A (GNMA
Collateralized) (b).......................... 7.450 09/01/27 761,967
865 Manatee Cnty, FL Hsg Fin Auth Mtg Rev (GNMA
Collateralized) (b).......................... 6.875 11/01/26 925,576
835 Martin Cnty, FL Consolidated Util Sys Rev
(FGIC Insd).................................. 5.750 10/01/08 870,095
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd)...... 6.250 10/01/18 569,100
500 Miramar, FL Wastewtr Impt Assmt Rev
(Prerefunded @ 10/01/04) (FGIC Insd) (b)..... 6.750 10/01/25 541,920
1,250 North Broward, FL Hosp Dist Rev Rfdg & Impt
(MBIA Insd).................................. 5.375 01/15/24 1,191,862
775 Orange Cnty, FL Hsg Fin Auth Single Family
Mtg Rev (GNMA Collateralized) (b)............ 6.550 10/01/21 800,412
</TABLE>
See Notes to Financial Statements
13
<PAGE> 239
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
$1,000 Orange Cnty, FL Sch Brd Ctfs Partn Ser A
(MBIA Insd).................................. 5.000% 08/01/20 $ 911,240
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B
(Prerefunded @ 10/01/02) (AMBAC Insd) (b).... 6.500 10/01/19 953,604
750 Palm Beach Cnty, FL Hlth Fac Auth Rev Abbey
Delray South Proj Rfdg (b)................... 5.500 10/01/11 686,333
450 Palm Beach Cnty, FL Hlth Fac Auth Rev
Waterford Proj Rfdg.......................... 5.500 10/01/15 392,846
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 08/01/04) (AMBAC Insd)........ 6.375 08/01/15 801,157
1,000 Polk Cnty, FL Indl Dev Auth Solid Waste Disp
Fac Rev Tampa Elec Co Proj (AMBAC Insd)...... 5.850 12/01/30 994,960
1,100 Port Saint Lucie, FL Spl Assmt Rev Util Svc
Area No 3 & 4A (MBIA Insd)................... 5.000 10/01/18 1,020,382
1,000 Port Saint Lucie, FL Util Rev Rfdg & Impt Ser
A (MBIA Insd)................................ 5.125 09/01/27 911,920
1,000 Reedy Creek, FL Impt Dist FL Util Rev Ser 2A
Rfdg (MBIA Insd)............................. 5.500 10/01/13 1,018,770
750 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd) (b).................... 6.500 10/01/14 812,377
4,750 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd)... 5.200 10/01/22 4,461,865
1,000 Tallahassee, FL Energy Sys Rev Ser A Rfdg
(FSA Insd)................................... 4.750 10/01/26 855,750
1,000 Volusia Cnty, FL Edl Fac Auth Rev Edl Facs
Embry Riddle Ser B Rfdg (AMBAC Insd)......... 5.250 10/15/19 955,860
1,000 Volusia Cnty, FL Edl Fac Auth Rev Edl Facs
Embry Riddle Ser B Rfdg (AMBAC Insd)......... 5.250 10/15/22 943,870
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac
Mem Hlth Rfdg & Impt (AMBAC Insd) (b)........ 5.750 11/15/13 510,855
500 Volusia Cnty, FL Hlth Fac Auth Rev John Knox
Hlthcare Rfdg (Asset Gty Insd) (b)........... 6.000 06/01/17 507,195
-----------
59,454,910
-----------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 240
PORTFOLIO OF INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PUERTO RICO 2.2%
$ 670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev
Ser V Rfdg (b)............................... 6.625% 07/01/12 $ 702,482
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser M Rfdg (FSA Insd) (b)................ 5.750 07/01/15 662,746
-----------
1,365,228
-----------
TOTAL LONG-TERM INVESTMENTS 96.7%
(Cost $59,708,386)..................................................... 60,820,138
SHORT-TERM INVESTMENTS 0.7%
(Cost $400,000)........................................................ 400,000
-----------
TOTAL INVESTMENTS 97.4%
(Cost $60,108,386)..................................................... 61,220,138
OTHER ASSETS IN EXCESS OF LIABILITIES 2.6%.............................. 1,660,855
-----------
NET ASSETS 100.0%....................................................... $62,880,993
===========
</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 and open futures contracts.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
GNMA--Guaranteed National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
Asset Gty--Asset Guaranty Insurance Company
See Notes to Financial Statements
15
<PAGE> 241
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $60,108,386)........................ $61,220,138
Cash........................................................ 69,628
Receivables:
Investments Sold.......................................... 1,321,861
Interest.................................................. 1,192,721
Fund Shares Sold.......................................... 881,218
Expense Reimbursement from Adviser........................ 15,962
Other....................................................... 2,571
-----------
Total Assets............................................ 64,704,099
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,324,325
Income Distributions...................................... 125,737
Fund Shares Repurchased................................... 87,062
Distributor and Affiliates................................ 84,331
Variation Margin on Futures............................... 4,125
Trustees' Deferred Compensation and Retirement Plans........ 137,235
Accrued Expenses............................................ 60,291
-----------
Total Liabilities....................................... 1,823,106
-----------
NET ASSETS.................................................. $62,880,993
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $64,905,527
Net Unrealized Appreciation................................. 1,078,843
Accumulated Undistributed Net Investment Income............. 20,039
Accumulated Net Realized Loss............................... (3,123,416)
-----------
NET ASSETS.................................................. $62,880,993
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $31,992,945 and 2,195,764 shares of
beneficial interest issued and outstanding)............. $ 14.57
Maximum sales charge (4.75%* of offering price)......... .73
-----------
Maximum offering price to public........................ $ 15.30
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $28,945,485 and 1,986,222 shares of
beneficial interest issued and outstanding)............. $ 14.57
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $1,942,563 and 133,162 shares of
beneficial interest issued and outstanding)............. $ 14.59
===========
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
16
<PAGE> 242
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,882,986
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $43,773, $145,683, and $13,551,
respectively)............................................. 203,007
Investment Advisory Fee..................................... 166,747
Trustees' Fees and Related Expenses......................... 37,004
Shareholder Reports......................................... 30,744
Shareholder Services........................................ 13,743
Legal....................................................... 4,575
Custody..................................................... 2,493
Other....................................................... 53,366
-----------
Total Expenses.......................................... 511,679
Expense Reduction ($166,747 related to Investment
Advisory Fees and $94,244 related to Other Expenses).... 260,991
Less Credits Earned on Cash Balances.................... 1,212
-----------
Net Expenses............................................ 249,476
-----------
NET INVESTMENT INCOME....................................... $ 1,633,510
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(1,854,606)
Futures................................................... (35,555)
-----------
Net Realized Loss........................................... (1,890,161)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (456,651)
-----------
End of the Period:
Investments............................................. 1,111,752
Futures................................................. (32,909)
-----------
1,078,843
-----------
Net Unrealized Appreciation During the Period............... 1,535,494
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (354,667)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,278,843
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 243
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 2000 SEPT. 30, 1999
--------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 1,633,510 $ 2,958,169
Net Realized Loss..................................... (1,890,161) (950,468)
