<PAGE> 1
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 23
Statement of Operations.......................... 24
Statement of Changes in Net Assets............... 25
Financial Highlights............................. 26
Notes to Financial Statements.................... 29
</TABLE>
TFIN SAR 8/96
<PAGE> 2
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley
Group Inc. While this announcement [PHOTO]
may appear commonplace in an DENNIS J. MCDONNELL AND DON G. POWELL
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 3
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. In particular,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have faded.
In early 1996, the municipal market was wary of the growing political
momentum for tax reform, which could have eroded the value of the market's
tax-exempt status. However, the momentum slowed substantially and now appears
to be on the back burner until after the 1996 presidential election. This has
added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine their
allocation of assets. In general, this translates into an increased emphasis
on fixed-income, which should lend support to the municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... (1.65%) (1.99%) (2.04%)
Six-month total return(2)................ (6.30%) (5.82%) (3.00%)
One-year total return(2)................. .62% .92% 3.81%
Five-year average annual total
return(2).............................. 6.24% N/A N/A
Ten-year average annual total
return(2).............................. 7.11% N/A N/A
Life-of-Fund average annual total
return(2).............................. 8.97% 3.12% 3.08%
Commencement Date........................ 12/14/84 05/01/93 08/13/93
</TABLE>
DISTRIBUTION RATES AND YIELD
<TABLE>
<S> <C> <C> <C>
Distribution Rate(3)....................... 5.06% 4.51% 4.51%
Taxable Equivalent Distribution Rate(4).... 7.91% 7.05% 7.05%
SEC Yield(5)............................... 4.60% 4.04% 4.04%
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996.
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 Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 5
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
California............ 26.0%
Illinois.............. 13.3%
Texas................. 6.6%
New York.............. 5.9%
Florida............... 4.2%
Georgia............... 3.5%
Kansas................ 3.2%
Colorado.............. 3.1%
Pennsylvania.......... 2.6%
Ohio.................. 2.3%
</TABLE>
CREDIT QUALITY
<TABLE>
<S> <C>
AAA.............................. 100%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care............... 26.3%
Retail Elec. / Gas /
Telephone............... 9.6%
Public Building........... 8.9%
General Purpose........... 8.7%
Higher Education.......... 7.6%
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
Health Care............... 25.3%
Retail Elec. / Gas /
Telephone............... 9.2%
General Purpose........... 9.0%
Wholesale Electric........ 8.5%
Public Building........... 7.8%
</TABLE>
DURATION
<TABLE>
<CAPTION>
ON JUNE 30, 1996 ON DECEMBER 31, 1995
<S> <C> <C>
Duration 7.85 years 7.34 years
</TABLE>
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Insured Tax Free Income Fund about the key events and economic forces that
shaped the markets during the past six months. The team includes Joseph A.
Piraro, portfolio manager, and Peter W. Hegel, executive vice president for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1996.
Q
WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?
A
Early in the year, indicators pointing to a stronger, expanding economy
sparked concern over inflation and expectations that the Federal Reserve
Board would increase short-term interest rates in order to keep the
economy from overheating. The prospect of higher rates was a concern to the
market, which responded by trading toward lower prices and higher yields.
On the other hand, municipal market concerns that major tax reform proposals
would gain acceptance--and potentially erode the tax-exempt status associated
with municipals--eased in the first half of 1996. So, even though bond prices
generally declined, they did so to a lesser extent in the municipal market.
Q
WHAT ACTIONS DID YOU TAKE TO ADJUST THE FUND'S PORTFOLIO?
A
We made a number of moves, such as building a higher cash position. We
sold certain positions in order to establish some tax losses, with the
idea of reinvesting the proceeds from these sales in higher-yielding
opportunities as they arise.
Our focus has been on 15- to 20-year maturity bonds, with an emphasis on the
lower end of that range in order to help minimize portfolio volatility. We
believe the 15- to 20-year segment should provide the best relative value given
the current market environment. It also provides a high level of liquidity, due
to the broad base of investors seeking tax-exempt securities of this maturity,
such as insurance companies, mutual funds, and individuals.