Net Unrealized Appreciation/Depreciation During the
Period.............................................. 1,535,494 (5,047,000)
------------ ------------
Change in Net Assets from Operations.................. 1,278,843 (3,039,299)
------------ ------------
Distributions from Net Investment Income:
Class A Shares...................................... (881,365) (1,709,865)
Class B Shares...................................... (616,763) (1,147,849)
Class C Shares...................................... (57,426) (100,301)
------------ ------------
Total Distributions................................... (1,555,554) (2,958,015)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (276,711) (5,997,314)
------------ ------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold............................. 14,213,172 40,933,657
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 734,813 1,349,269
Cost of Shares Repurchased............................ (23,698,983) (16,727,671)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (8,750,998) 25,555,255
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (9,027,709) 19,557,941
NET ASSETS:
Beginning of the Period............................... 71,908,702 52,350,761
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $20,039 and $(57,917),
respectively)....................................... $ 62,880,993 $ 71,908,702
============ ============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 244
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $14.576 $15.921 $15.550 $15.060 $15.203 $13.796
------- ------- ------- ------- ------- -------
Net Investment Income..... .373 .778 .564 .766 .784 .789
Net Realized and
Unrealized Gain/Loss.... (.019) (1.353) .388 .508 (.153) 1.416
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ .354 (.575) .952 1.274 .631 2.205
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .360 .770 .581 .774 .774 .798
Distributions from Net
Realized Gain........... -0- -0- -0- .010 -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions......... .360 .770 .581 .784 .774 .798
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $14.570 $14.576 $15.921 $15.550 $15.060 $15.203
======= ======= ======= ======= ======= =======
Total Return* (a)........... 2.47%** (3.74%) 6.26%** 8.72% 4.37% 16.29%
Net Assets at End of the
Period (In millions)...... $ 32.0 $ 39.8 $ 27.1 $ 29.3 $ 22.2 $ 16.2
Ratio of Expenses to Average
Net Assets*............... .37% .37% .60% .59% .28% .44%
Ratio of Net Investment
Income to Average
Net Assets*............... 5.15% 4.98% 4.85% 5.05% 5.31% 5.33%
Portfolio Turnover.......... 44%** 101% 50%** 48% 73% 41%
* 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................ 1.14% 1.10% 1.30% 1.29% 1.47% 1.70%
Ratio of Net Investment
Income to Average Net
Assets.................... 4.38% 4.25% 4.15% 4.35% 4.13% 4.07%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales were included, total returns would be lower.
See Notes to Financial Statements
19
<PAGE> 245
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $14.577 $15.925 $15.554 $15.064 $15.201 $13.792
------- ------- ------- ------- ------- -------
Net Investment Income..... .322 .658 .478 .650 .677 .685
Net Realized and
Unrealized Gain/Loss.... (.023) (1.350) .388 .510 (.154) 1.415
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ .299 (.692) .866 1.160 .523 2.100
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .303 .656 .495 .660 .660 .691
Distributions from Net
Realized Gain........... -0- -0- -0- .010 -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions......... .303 .656 .495 .670 .660 .691
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $14.573 $14.577 $15.925 $15.554 $15.064 $15.201
======= ======= ======= ======= ======= =======
Total Return* (a)........... 2.07%** (4.51%) 5.74%** 7.91% 3.58% 15.53%
Net Assets at End of the
Period (In millions)...... $ 28.9 $ 29.0 $ 23.6 $ 22.5 $ 18.9 $ 16.9
Ratio of Expenses to Average
Net Assets*............... 1.14% 1.13% 1.35% 1.33% 1.03% 1.12%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.42% 4.23% 4.09% 4.30% 4.56% 4.66%
Portfolio Turnover.......... 44%** 101% 50%** 48% 73% 41%
* 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................ 1.91% 1.86% 2.05% 2.03% 2.22% 2.38%
Ratio of Net Investment
Income to Average Net
Assets.................... 3.65% 3.50% 3.39% 3.60% 3.38% 3.40%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the sixth year. If the sales charge was
included, total returns would be lower.
See Notes to Financial Statements
20
<PAGE> 246
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX NINE
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ----------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 14.592 $ 15.941 $ 15.581 $ 15.081 $15.213 $13.786
-------- -------- -------- -------- ------- -------
Net Investment Income..... .326 .662 .483 .666 .668 .690
Net Realized and
Unrealized Gain/Loss.... (.027) (1.355) .372 .504 (.140) 1.428
-------- -------- -------- -------- ------- -------
Total from Investment
Operations................ .299 (.693) .855 1.170 .528 2.118
-------- -------- -------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .303 .656 .495 .660 .660 .691
Distribution from Net
Realized Gain........... -0- -0- -0- .010 -0- -0-
-------- -------- -------- -------- ------- -------
Total Distributions......... .303 .656 .495 .670 .660 .691
-------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 14.588 $ 14.592 $ 15.941 $ 15.581 $15.081 $15.213
======== ======== ======== ======== ======= =======
Total Return* (a)........... 2.13%** (4.51%) 5.60%** 7.97% 3.65% 15.61%
Net Assets at End of the
Period (In thousands)..... $1,942.6 $3,106.7 $1,622.4 $1,195.1 $ 849.2 $ 461.8
Ratio of Expenses to Average
Net Assets*............... 1.11% 1.14% 1.32% 1.37% 1.03% 1.13%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.45% 4.28% 4.08% 4.38% 4.56% 4.51%
Portfolio Turnover.......... 44%** 101% 50%** 48% 73% 41%
* 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................ 1.88% 1.87% 2.03% 2.06% 2.22% 2.39%
Ratio of Net Investment
Income to Average Net
Assets.................... 3.68% 3.55% 3.38% 3.68% 3.38% 3.25%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
See Notes to Financial Statements
21
<PAGE> 247
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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
tax and Florida intangibles personal property 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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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 expected life of each applicable security. Income and expenses of the Fund
are
22
<PAGE> 248
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 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 March 31, 2000, for federal income tax purposes the cost of long- and
short-term investments is $60,108,386, the aggregate gross unrealized
appreciation is $1,718,837 and the aggregate gross unrealized depreciation is
$607,085, resulting in net unrealized appreciation on long- and short-term
investments of $1,111,752.
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. EXPENSE REDUCTIONS During the six months ended March 31, 2000, the Fund's
custody fee was reduced by $1,212 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 "Advisor") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .500 of 1%
Over $500 million........................................... .450 of 1%
</TABLE>
23
<PAGE> 249
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
For the six months ended March 31, 2000, the Adviser voluntarily waived
$166,747 of its investment advisory fees and assumed $94,244 of the Fund's other
expenses. This waiver is voluntary in nature and can be discontinued at the
Adviser's discretion.
For the six months ended March 31, 2000, the Fund recognized expenses of
approximately $1,900 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 March 31, 2000, the Fund recognized expenses of
approximately $31,600 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 March 31, 2000,
the Fund recognized expenses of approximately $7,500. 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 March 31, 2000, Van Kampen owned 100 shares each of Classes A, B and C.
24
<PAGE> 250
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $33,283,237, $29,496,018 and $2,126,272
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 660,402 $ 9,440,594
Class B................................................. 300,149 4,307,225
Class C................................................. 32,613 465,353
---------- ------------
Total Sales............................................... 993,164 $ 14,213,172
========== ============
Dividend Reinvestment:
Class A................................................. 31,514 $ 451,194
Class B................................................. 18,310 262,015
Class C................................................. 1,510 21,604
---------- ------------
Total Dividend Reinvestment............................... 51,334 $ 734,813
========== ============
Repurchases:
Class A................................................. (1,227,439) $(17,492,859)
Class B................................................. (321,042) (4,580,841)
Class C................................................. (113,865) (1,625,283)
---------- ------------
Total Repurchases......................................... (1,662,346) $(23,698,983)
========== ============
</TABLE>
25
<PAGE> 251
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended March 31, 2000 and the year ended September 30, 1999, no Class B shares
converted to Class A shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan Class C shares received thereon,
automatically convert to Class A shares ten years after the end of the calendar
month in which such shares were purchased. Class C shares purchased on or after
January 1, 1997 do not possess a conversion feature. For the six months ended
March 31, 2000 and the year ended September 30, 1999, no Class C shares
converted to Class A shares. The CDSC will be imposed on most redemptions made
within six years of the
26
<PAGE> 252
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
purchase for Class B shares and one year of the purchase for Class C shares 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 six months ended March 31, 2000, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $6,400 and CDSC on redeemed shares of approximately $58,200. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 2000, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $28,721,869 and
$35,644,162, 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
27
<PAGE> 253
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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). The risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended March 31, 2000, were as follows.
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... -0-
Futures Opened.............................................. 27
Futures Closed.............................................. (15)
---
Outstanding at March 31, 2000............................... 12
===
</TABLE>
The futures contracts outstanding at March 31, 2000, and the description and
unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
SHORT CONTRACTS:
Muni Bond Index Futures June 2000
(Current Notional Value of $95,343 per contract).......... 12 $(32,909)
</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, as amended, 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 six months ended March 31, 2000, are payments retained by Van Kampen of
approximately $117,800.
28
<PAGE> 254
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rate percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
29
<PAGE> 255
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth*
Mid Cap 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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- - 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.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
30
<PAGE> 256
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN FLORIDA INSURED TAX FREE
INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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 418256
Kansas City, Missouri 64141-9256
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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940,
as amended.
(C) Van Kampen Funds Inc., 2000. 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 August 31,
2000, the report, if used with prospective investors, must be accompanied by a
quarterly performance update, if applicable.
31
<PAGE> 257
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and independent
public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan...................................... 3,989,185 88,509
Jerry D. Choate........................................ 3,989,185 88,509
Linda Hutton Heagy..................................... 3,989,185 88,509
R. Craig Kennedy....................................... 3,989,185 88,509
Mitchell M. Merin...................................... 3,989,185 88,509
Jack E. Nelson......................................... 3,989,185 88,509
Richard F. Powers, III................................. 3,989,185 88,509
Phillip B. Rooney...................................... 3,989,185 88,509
Fernando Sisto......................................... 3,989,185 88,509
Wayne W. Whalen........................................ 3,989,185 88,509
Suzanne H. Woolsey..................................... 3,989,185 88,509
Paul G. Yovovich*...................................... 3,988,799 88,895
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accounts
for the Fund, 4,041,732 shares voted for the proposal, 6,610 shares voted
against and 29,352 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
32
<PAGE> 258
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DISTRIBUTION HISTORY 5
TOP FIVE HOLDINGS 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 18
NOTES TO FINANCIAL STATEMENTS 24
FUND OFFICERS AND IMPORTANT ADDRESSES 32
RESULTS OF SHAREHOLDER VOTES 33
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 259
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 260
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target 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> 261
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Six-month total return based on
NAV(1) .69% .37% .37%
- ----------------------------------------------------------------------
Six-month total return(2) (4.12%) (3.56%) (.61%)
- ----------------------------------------------------------------------
One-year total return(2) (7.65%) (7.41%) (4.58%)
- ----------------------------------------------------------------------
Five-year total return(2) 4.92% 4.93% 5.18%
- ----------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 5.15% 5.15% 5.29%
- ----------------------------------------------------------------------
Commencement date 07/29/94 07/29/94 07/29/94
- ----------------------------------------------------------------------
Distribution rate(3) 4.75% 4.22% 4.22%
- ----------------------------------------------------------------------
Taxable-equivalent distribution
rate(4) 7.97% 7.08% 7.08%
- ----------------------------------------------------------------------
SEC Yield(5) 4.81% 4.37% 4.31%
- ----------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B shares are calculated without the
effect of the maximum 4% CDSC, charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the sixth year. Returns
for Class C shares are calculated without the effect of the maximum 1.00% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charges were included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
shares of $1 million or more, a CDSC of 1% may be imposed on certain redemptions
made within one year of purchase. Returns for Class B shares are calculated with
the effect of the maximum 4% CDSC, charged on certain redemptions made within
one year of purchase and declining thereafter to 0% after the sixth year.
Returns for Class C shares are calculated with the effect of the maximum 1.00%
CDSC, charged on certain redemptions made within one year of purchase.
(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.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 262
Continued from page 3.
(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 March 31, 2000. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 4.03%, 3.55%, and 3.49% for Classes A, B and C shares, 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 is no guarantee of 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.
4
<PAGE> 263
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of March 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
<S> <C>
AAA/Aaa 36.1
AA/Aa 12.4
A/A 22.7
BBB/Baa 12.1
BB/Ba 0.7
Non-Rated 16
</TABLE>
As of September 30, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
------------------------
<S> <C>
AAA/Aaa 43.3
AA/Aa 7.4
A/A 8.3
BBB/Baa 24.5
BB/Ba 0.7
Non-Rated 15.8
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION
------------
<S> <C>
10/99 0.061
11/99 0.061
12/99 0.061
1/00 0.061
2/00 0.061
3/00 0.061
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
5
<PAGE> 264
TOP FIVE HOLDINGS
(as a percentage of long-term investments -- March 31, 2000)
<TABLE>
<S> <C> <C>
Metropolitan Transportation Authority NY Commuter Facility
Revenue 2.5%
- ---------------------------------------------------------------------
New York St Thruway Authority General Revenue 2.4%
- ---------------------------------------------------------------------
Monroe County, NY Individual Development Agency 2.3%
- ---------------------------------------------------------------------
Clifton Park, NY Water Authority System Revenue 2.2%
- ---------------------------------------------------------------------
New York St Dorm Authority Revenue University Rochester
Series A 2.0%
- ---------------------------------------------------------------------
</TABLE>
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Higher Education 29.7 25.5
Other Care 10.9 7.8
Industrial Revenue 10.3 9.3
Transportation 10 10.7
General Purpose 8.5 12.5
</TABLE>
6
<PAGE> 265
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN NEW YORK
TAX FREE INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES INCLUDE DENNIS S.
PIETRZAK, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1995 AND HAS WORKED
IN THE INVESTMENT INDUSTRY SINCE 1968. HE IS JOINED BY DAVID JOHNSON, PORTFOLIO
MANAGER, AND PETER W. HEGEL, CHIEF INVESTMENT OFFICER FOR FIXED-INCOME
INVESTMENTS. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S
PERFORMANCE DURING THE SIX MONTHS ENDED MARCH 31, 2000.