The duration of the Fund (a measure of the portfolio's sensitivity to
interest rate changes) is just slightly lower than the 8-year benchmark that we
try to target over time. Please refer to page four for Fund portfolio
highlights.
Q
HOW DID THE FUND PERFORM DURING THE PERIOD?
A
The Fund's total return (Class A shares at net asset value) over the
six-month period ended June 30, 1996, was -1.65 percent(1). In comparison,
the market return, as represented by the Lehman Brothers Municipal Bond
Index, was -0.45 percent for the same period. Longer term, the Fund generated a
one-year total return of 5.62 percent(1) (Class A shares at net asset value)
through June 30, 1996. The Lehman Index is a broad-based, unmanaged index of
municipal bonds and does not reflect any
5
<PAGE> 7
commissions or fees that would be paid by an investor purchasing the securities
it represents. Please refer to the chart on page three for additional Fund
performance results.
From an income perspective, the Fund's Class A shares ended the period with
an annualized dividend of $0.996 per share. The Fund's Board of Trustees
approved a reduction in the monthly dividend from $.0830 to $.0815 per share
(Class A shares), effective July 1, 1996. Based upon this reduced dividend
level, the Fund continues to provide a respectable level of tax-exempt income
with a distribution rate of 4.97 percent based on the maximum offering price as
of June 30, 1996--the equivalent of a 7.77 percent taxable distribution rate for
investors in the 36 percent federal income tax bracket.
Q
WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A
We expect to see continued low inflation, and the economy is likely to
grow at a more moderate pace than the second quarter's swift pace. After
sharp increases in the first half of 1996, we expect yields to remain in a
trading range around current levels.
The supply of municipal securities in the marketplace should keep pace with
last year's volume, which was in the neighborhood of $165 billion. Higher
interest rates make municipal bonds more attractive, especially to investors in
the higher income tax brackets. A tax-free bond with a yield of six-plus percent
is the equivalent of a taxable bond with a 9-plus percent yield for investors in
the 36 percent tax bracket.
Q
HOW HAVE YOU POSITIONED THE PORTFOLIO AS WE MOVE INTO THE LAST HALF OF THE
YEAR?
A
We expect to maintain emphasis on what we see as the more attractive
sectors within the municipal market, such as essential services and
housing. These sectors offer high liquidity, strong issuer backing, and
the added enhancement of insurance. In addition, housing issues provide high
yield with generally low volatility. We continue to maintain a position in
general obligation bonds, but believe that this sector is currently fully
priced.
We continue to pursue a strategy of seeking a solid total return by
selecting issues that offer a competitive level of income, while looking for
opportunities to move into market sectors and specific issues that provide
opportunities for appreciation.
[SIG]
Peter W. Hegel
Executive Vice President
Fixed Income Investments
[SIG]
Joseph A. Piraro
Portfolio Manager
Please see footnotes on page three
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 2.1%
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty College
(MBIA Insd)....................................... 6.000% 10/01/14 $ 2,292
2,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser
A (AMBAC Insd).................................... 6.750 08/15/17 2,145
3,900 Birmingham-Carraway, AL Methodist Hlth Sys Ser A
(Connie Lee Insd)................................. 5.875 08/15/25 3,900
2,500 Jefferson Cnty, AL Brd Edl Cap Outlay Sch (AMBAC
Insd)............................................. 5.875 02/15/20 2,497
5,500 Limestone Cnty, AL Wtr Auth Wtr Rev (FGIC Insd)... 7.700 12/01/19 5,916
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp Rev
Decatur Genl Hosp Rfdg (Connie Lee Insd).......... 6.250 03/01/13 5,716
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA
Insd)............................................. 6.500 04/01/16 2,526
2,500 University of Southern AL Univ Rev Tuition Rfdg
(AMBAC Insd)...................................... 5.000 11/15/15 2,273
1,600 West Morgan East Lawrence Wtr Auth AL Wtr Rev (FSA
Insd)............................................. 6.800 08/15/14 1,735
----------
29,000
----------
ALASKA 0.8%
9,000 Alaska St Hsg Fin Corp Ser A (MBIA Insd).......... 5.875 12/01/30 8,647
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd)...... 6.600 12/01/07 2,554
----------
11,201
----------
ARIZONA 1.3%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC Insd)..... 6.250 09/01/10 11,489
2,270 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)....... 7.250 07/15/10 2,478
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp
Ser A Rfdg (AMBAC Insd) (b)....................... 6.000 09/01/12 1,827
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp
Ser A Rfdg (AMBAC Insd) (b)....................... 6.125 09/01/17 1,706
----------
17,500
----------
CALIFORNIA 24.8%
12,695 Antioch Area Pub Fac Fin Agy CA Spl Tax Cmnty Fac
Dist (FGIC Insd).................................. 5.000 08/01/18 11,244
4,290 Antioch Area, CA Pub Fac Fin Agy Cmnty Fac Dist No
1989 (AMBAC Insd)................................. 5.300 08/01/15 4,042
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Rev Ser A (Cap Guar Insd).................... 6.000 12/15/14 2,873
5,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Rev Ser
A (AMBAC Insd).................................... 6.000 12/15/15 5,060
2,555 Berkeley, CA Unified Sch Dist Ser C (AMBAC
Insd)............................................. 5.875 08/01/12 2,577
1,985 Berkeley, CA Unified Sch Dist Ser C (AMBAC
Insd)............................................. 5.875 08/01/14 1,986
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev Ser A
(Inverse Fltg) (MBIA Insd)........................ 5.650 06/01/15 4,787
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 5,000 California Hlth Fac Fin Auth Rev Kaiser Permanente
Ser A (FSA Insd).................................. 5.550% 08/15/25 $ 4,695
10,000 California Hlth Fac Fin Auth Rev Sutter Hosp Ser A
Rfdg (AMBAC Insd)................................. 6.700 01/01/13 10,430
3,545 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (MBIA Insd)................................. 8.100 03/01/18 3,731
10,875 California St (FGIC Insd)......................... 6.000 08/01/19 10,952
5,150 California St Pub Wks Brd Lease Rev Dept of
Corrections CA St Prison D Susanville (Cap Guar
Insd)............................................. 5.250 06/01/15 4,830
10,000 California St Pub Wks Brd Lease Rev Dept of
Corrections CA St Prison D Susanville (MBIA
Insd)............................................. 5.375 06/01/18 9,329
16,250 California St Pub Wks Brd Lease Rev Var Univ CA
Projs Ser A (AMBAC Insd).......................... 6.400 12/01/16 16,875
4,210 California Statewide Cmnty Dev Auth Rev Ctfs Partn
Sisters Charity Leavenworth (MBIA Insd)........... 5.375 12/01/12 4,030
2,440 Chino Hills, CA Ctfs Partn Wtr Sys Refin Proj
(FGIC Insd)....................................... 5.600 06/01/18 2,355
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)........ 6.200 09/01/18 3,096
4,000 Clovis, CA Unified Sch Dist Cap Apprec Ser B (FGIC
Insd)............................................. * 08/01/09 1,924
220 Concord, CA Redev Agy Tax Alloc Cent Concord Redev
Proj Ser 3 (MBIA Insd)............................ 8.000 07/01/18 238
10,280 Concord, CA Redev Agy Tax Alloc Cent Concord Redev
Proj Ser 3 (Prerefunded @ 07/01/98) (MBIA Insd)... 8.000 07/01/18 11,246
2,595 Contra Costa Cnty, CA Santn Dist No 7A Ctfs Partn
Sub-Delta Diablo Fin Corp (Prerefunded @ 12/01/98)
(MBIA Insd)....................................... 7.600 12/01/08 2,849
1,000 Corona Norco, CA Unified Sch Dist Lease Rev Partn
Insd Land Acquis Ser A (FSA Insd)................. 6.000 04/15/19 1,006
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac Refin
(FGIC Insd)....................................... 6.300 09/01/12 1,296
3,000 Culver City, CA Ctfs Partn CA Tran Fin Corp Ser A
(AMBAC Insd)...................................... 5.750 01/01/16 2,977