Q WHAT WERE SOME OF THE
CHALLENGES YOU FACED IN MANAGING THE FUND DURING THE PREVIOUS SIX MONTHS?
A Steadily rising interest rates
throughout the period took their toll on fixed-income mutual funds of all kinds.
(The price of a bond is inversely related to its interest rate, so bond prices
decline as interest rates rise, and vice versa.) The Federal Reserve Board
increased short-term interest rates three times since last September, driving
the federal funds rate, a key short-term borrowing rate, to its highest level
since 1995.
Naturally, the bond market tries to anticipate these rate moves, but that's
an uncertain science, so it's no surprise that we saw some wild price swings. A
Treasury bond rally at the end of the reporting period may have been
strengthened by the government's plan to buy back a significant amount of its
outstanding Treasury debt.
Q HOW DID THE MUNICIPAL MARKET
RESPOND TO THE BOND RALLY?
A Unfortunately, municipals lagged
the Treasury market in the fourth quarter of 1999. Widespread year 2000 (Y2K)
jitters and a strong supply of municipal bond issuance put a damper on nearly
every sector of the municipal market.
Historically, January has been a good month for municipals, because
investors are actively making tax-related adjustments to their investment
program. But this year, investors were worried about higher interest rates and
potential Y2K fallout early in the year, so they avoided or pulled out of the
municipal market. Consequently, many municipal bond funds had negative returns
for January.
Municipal bond funds in general have been losing assets lately because
they're competing with the soaring stock market for investors' interest. Also,
investors were rattled by recent
7
<PAGE> 266
negative returns from municipal bonds and the threat of even higher interest
rates.
Q HAVE MARKET CONDITIONS
IMPROVED DURING THE REPORTING PERIOD?
A Yes, the markets started to snap
back in February and March. Over the first two months of 2000, we saw a
significant drop in new issuance--approximately 40 percent--compared to a year
ago. The combination of a strong Treasury bond market and the lack of supply in
municipals helped make February and March positive months for the fixed-income
markets.
Also, the income component of municipals is still very competitive relative
to Treasuries, as 30-year insured municipals have been providing 95 to 100
percent of the yield available on the 30-year Treasury bond. This suggests that
investors can enjoy the tax-exempt status of their municipal bond investments
while still earning an attractive level of income.
Q DID YOU ENCOUNTER UNIQUE
CIRCUMSTANCES SPECIFIC TO THE NEW YORK MUNICIPAL MARKET?
A Yes. New York has really turned
itself around, and now the state can boast of a strong, vibrant economy that
helps bond issuers honor their municipal debt obligations. Also, residents of
New York--especially those in New York City--face a particularly onerous income
tax, so the triple tax-exempt status of the Fund's income distributions may be
especially attractive to such investors.
The Fund benefited from a number of credit-rating upgrades on New York
municipal issues, including several issues related to sewer and water facilities
and the state's university dormitory system, which were upgraded from BBB to A.
In total, approximately 23 percent of the Fund's long-term investments were
allocated to A rated issues as of March 31, 2000, up sharply from just 8 percent
last September.
Q WHICH SECTORS OF THE MARKET
WERE YOU MOST CONCERNED ABOUT?
A Lower-rated and nonrated bonds
gave us a few headaches as interest rates went up (driving prices down) and
yield spreads widened significantly. For example, the difference between the
yield offered on a BBB rated municipal bond and a AAA rated municipal bond
increased from less than half a percentage point to well over a full percentage
point. In a nutshell, the prices of lower-rated and nonrated bonds dropped more
sharply than those of higher-rated bonds.
This was especially true in the health-care sector. In fact, at one time we
saw BBB rated hospital bonds trading with a spread of 1.75 percentage points
over AAA rated hospital bonds. This is a reflection of the tough times we've
seen in the health-care sector. With the uncertainties involved in managed
care--who pays for what and how much--and the rising cost of services, many
health-care providers are under tremendous profitability pressures. In this
situation,
8
<PAGE> 267
investors have become concerned about the creditworthiness of the bond issuers,
and many of them have shied away from this sector of the market.
Q HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE PORTFOLIO?
A We sold some questionable health-
care bonds early in the first quarter of 2000, consistent with our desire to
improve the credit quality of the portfolio. We also took advantage of a
technique known as a "tax loss swap," which allowed us to add yield to the
portfolio while taking losses that can be used to offset taxable gains.
The Fund's portfolio has been heavily weighted toward the education sector,
with excellent results. We had roughly 30 percent of the long-term investments
allocated to this sector at the end of the period. Also, we increased our
allocation to the transportation sector, which includes airports, and reduced
the Fund's exposure to public building issues. Of course, not all the bonds in
the Fund performed as favorably, nor is there any guarantee that any of the
bonds mentioned in this report will continue to perform as well or will be held
by the Fund in the future.
Q HOW DID THE FUND RESPOND IN
TERMS OF PERFORMANCE?
A The Fund's total return for the
past six months was disappointing relative to the Fund's peers, primarily
because of the portfolio's ownership of lower-rated and nonrated bonds. As of
March 31, 2000, the Fund achieved a six-month total return of 0.69 percent
(Class A shares at net asset value; if the maximum sales charge of 4.75 percent
were included, the return would have been lower). By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 2.63 percent for the
same period.
This index is an unmanaged, broad-based statistical composite of municipal
bonds that does not include any commissions or sales charges that would be paid
by an investor purchasing the securities it represents. Such costs would lower
the performance of the index. It is not possible to invest directly in an index.
Please refer to the footnotes and chart on page 3 for additional Fund
performance results. Past performance is no guarantee of future results.
Q WHAT IS YOUR VIEW OF THE FUND'S
PERFORMANCE RELATIVE TO ITS OVERALL LONG-TERM OBJECTIVE?
A We believe when people tend to
invest in a fund like this with a long-term perspective, they often expect to
hold their shares for some time, seeking a steady source of monthly income that
is exempt from state and federal income tax, rather than investing for capital
appreciation.
The Fund's monthly tax-exempt dividend remained stable throughout the
reporting period at $0.061 per Class A share, and its distribution rate stood at
4.75 percent as of March 31, 2000.
With this in mind, we'd like to point out that New York investors would have
to earn a distribution rate of 7.97 percent on a taxable investment
9
<PAGE> 268
(for an investor in the 40.4 percent combined federal and state income tax
bracket) to match the tax-exempt yield provided by the Fund.
Q WHAT IS YOUR OUTLOOK FOR THE
MUNICIPAL MARKET?
A One of the key factors in the near
term will be the strength of the stock market. If we see continued volatility in
stocks, and perhaps a major correction, the competition for assets may swing in
favor of the fixed-income markets, such as Treasuries and municipals.
Going forward, we see no perceived credit-quality concerns. We've seen quite
a few credit-rating upgrades, indicating that the rating agencies are optimistic
about the credit strength of municipal bond issuers--most likely because the
economy continues to be strong. Ironically, since many bond issuers have
surpluses from the strong economy, there isn't much pressure to issue new debt.
A continuation of weak supply could lend price support to the municipal market
as a whole.
While inflation is still at a reasonable level, the Fed has already signaled
its willingness to raise rates further in order to keep inflation and the strong
economy in check. Many market observers expect two or three further
interest-rate hikes within the next quarter or two.
Overall, we will continue to manage the Fund with a long-term perspective,
relying on research.
10
<PAGE> 269
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CLASS A SHARES: The division of mutual funds, generally into three groupings,
called Class A, Class B, and Class C shares. The specific features of each is
dependent on varying fees/sales charges. In most cases, Class A shares will have
no redemption fee (contingent deferred sales charge).
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. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
Insurance on the bonds does not relate to mutual fund shares, which will
fluctuate in price.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The rate of return on an investment, usually expressed as an annual
percentage rate.
11
<PAGE> 270
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 103.3%
NEW YORK 99.8%
$ 330 Bethlehem, NY Indl Dev Agy Sr Hsg Rev Van
Allen Proj Ser A............................ 6.875% 06/01/39 $ 297,168
760 Brookhaven, NY Indl Dev Agy Sr Residential
Hsg Rev..................................... 6.375 12/01/37 656,032
195 Cattaraugus Cnty, NY Indl Dev Agy Civic Fac
Rev......................................... 4.400 09/15/04 186,050
1,630 Clifton Park, NY Wtr Auth Sys Rev Ser A
(FGIC Insd)................................. 5.000 10/01/29 1,427,114
500 Erie Cnty, NY Indl Dev Agy Civic Fac Rev
Depaul Ppty Inc Proj Ser A.................. 5.750 09/01/28 426,950
250 Erie Cnty, NY Indl Dev Agy Life Care Cmnty
Rev Episcopal Church Home Ser A (b)......... 6.000 02/01/28 208,550
700 Essex Cnty, NY Indl Dev Agy Environmental
Impt Rev Intl Paper Corp Proj Ser A......... 6.450 11/15/23 697,830
1,250 Huntington, NY Hsg Auth Sr Hsg Fac Rev
Gurwin Jewish Senior Residences Ser A....... 6.000 05/01/29 1,020,275
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg (b)............ 7.500 03/01/26 520,090
1,000 Long Island Power Auth, NY Electric Sys Rev
Gen Ser A (FSA Insd)........................ 5.000 12/01/18 919,590
1,645 Metropolitan Tran Auth NY Commuter Fac Rev
(b)......................................... 5.500 07/01/14 1,628,040
800 Metropolitan Tran Auth NY Commuter Fac Rev
Ser A (MBIA Insd)........................... 5.625 07/01/27 777,664
400 Metropolitan Tran Auth NY Commuter Fac Svc
Contract Ser O.............................. 5.750 07/01/13 412,708
1,155 Monroe Cnty, NY Indl Dev Agy Saint John
Fisher College Proj (b)..................... 5.375 06/01/09 1,157,391
295 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................ 4.650 04/01/06 278,043
310 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................ 4.700 04/01/07 290,287
325 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................ 4.800 04/01/08 303,622
</TABLE>
See Notes to Financial Statements
12
<PAGE> 271
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY 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 $ 158,564
395 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................ 5.150 04/01/12 366,284
1,705 Monroe Cnty, NY Indl Dev Agy Student Hsg
Collegiate Ser A............................ 5.250 04/01/19 1,475,200
500 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev
Empire Sports Proj Ser A (b)................ 6.250 03/01/28 392,325
500 Mount Vernon, NY Indl Dev Agy Wartburg Sr
Hsg Inc Meadowview (b)...................... 6.000 06/01/09 472,010
1,250 New York City Indl Dev Agy Laguardia Assoc
Lp Proj Rfdg................................ 6.000 11/01/28 1,080,575
1,100 New York City Indl Dev Agy Brooklyn Navy
Yard........................................ 5.650 10/01/28 970,112
1,000 New York City Indl Dev Agy Civic Fac Rev
(FSA Insd).................................. 5.250 05/01/19 946,340
500 New York City Indl Dev Agy Civic Fac Rev
Cmnty Res Developmentally Disabled (b)...... 7.500 08/01/26 511,970
500 New York City Indl Dev Agy Civic Fac Rev
College of New Rochelle Proj................ 5.750 09/01/17 494,285
375 New York City Indl Dev Agy Spl Fac Rev
Terminal One Group Assn Proj (b)............ 5.700 01/01/04 381,855
500 New York City Indl Dev Civic Touro College
Proj Ser A (b).............................. 6.350 06/01/29 464,710
500 New York City Indl Dev Civic YMCA Greater NY
Proj........................................ 6.000 08/01/07 511,395
515 New York City Indl Dev Civic YMCA Greater NY
Proj........................................ 5.800 08/01/16 509,865
500 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev Ser B (AMBAC Insd) (b).............. 5.375 06/15/19 483,680
1,000 New York City Muni Wtr Fin Ser B (FSA
Insd)....................................... 5.250 06/15/29 914,430
500 New York City Ser B......................... 5.700 08/15/07 516,505
500 New York City Ser C (Prerefunded @ 08/15/01)
(b)......................................... 7.250 08/15/24 518,510
500 New York City Ser H (Prerefunded @ 02/01/02)
(FSA Insd) (b).............................. 7.000 02/01/21 527,405
1,250 New York City Ser J (MBIA Insd)............. 5.000 05/15/20 1,128,637
1,250 New York City Tran Fin Auth Rev Ser B (FGIC
Insd)....................................... 4.750 11/01/23 1,068,837
</TABLE>
See Notes to Financial Statements
13
<PAGE> 272
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 720 New York St Dorm Auth Lease Rev Office Fac
Audit & Control (MBIA Insd)................. 5.250% 04/01/13 $ 713,650
1,000 New York St Dorm Auth Rev City Univ Cons
Third Ser 1 (FGIC Insd)..................... 5.250 07/01/25 924,350
1,230 New York St Dorm Auth Rev City Univ Ser D
(FSA Insd).................................. 5.750 07/01/12 1,282,336
300 New York St Dorm Auth Rev City Univ Ser F... 5.000 07/01/14 278,703
600 New York St Dorm Auth Rev City Univ Sys
Third Genl Res 2 Rfdg (b)................... 6.000 07/01/05 622,170
750 New York St Dorm Auth Rev Cons City Univ Sys
Ser A....................................... 5.625 07/01/16 757,500
500 New York St Dorm Auth Rev Court Fac Lease
Ser A (b)................................... 5.700 05/15/22 482,610
570 New York St Dorm Auth Rev Dept Ed St of NY
Issue Ser A (b)............................. 5.800 07/01/22 558,435
750 New York St Dorm Auth Rev FHA Nursing Home
Menorah (FHA Gtd)........................... 5.950 02/01/17 766,193
1,245 New York St Dorm Auth Rev Long Island Univ.. 5.000 09/01/16 1,145,960
1,200 New York St Dorm Auth Rev Miriam Osborn Mem
Home Ser B.................................. 6.375 07/01/29 1,216,152