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd).... 6.700 08/01/21 477
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent
for the Arts Rfdg (AMBAC Insd).................... * 09/01/17 1,472
6,500 Grossmont, CA Union High Sch Dist Ctfs Partn (MBIA
Insd)............................................. * 11/15/21 1,180
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd)................................... 6.500 11/01/12 1,055
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd)................................... 6.625 11/01/22 7,475
500 Long Beach, CA Redev Agy Downtown Redev Proj Ser A
(Prerefunded @ 11/01/98) (AMBAC Insd)............. 7.750 11/01/10 549
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp
Leasehold Rev Rfdg (AMBAC Insd)................... 6.000 12/01/16 3,524
18,035 Los Angeles Cnty, CA Metro Tran Prop A 1st Tier Sr
Ser A (MBIA Insd)................................. 6.000 07/01/23 18,119
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$14,980 Los Angeles Cnty, CA Metro Tran Prop A 2nd Tier
Rfdg (MBIA Insd).................................. 6.000% 07/01/21 $ 15,050
3,000 Los Angeles, CA Cmnty Redev Agy Ser H Tax Alloc
Bunker Hill Rfdg (FSA Insd)....................... 6.500 12/01/14 3,156
1,830 Los Angeles, CA Ser A (FGIC Insd)................. 6.125 09/01/13 1,874
2,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd)....................................... 6.125 03/15/23 2,537
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1
Ser A Rfdg (MBIA Insd)............................ 6.700 10/01/21 8,046
1,000 Martinez, CA Ctfs Partn Martinez Pub Impt Corp
(Prerefunded @ 12/01/98) (AMBAC Insd)............. 7.700 12/01/18 1,109
1,290 Martinez, CA Unified Sch Dist Guar Ctfs Elig Rfdg
(Cap Guar Insd)................................... 6.000 08/01/09 1,324
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser F Rfdg
(AMBAC Insd)...................................... 6.000 07/01/20 2,008
2,755 New Haven, CA Unified Sch Dist Cap Apprec Ser D
(AMBAC Insd)...................................... * 08/01/12 1,025
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj
Area No 1 Rfdg (MBIA Insd)........................ 6.250 03/01/19 13,941
1,500 North City West, CA Sch Fac Fin Auth Spl Tax Ser B
Rfdg (Cap Guar Insd).............................. 6.000 09/01/19 1,511
4,885 Ontario, CA Redev Fin Auth Rev Proj No 1 Cent City
Cimarron Proj (AMBAC Insd)........................ 6.250 08/01/15 4,996
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent
Fac Rfdg (AMBAC Insd)............................. 6.000 06/01/17 2,866
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA Insd)... 6.000 07/01/07 5,217
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA Insd)... 6.000 07/01/08 5,178
16,360 Orange Cnty, CA Recovery Ctfs Ser A (MBIA Insd)... 6.000 07/01/26 16,281
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj
Areas Ser A (MBIA Insd)........................... 6.000 09/01/15 2,857
2,450 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)..... 6.250 08/01/11 2,571
2,600 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)..... 6.250 08/01/12 2,723
2,765 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)..... 6.250 08/01/13 2,883
2,935 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)..... 6.250 08/01/14 3,048
3,120 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)..... 6.250 08/01/15 3,230
2,180 Petaluma, CA City Jt Union High Sch Dist
(Prerefunded @ 08/01/01) (FGIC Insd).............. * 08/01/18 540
2,500 Pomona, CA Pub Fin Auth Rev Ser H (Cap Mac
Insd)............................................. 5.750 02/01/20 2,417
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr
Treatment Plant Proj (AMBAC Insd)................. 6.050 05/01/15 1,414
1,200 Riverside, CA Redev Agy Tax Alloc Casa Blanca Proj
Ser A Rfdg (MBIA Insd)............................ 5.625 08/01/23 1,155
4,000 Sacramento Cnty, CA Arpt Sys Ser D (MBIA Insd)
(b)............................................... 5.750 07/01/26 3,952
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 4,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg
(MBIA Insd)....................................... 5.750% 08/15/13 $ 3,972
1,825 Saddle Back Cmnty College CA Cap Impt Fin Proj
(MBIA Insd)....................................... 5.500 06/01/21 1,740
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B (Embedded
Swap) (MBIA Insd)................................. 7.350 07/01/16 13,109
1,430 San Francisco, CA City & Cnty Swr Rev Rfdg (FGIC
Insd)............................................. 5.375 10/01/22 1,324
1,000 San Jose, CA Fin Auth Rev Convention Cent Proj Ser
C Rfdg (Cap Guar Insd)............................ 6.300 09/01/09 1,048
2,500 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd)............... 6.875 11/15/14 2,747
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist Rfdg & Impt
(AMBAC Insd)...................................... 6.200 07/02/09 1,046
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg (FGIC Insd)..... 6.200 09/01/09 2,094
2,510 Solano Cnty, CA Ctfs Partn Solano Park Hosp Proj
(FSA Insd)........................................ 5.750 08/01/14 2,470
7,050 South Tahoe, CA Jt Pwrs Fin Auth Rev Lease Redev
No 1 Ser A Rfdg (Cap Mac Insd).................... 5.500 10/01/18 6,574
2,000 Southern CA Pub Pwr Auth Pwr Proj Rev San Juan
Unit 3 Ser A (MBIA Insd).......................... 5.000 01/01/20 1,765
12,600 Southern CA Pub Pwr Auth Transmission Proj Rev
(FSA Insd)........................................ 6.000 07/01/12 12,647
2,500 Temecula Vly, CA Unified Sch Dist Ctfs Partn Rfdg
(FSA Insd) (b).................................... 6.000 09/01/25 2,512
1,000 Temecula Vly, CA Unified Sch Dist Ser B Rfdg (FGIC
Insd)............................................. 6.000 09/01/12 1,022
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg (MBIA
Insd)............................................. 6.750 01/01/12 2,534
11,900 University of CA Ctfs Partn Ser A (MBIA Insd)..... 5.550 06/01/10 11,752
1,500 University of CA Rev Ser A (Connie Lee Insd)...... 5.700 09/01/14 1,438
3,845 Vista, CA Unified Sch Dist Ctfs Partn Ser A Rfdg
(FSA Insd)........................................ * 11/01/17 1,019
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev
Cmnty Fac Rfdg (Cap Guar Insd).................... 6.500 09/01/14 2,118
----------
344,119
----------
COLORADO 3.0%
12,750 Colorado Hlth Fac Auth Rev PSL Hlth Sys Proj Ser A
(Prerefunded @ 02/15/01) (FSA Insd)............... 7.250 02/15/16 14,285
2,090 Colorado Hlth Fac Auth Rev Sisters of Charity Hlth
Care Ser A (MBIA Insd)............................ 6.000 05/15/13 2,119
1,000 Colorado Wtr Res & Pwr Dev Auth Small Wtr Res Rev
Ser A (Prerefunded @ 11/01/00) (FGIC Insd)........ 7.400 11/01/10 1,105
2,000 Highlands Ranch, CO Metro Dist 2 Rfdg (AMBAC
Insd)............................................. 5.000 06/15/16 1,828
10 Jefferson Cnty, CO Single Family Mtg Rev Ser A
Rfdg (MBIA Insd).................................. 8.875 10/01/13 11
2,050 Thornton, CO Rfdg (FGIC Insd)..................... * 12/01/11 842
1,350 Thornton, CO Rfdg (FGIC Insd)..................... * 12/01/15 432
9,000 University of CO Hosp Auth Hosp Rev Ser A (AMBAC
Insd)............................................. 6.250 11/15/12 9,298
8,600 University of CO Hosp Auth Hosp Rev Ser A (AMBAC
Insd)............................................. 6.400 11/15/22 8,947
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 2,000 Westminster, CO Wtr & Wastewtr Util Enterprise Rev
(AMBAC Insd)...................................... 6.250% 12/01/14 $ 2,071
----------
40,938
----------
DISTRICT OF COLUMBIA 0.0%
250 District of Columbia Ser B Rfdg (MBIA Insd)....... * 06/01/04 162
----------
FLORIDA 4.0%
3,500 Altamonte Springs, FL Hlth Fac Auth Hosp Rev
Adventist Hlth Sunbelt Ser B (AMBAC Insd)......... 5.375 11/15/23 3,258
1,000 Brevard Cnty, FL Hlth Fac Auth Rev Wuesthoff Mem
Hosp Rfdg (MBIA Insd)............................. 5.000 04/01/13 919
3,365 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC
Insd)............................................. 5.400 07/01/12 3,307
2,305 Brevard Cnty, FL Sch Brd Ctfs Ser B (AMBAC
Insd)............................................. 5.500 07/01/21 2,207