830 New York St Dorm Auth Rev NY Univ Ser A
(AMBAC Insd) (a)............................ 5.250 07/01/06 833,519
1,245 New York St Dorm Auth Rev NY Univ Ser A
(AMBAC Insd) (a)............................ 5.250 07/01/07 1,249,295
500 New York St Dorm Auth Rev Pratt Institute... 6.000 07/01/28 502,380
1,000 New York St Dorm Auth Rev Second Hosp
Interfaith Med Cent Ser D (b)............... 5.750 02/15/08 1,021,170
500 New York St Dorm Auth Rev St Univ Edl Fac... 5.750 05/15/10 513,500
1,000 New York St Dorm Auth Rev St Univ Edl Fac
Ser A (MBIA Insd)........................... 4.750 05/15/25 848,520
1,000 New York St Dorm Auth Rev St Univ Fac 1989
Res (MBIA Insd)............................. 6.000 05/15/15 1,053,280
1,200 New York St Dorm Auth Rev Svc Contract
Albany Cnty (b)............................. 5.250 04/01/13 1,161,048
1,000 New York St Dorm Auth Rev Svc Contract
Albany Cnty (b)............................. 5.250 04/01/17 933,370
1,410 New York St Dorm Auth Rev Univ Rochester Ser
A Rfdg (MBIA Insd).......................... 5.000 07/01/17 1,307,507
500 New York St Dorm Auth Rev Univ Rochester Ser
B........................................... 5.625 07/01/24 484,525
</TABLE>
See Notes to Financial Statements
14
<PAGE> 273
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 New York St Energy Resh & Dev Auth Elec Fac
Rev Cons Edison Co NY Inc Proj Ser A (MBIA
Insd) (b)................................... 7.500% 01/01/26 $ 510,800
500 New York St Energy Resh & Dev Auth Gas Fac
Rev Brooklyn Union Gas Co Ser B (Inverse
Fltg) (b)(c)................................ 9.260 07/01/26 548,750
500 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fund Ser D (b)..... 6.850 11/15/11 543,730
490 New York St Hsg Fin Agy Rev Insd
Multi-Family Mtg Ser B (AMBAC Insd) (b)..... 6.250 08/15/14 505,773
500 New York St Med Care Fac Fin Agy Rev NY Hosp
Mtg Ser A (Prerefunded @ 02/15/05) (AMBAC
Insd) (b)................................... 6.200 08/15/05 535,170
300 New York St Med Care Fac Fin Agy Rev
Presbyterian Hosp Mtg Ser A Rfdg (FHA Gtd).. 5.250 08/15/14 289,593
500 New York St Mtg Agy Rev Homeowner Mtg Ser
30B (b)..................................... 6.650 10/01/25 512,350
730 New York St Mtg Agy Rev Homeowner Mtg Ser 58
(b)......................................... 6.400 04/01/27 747,272
1,000 New York St Mtg Agy Rev Homeowner Mtg Ser 71
(a)......................................... 5.400 04/01/29 911,380
1,000 New York St Mtg Agy Rev Homeowner Mtg Ser
90.......................................... 6.350 10/01/30 1,028,490
1,750 New York St Thruway Auth Gen Rev
Ser E Rfdg.................................. 4.750 01/01/19 1,535,135
1,030 New York St Thruway Auth Hwy & Brdg Trust
Fund Ser A (FGIC Insd)...................... 5.125 04/01/11 1,021,461
290 New York St Thruway Auth Svc Contract Rev
Loc Hwy & Brdg.............................. 5.750 04/01/09 298,326
370 New York St Urban Dev Corp Rev Correctional
Cap Fac Rfdg................................ 5.625 01/01/07 376,275
300 New York St Urban Dev Corp Rev Correctional
Cap Fac Rfdg (b)............................ 5.750 01/01/13 303,132
450 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser 7............................... 5.700 01/01/27 432,369
500 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser A Rfdg.......................... 5.500 01/01/14 499,235
1,000 New York St Urban Dev Corp Rev Sports Fac
Assist Pgm Ser A (b)........................ 5.000 04/01/18 895,400
420 Niagara Falls, NY Pub Impt (MBIA Insd)
(b)......................................... 6.900 03/01/20 449,765
</TABLE>
See Notes to Financial Statements
15
<PAGE> 274
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 325 Oneida Cnty, NY Indl Dev Agy Civic Fac St
Elizabeth Med A............................. 5.875% 12/01/29 $ 264,589
500 Oneida Cnty, NY Indl Dev Agy Rev Civic Fac
Mohawk Vly Handicap......................... 5.300 03/15/19 459,345
455 Orange Cnty, NY Indl Dev Agy Life Care The
Glen Arden Inc Proj......................... 5.625 01/01/18 375,266
500 Peekskill NY Indl Dev Agy Sr Drum Hill Sr
Living Proj................................. 6.375 10/01/28 434,720
300 Port Auth NY & NJ Spl Oblig (b)............. 7.000 10/01/07 312,672
555 Rockland Cnty, NY Indl Dev Agy Civic Fac Rev
Dominican College Proj 144A Private
Placement (d)............................... 6.250 05/01/28 509,496
625 Rockland Cnty, NY Solid Waste Mgmt Auth Ser
B (AMBAC Insd).............................. 5.550 12/15/16 615,919
330 Saratoga Cnty, NY Indl Dev Agy Sr Hsg Rev... 6.875 06/01/39 296,799
500 Suffolk Cnty, NY Indl Dev Agy Continuing
Care Retirement Cmnty Rev................... 7.250 11/01/28 486,750
400 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A (b)......... 6.375 12/01/17 371,432
225 Syracuse, NY Hsg Auth Rev Sub Proj Loretto
Rest Ser B (b).............................. 7.500 08/01/10 213,903
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp
Ser A Rfdg.................................. 5.000 01/01/12 388,380
500 Ulster Cnty, NY Indl Dev Agy Civic Fac Rev
Benedictine Hosp Proj Ser A (b)............. 6.250 06/01/08 475,660
1,000 Utica, NY Indl Dev Agy Civic Fac Rev Utica
College Proj Ser A.......................... 5.750 08/01/28 881,740
-----------
61,788,148
-----------
GUAM 0.8%
500 Guam Arpt Auth Rev Ser B.................... 6.700 10/01/23 507,720
-----------
U.S. VIRGIN ISLANDS 2.7%
1,000 Virgin Islands Pub Fin Auth Rev Gross Rcpts
Taxes Loan Ser A............................ 6.375 10/01/19 1,007,290
650 Virgin Islands Pub Fin Auth Rev Sr Lien Fd
Ln Nts Ser C................................ 5.500 10/01/07 645,866
-----------
1,653,156
-----------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 275
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
VALUE
<S> <C>
TOTAL LONG-TERM INVESTMENTS 103.3%
(Cost $65,252,761).................................................... $63,949,024
SHORT-TERM INVESTMENTS 0.2%
(Cost $100,000)....................................................... 100,000
-----------
TOTAL INVESTMENTS 103.5%
(Cost $65,352,761).................................................... 64,049,024
LIABILITIES IN EXCESS OF OTHER ASSETS (3.5%)........................... (2,158,724)
-----------
NET ASSETS 100.0%...................................................... $61,890,300
===========
</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 and open futures transactions.