4,350 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd) (c)......................................... 5.500 05/01/25 4,153
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................. 8.000 10/01/03 1,204
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................. 8.000 10/01/04 832
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................. 8.000 10/01/05 1,438
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................. 8.000 10/01/06 1,568
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd)............................................. 8.000 10/01/07 1,699
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd)...... 12.000 10/01/04 3,064
275 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Ser C (FGIC Insd)................................. 7.650 09/01/10 291
1,090 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Ser C (FGIC Insd)................................. 7.700 09/01/24 1,152
1,410 Florida St Dept Corrections Ctfs Partn Okeechobee
Correctional (AMBAC Insd)......................... 6.250 03/01/15 1,462
1,000 Key West, FL Util Brd Elec Rev Ser D (AMBAC
Insd)............................................. * 10/01/13 376
2,000 Lakeland, FL Elec & Wtr Rev Jr Sub Lien Rfdg (FGIC
Insd) (b)......................................... 6.500 10/01/09 2,211
1,000 Lakeland, FL Hosp Sys Rev Lakeland Regl Med Cent
Proj Rfdg (MBIA Insd)............................. 5.250 11/15/25 913
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev (Inverse Fltg)
(MBIA Insd)....................................... 9.241 04/01/20 4,300
850 Manatee Cnty, FL Indl Dev Rev Manatee Hosp & Hlth
Sys Rfdg (MBIA Insd).............................. 8.250 08/15/14 909
6,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse Fltg)
(MBIA Insd)....................................... 8.860 10/29/21 6,323
2,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)...................................... 6.375 08/01/15 2,082
1,090 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)............................. 6.500 10/01/14 1,218
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem Regl
Med Ser A Rfdg (MBIA Insd)........................ 6.625 12/01/13 10,756
----------
55,642
----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA 3.3%
$ 1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention
Cent (MBIA Insd).................................. 6.250% 12/01/08 $ 1,322
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention
Cent (MBIA Insd).................................. 6.250 12/01/17 1,793
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B (MBIA
Insd)............................................. * 01/01/07 3,698
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B (MBIA
Insd)............................................. * 01/01/08 2,530
8,430 Metropolitan Atlanta Rapid Tran Auth GA Sales Tax
Rev Bonds Ser J (Prerefunded @ 07/01/98) (FGIC
Insd)............................................. 8.000 07/01/18 9,185
15,550 Municipal Elec Auth GA Spl Oblig 5th Crossover Ser
Proj One (AMBAC Insd)............................. 6.400 01/01/13 16,852
10,000 Municipal Elec Auth GA Spl Oblig 5th Crossover Ser
Proj One (MBIA Insd).............................. 6.500 01/01/17 10,967
----------
46,347
----------
HAWAII 1.0%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA
Insd)............................................. 6.400 07/01/08 13,843
----------
ILLINOIS 12.7%
1,000 Berwyn, IL (MBIA Insd)............................ 7.000 11/15/10 1,090
875 Chicago IL Pub Bldg Comm Bldg Rev Cmnty College
Dist No 508-B (BIGI Insd)......................... 8.750 01/01/07 931
22,000 Chicago, IL Brd Ed Chicago Sch Reform (MBIA
Insd)............................................. 6.000 12/01/26 22,046
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago Transit
Auth (AMBAC Insd)................................. 6.600 01/01/15 2,874
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd)............................................. * 01/01/06 2,097
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd)............................................. * 01/01/07 1,756