(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, as amended. 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
17
<PAGE> 276
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $65,352,761)........................ $64,049,024
Cash........................................................ 41,281
Receivables:
Interest.................................................. 1,118,680
Expense Reimbursement from Adviser........................ 13,234
Fund Shares Sold.......................................... 131,576
Other....................................................... 2,460
-----------
Total Assets............................................ 65,356,255
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,042,046
Fund Shares Repurchased................................... 154,823
Income Distributions...................................... 74,486
Distributor and Affiliates................................ 72,896
Variation Margin on Futures............................... 17,187
Trustees' Deferred Compensation and Retirement Plans........ 75,060
Accrued Expenses............................................ 29,457
-----------
Total Liabilities....................................... 3,465,955
-----------
NET ASSETS.................................................. $61,890,300
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $64,998,794
Accumulated Net Investment Income........................... 143,650
Net Unrealized Depreciation................................. (1,441,642)
Accumulated Net Realized Loss............................... (1,810,502)
-----------
NET ASSETS.................................................. $61,890,300
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $30,337,341 and 2,067,734 shares of
beneficial interest issued and outstanding)............. $ 14.67
Maximum sales charge (4.75%* of offering price)......... .73
-----------
Maximum offering price to public........................ $ 15.40
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $26,872,622 and 1,833,051 shares of
beneficial interest issued and outstanding)............. $ 14.66
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,680,337 and 319,276 shares of
beneficial interest issued and outstanding)............. $ 14.66
===========
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
18
<PAGE> 277
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,893,617
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $40,173, $134,519 and $25,287,
respectively)............................................. 199,979
Investment Advisory Fee..................................... 192,354
Shareholder Reports......................................... 25,799
Trustees' Fees and Related Expenses......................... 22,400
Custody..................................................... 4,027
Legal....................................................... 2,705
Other....................................................... 53,752
-----------
Total Expenses.......................................... 501,016
-----------
Less Expense Reduction ($192,354 Investment Advisory Fee
and $78,125 Other).................................... 270,479
Credits Earned on Cash Balances......................... 382
-----------
Net Expenses............................................ 230,155
-----------
NET INVESTMENT INCOME....................................... $ 1,663,462
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(1,678,369)
Futures................................................... (41,789)
-----------
Net Realized Loss........................................... (1,720,158)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (1,711,632)
-----------
End of the Period:
Investments............................................. (1,303,737)
Futures................................................. (137,905)
-----------
(1,441,642)
-----------
Net Unrealized Appreciation During the Period............... 269,990
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,450,168)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 213,294
===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 278
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and the Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 1,663,462 $ 2,758,315
Net Realized Loss.................................... (1,720,158) (81,746)
Net Unrealized Appreciation/ Depreciation During the
Period.............................................. 269,990 (4,877,763)
------------ ------------
Change in Net Assets from Operations................. 213,294 (2,201,194)
------------ ------------
Distributions from Net Investment Income............. (1,488,123) (2,758,315)
Distributions in Excess of Net Investment Income..... -0- (16,019)
------------ ------------
Distributions from and in Excess of Net Investment
Income*............................................. (1,488,123) (2,774,334)
Distributions from Net Realized Gains*............... -0- (280,511)
------------ ------------
Total Distributions.................................. (1,488,123) (3,054,845)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.. (1,274,829) (5,256,039)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 7,728,682 37,031,717
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 1,000,630 2,056,860
Cost of Shares Repurchased........................... (15,518,968) (10,970,966)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... (6,789,656) 28,117,611
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS................ (8,064,485) 22,861,572
NET ASSETS:
Beginning of the Period.............................. 69,954,785 47,093,213
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $143,650 and
($31,689), respectively)............................ $ 61,890,300 $ 69,954,785
============ ============
* Distributions by Class
- -----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares...................................... $ (809,759) $ (1,566,371)
Class B Shares...................................... (570,777) (1,029,529)
Class C Shares...................................... (107,587) (178,434)
------------ ------------
$ (1,488,123) $ (2,774,334)
============ ============
Distributions from Net Realized Gain:
Class A Shares...................................... $ -0- $ (147,076)
Class B Shares...................................... -0- (116,190)
Class C Shares...................................... -0- (17,245)
------------ ------------
$ -0- $ (280,511)
============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 279
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
NINE
SIX MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31
CLASS A SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $14.939 $16.223 $15.734 $14.992 $15.048 $13.579
------- ------- ------- ------- ------- -------
Net Investment Income....... .400 .794 .596 .786 .816 .821
Net Realized and Unrealized
Gain/Loss................. (.301) (1.198) .509 .795 (.074) 1.476
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. .099 (.404) 1.105 1.581 .742 2.297
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .366 .792 .599 .798 .798 .828
Distributions from Net
Realized Gain............. -0- .088 .017 .041 -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions........... .366 .880 .616 .839 .798 .828
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD...................... $14.672 $14.939 $16.223 $15.734 $14.992 $15.048
======= ======= ======= ======= ======= =======
Total Return* (a)............. .69%** (2.61%) 7.11%** 10.92% 5.14% 17.33%
Net Assets at End of the
Period (In millions)........ $ 30.3 $ 36.6 $ 25.0 $ 18.0 $ 7.7 $ 5.4
Ratio of Expenses to Average
Net Assets*................. .35% .33% .39% .64% .31% .21%
Ratio of Net Investment Income
to Average Net Assets*...... 5.64% 5.03% 5.01% 5.16% 5.56% 5.63%
Portfolio Turnover............ 30%** 67% 53%** 60% 126% 51%
* 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.................. 1.21% 1.23% 1.43% 1.47% 1.82% 2.10%
Ratio of Net Investment Income
to Average Net Assets....... 4.78% 4.13% 3.97% 4.33% 4.04% 3.74%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
See Notes to Financial Statements
21
<PAGE> 280
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
NINE
SIX MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31
CLASS B SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $14.915 $16.208 $15.727 $14.992 $15.046 $13.578
------- ------- ------- ------- ------- -------
Net Investment Income....... .357 .679 .509 .684 .704 .713
Net Realized and Unrealized
Gain/Loss................. (.303) (1.200) .507 .782 (.068) 1.476
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. .054 (.521) 1.016 1.466 .636 2.189
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .309 .684 .518 .690 .690 .721
Distributions from Net
Realized Gain............. -0- .088 .017 .041 -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions........... .309 .772 .535 .731 .690 .721
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD...................... $14.660 $14.915 $16.208 $15.727 $14.992 $15.046
======= ======= ======= ======= ======= =======
Total Return* (a)............. .37%** (3.34%) 6.58%** 10.07% 4.37% 16.47%
Net Assets at End of the
Period (In millions)........ $ 26.9 $ 28.2 $ 19.0 $ 13.1 $ 10.1 $ 9.7
Ratio of Expenses to Average
Net Assets*................. 1.10% 1.08% 1.14% 1.36% 1.07% .93%
Ratio of Net Investment Income
to Average Net Assets*...... 4.92% 4.27% 4.26% 4.49% 4.79% 4.93%
Portfolio Turnover............ 30%** 67% 53%** 60% 126% 51%
* 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.................. 1.96% 1.98% 2.19% 2.18% 2.60% 2.82%
Ratio of Net Investment Income
to Average Net Assets....... 4.06% 3.37% 3.21% 3.67% 3.26% 3.04%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 4%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
sixth year. If the sales charge was included, total returns would be lower.