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) (c)........................ 8.400 01/01/01 1,142
5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)............................ 8.750 01/01/03 6,653
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)............................ 8.750 01/01/04 10,296
2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)............................ 8.750 01/01/05 3,033
3,500 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)............................ 8.750 01/01/07 4,410
12,400 Cook Cnty, IL Cmnty Cons Sch Dist No 054
Schaumburg Twp Rfdg (FGIC Insd)................... 5.000 01/01/09 11,721
1,280 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood
& Flossmor (AMBAC Insd)........................... * 12/01/05 771
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser A (AMBAC
Insd)............................................. * 11/01/08 4,183
750 Decatur, IL Hlth Care Fac Rev Cmnty Svcs Corp
(BIGI Insd)....................................... 8.100 11/15/18 776
2,500 Des Plaines, IL Hosp Fac Rev Holy Family Hosp Rfdg
(AMBAC Insd)...................................... 9.250 01/01/14 2,560
1,510 Evanston, IL Residential Mtg Rev (AMBAC Insd)..... 6.375 01/01/09 1,580
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$10,000 Illinois Dev Fin Auth Pollutn Ctl Rev Comwlth
Edison Co Proj Ser D Rfdg (AMBAC Insd)............ 6.750% 03/01/15 $ 10,743
2,900 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A 1st Mtg Rfdg (MBIA Insd)............... 5.700 02/01/24 2,785
35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A 1st Mtg Rfdg (MBIA Insd)............... 7.400 12/01/24 39,788
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 (FSA Insd)................................ 6.650 02/01/11 2,211
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 Rfdg (FSA Insd)........................... 6.650 02/01/12 5,419
1,287 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B (MBIA Insd)................................. 7.900 08/15/03 1,317
220 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm
Ser B Rfdg (MBIA Insd)............................ 7.900 08/15/03 250
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters Svcs
(Inverse Fltg) (MBIA Insd)........................ 9.547 06/19/15 5,450
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth Proj
(Inverse Fltg) (MBIA Insd)........................ 9.821 05/18/21 5,556
3,400 Illinois Hlth Fac Auth Rev Rush Presbyterian Saint
Luke Hosp (Inverse Fltg) (MBIA Insd).............. 9.581 10/01/24 3,757
3,000 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln Hlth
Rfdg (AMBAC Insd)................................. 6.000 01/01/27 2,973
2,000 Illinois Hlth Fac Auth Rev Silver Cross Hosp (MBIA
Insd)............................................. 6.000 08/15/26 1,982
1,695 Illinois Hlth Fac Auth Rev SSM Hlth Care Proj Ser
B (Prerefunded @ 06/01/98) (MBIA Insd)............ 8.000 06/01/14 1,845
4,000 Illinois Hlth Fac Auth Rev Trinity Med Cent (FSA
Insd)............................................. 5.875 07/01/16 3,954
1,040 Kane, Cook & Du Page Cntys, IL Sch Dist No 46
Elgin Ser B (FSA Insd)............................ * 01/01/11 444
1,300 Kane, Cook & Du Page Cntys, IL Sch Dist No 46
Elgin Ser B (FSA Insd)............................ * 01/01/12 520
2,095 Kane, Cook & Du Page Cntys, IL Sch Dist No 46
Elgin Ser B (FSA Insd)............................ * 01/01/13 783
6,110 Rosemont, IL Tax Increment 3 (FGIC Insd).......... * 12/01/06 3,453
3,000 Rosemont, IL Tax Increment 3 (FGIC Insd).......... * 12/01/07 1,587
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd)....... 8.000 12/01/05 1,546
1,185 Saint Clair Cnty, IL Ctfs Partn Indl Dev Rev (MBIA
Insd)............................................. 8.000 12/01/04 1,415
----------
175,697
----------
INDIANA 1.8%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd)...... 9.750 08/01/09 2,522
3,840 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps of
IN (MBIA Insd).................................... 7.000 07/01/21 4,281