See Notes to Financial Statements
22
<PAGE> 281
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE TRUST
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
NINE
SIX MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31
CLASS C SHARES MARCH 31, SEPT. 30, SEPT. 30, ---------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $14.918 $16.204 $15.726 $14.992 $15.041 $13.579
------- ------- ------- ------- ------- -------
Net Investment Income....... .357 .682 .515 .676 .701 .711
Net Realized and Unrealized
Gain/Loss................. (.307) (1.196) .498 .789 (.060) 1.472
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. .050 (.514) 1.013 1.465 .641 2.183
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .309 .684 .518 .690 .690 .721
Distributions from Net
Realized Gain............. -0- .088 .017 .041 -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions........... .309 .772 .535 .731 .690 .721
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD...................... $14.659 $14.918 $16.204 $15.726 $14.992 $15.041
======= ======= ======= ======= ======= =======
Total Return* (a)............. .37%** (3.28%) 6.51%** 10.07% 4.44% 16.39%
Net Assets at End of the
Period (In millions)........ $ 4.7 $ 5.1 $ 3.1 $ 1.0 $ .4 $ .4
Ratio of Expenses to Average
Net Assets*................. 1.09% 1.08% 1.14% 1.41% 1.08% .98%
Ratio of Net Investment Income
to Average Net Assets*...... 4.87% 4.28% 4.22% 4.37% 4.78% 4.81%
Portfolio Turnover............ 30%** 67% 53%** 60% 126% 51%
* 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.................. 1.95% 1.98% 2.18% 2.23% 2.61% 2.86%
Ratio of Net Investment Income
to Average Net Assets....... 4.01% 3.38% 3.17% 3.55% 3.25% 2.93%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.
See Notes to Financial Statements
23
<PAGE> 282
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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, which approximate market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
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
24
<PAGE> 283
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
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.
At March 31, 2000, for federal income tax purposes, cost of long- and short-
term investments is $65,352,761; the aggregate gross unrealized appreciation is
$1,055,000 and the aggregate gross unrealized depreciation is $2,358,737,
resulting in net unrealized depreciation on long- and short-term investments of
$1,303,737.
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 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 six months ended March 31, 2000, the Fund's
custody fee was reduced by $382 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 DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .600 of 1%
Over $500 million........................................... .500 of 1%
</TABLE>
25
<PAGE> 284
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
For the six months ended March 31, 2000, the Adviser voluntarily waived
$192,354 of its investment advisory fee and assumed $78,125 of the Fund's other
expenses. This waiver is voluntary in nature and can be discontinued at the
Adviser's discretion.
For the six months ended March 31, 2000, the Fund recognized expenses of
approximately $1,100, 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. All of this expense has been assumed by Van
Kampen.
For the six months ended March 31, 2000, the Fund recognized expenses of
approximately $26,100 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 six months ended March 31,
2000, the Fund recognized expenses of approximately $8,000. 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 March 31, 2000, Van Kampen owned 100 shares each of Classes A, B and C.
26
<PAGE> 285
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $32,147,534, $27,812,869, and $5,038,391
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 279,935 $ 4,066,832
Class B................................................. 201,009 2,919,944
Class C................................................. 50,669 741,906
---------- ------------
Total Sales............................................... 531,613 $ 7,728,682
========== ============
Dividend Reinvestment:
Class A................................................. 40,474 $ 587,740
Class B................................................. 23,220 336,695
Class C................................................. 5,256 76,195
---------- ------------
Total Dividend Reinvestment............................... 68,950 $ 1,000,630
========== ============
Repurchases:
Class A................................................. (703,244) $(10,242,465)
Class B................................................. (282,858) (4,109,045)
Class C................................................. (80,695) (1,167,458)
---------- ------------
Total Repurchases......................................... (1,066,797) $(15,518,968)
========== ============
</TABLE>
27
<PAGE> 286
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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>
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 and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares eight years
after the end of the calendar month in which the shares were purchased. Class B
shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
shares received on such shares, automatically convert to Class A shares seven
years after the end of the calendar month in which the shares were purchased.
For the six months ended March 31, 2000 and the year ended September 30, 1999,
7,472 and -0- Class B shares automatically converted to Class A shares,
respectively, and are shown in the above tables as sales of Class A shares and
repurchases of Class B shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan C shares received thereon, automatically
convert to Class A shares ten years after the end of the calendar month in which
the shares are purchased. Class C shares purchased on or after January 1, 1997
do not possess a conversion feature. For the six months ended March 31, 2000 and
the year ended September 30, 1999, no Class C shares converted to Class A
shares. The CDSC will be imposed on most
28
<PAGE> 287
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
redemptions made within six years of the purchase for Class B shares and one
year of the purchase for Class C shares 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 six months ended March 31, 2000, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $6,200 and CDSC on redeemed shares of approximately $56,200. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $19,682,843 and $26,222,145,
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 an 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.
During the period the Fund invested in future 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
29
<PAGE> 288
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into future contracts, the Fund maintains, in a segregated
account with its custodian, 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 broker based upon changes in the value of
the contract (the variation margin). The risk of loss associated with a futures
contract is in excess of the variation margin reflected on the Statement of
Assets and Liabilities.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 0
Futures Opened.............................................. 180
Futures Closed.............................................. (130)
----
Outstanding at March 31, 2000............................... 50
====
</TABLE>
The futures contracts outstanding as of March 31, 2000, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
Short Contracts -- Municipal Bond Futures June 2000 (current
notional value $95,344 per contract)...................... 50 $ (137,905)
</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, as amended, 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 six months ended March 31, 2000, are payments retained by Van Kampen of
approximately $117,000.
7. BORROWINGS
In accordance with its investment policies, the fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the fund, in conjunction with certain other funds
of
30
<PAGE> 289
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
Van Kampen, has entered in to a $650,000,000 committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund had no borrowings on March 31, 2000. The Fund has not
borrowed against the credit facility during the period.
31
<PAGE> 290
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 September 30,
2000, the report, if used with prospective investors, must be accompanied by a
quarterly performance update.
32
<PAGE> 291
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the ratification
of KPMG LLP as the independent public accountants.
1) With regard to the election of the following trustees by the shareholders of
the Fund:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan...................................... 3,782,696 20,586
Jerry D. Choate........................................ 3,781,172 22,110
Linda Hutton Heagy..................................... 3,781,172 22,110
R. Craig Kennedy....................................... 3,781,172 22,110
Mitchell M. Merin...................................... 3,781,172 22,110
Jack E. Nelson......................................... 3,781,172 22,110
Richard F. Powers, III................................. 3,781,172 22,110
Phillip B. Rooney...................................... 3,781,172 22,110
Fernando Sisto......................................... 3,781,172 22,110
Wayne W. Whalen........................................ 3,781,172 22,110
Suzanne H. Woolsey..................................... 3,781,172 22,110
Paul G. Yovovich*...................................... 3,781,172 22,110
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of KPMG LLP as independent public accounts
for the Fund, 3,203,163 shares voted for the proposal, 13,119 shares voted
against and 34,163 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants effective April
14, 2000. The cessation of the client-auditor relationship between the Fund and
KPMG was based solely on a possible future business relationship by KPMG with an
affiliate of the Fund's investment adviser.
33