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 7,500 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps
Proj (AMBAC Insd)................................. 5.700% 05/15/22 $ 7,172
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps
Proj Rfdg & Impt (MBIA Insd)...................... 6.400 05/01/12 5,201
1,000 Marion Cnty, IN Convention & Recreational Fac Auth
Excise Tax Rev Lease Rental Ser A (AMBAC Insd).... 7.000 06/01/21 1,090
1,000 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev Mem
Hosp South Bend Proj (MBIA Insd).................. 6.250 08/15/12 1,033
1,000 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev Mem
Hosp South Bend Ser A Rfdg (MBIA Insd)............ 7.000 08/15/20 1,083
2,440 Vincennes, IN Cmnty Sch Bldg Corp (FSA Insd)...... 5.000 07/01/15 2,200
----------
24,582
----------
KANSAS 3.1%
38,750 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd) (c)......................... 7.000 06/01/31 42,249
----------
KENTUCKY 0.0%
70 Kentucky Cntys Single Family Mtg Presbyterian
Homes Ser A Rfdg (MBIA Insd)...................... 8.625 09/01/15 74
----------
LOUISIANA 1.5%
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 4,197
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
310 Louisiana Pub Fac Auth Rev Med Cent LA at New
Orleans Proj (Connie Lee Insd).................... 6.250 10/15/10 320
4,150 Louisiana Pub Fac Auth Rev Pgm Hlth & Edl Cap Fac
Our Lady Med Cent Ser C (MBIA Insd)............... 8.200 12/01/15 4,581
5,000 Louisiana Pub Fac Auth Rev Tulane Univ of LA
(AMBAC Insd)...................................... 6.050 10/01/25 5,058
10,000 New Orleans, LA Home Mtg Auth Single Family Mtg
Rev 1985 Ser A (MBIA Insd)........................ * 09/15/16 1,148
----------
21,408
----------
MAINE 0.3%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser 1985
(AMBAC Insd)...................................... 9.200 08/01/99 2,756
1,750 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA
Insd)............................................. 7.100 07/01/14 1,937
----------
4,693
----------
MARYLAND 0.0%
195 Baltimore, MD Ctfs Partn Ser C Rfdg (MBIA Insd)... 7.200 04/01/10 212
55 Baltimore, MD Ctfs Partn Ser C Rfdg (Prerefunded @
04/01/00) (MBIA Insd)............................. 7.200 04/01/10 61
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MARYLAND (CONTINUED)
$ 40 Maryland St Hlth & Higher Edl Fac Auth Rev North
Arundel Hosp Issue (Prerefunded @ 07/01/98) (MBIA
Insd)............................................. 7.875% 07/01/21 $ 43
----------
316
----------
MASSACHUSETTS 1.4%
1,000 Massachusetts St Hlth & Edl Bay St Med Cent Ser E
(FSA Insd) (b).................................... 6.000 07/01/26 995
4,975 Massachusetts St Hlth & Edl Fac Auth Rev Emerson
Hosp Issue Ser D Rfdg (FSA Insd).................. 5.700 08/15/12 4,902
3,600 Massachusetts St Hlth & Edl Fac Auth Rev Emerson
Hosp Issue Ser D Rfdg (AMBAC Insd)................ 5.800 08/15/18 3,584
1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt Auburn
Hosp Ser B1 (MBIA Insd)........................... 6.250 08/15/14 1,748
4,000 Massachusetts St Hlth & Edl Fac Auth Rev
Newton-Wellesley Hosp Issue Ser C (MBIA Insd)..... 8.000 07/01/18 4,370
2,000 Massachusetts St Hlth & Edl Fac Auth Rev
Newton-Wellesley Hosp Issue Ser E (MBIA Insd)..... 5.875 07/01/15 2,006
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Univ Hosp
Ser C (MBIA Insd)................................. 7.250 07/01/19 1,091
----------
18,696
----------
MICHIGAN 2.0%
2,325 Bay City, MI (AMBAC Insd)......................... * 06/01/15 762
1,000 Bay City, MI (AMBAC Insd)......................... * 06/01/16 306
2,085 Caledonia, MI Cmnty Schs Rfdg (AMBAC Insd)........ 5.500 05/01/22 1,990
3,000 Kalamazoo, MI Hosp Fin Auth Hosp Fac Rev Bronson
Methodist Rfdg & Impt (MBIA Insd)................. 5.750 05/15/16 2,974
500 Kalkaska, MI Pub Schs (AMBAC Insd)................ * 05/01/15 165
14,750 Livonia, MI Pub Sch Dist Ser II (FGIC Insd)....... * 05/01/14 5,084
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC Insd)....... * 05/01/21 4,406
5,815 Michigan Pub Pwr Agy Rev Belle River Proj Ser A
Rfdg (MBIA Insd).................................. 5.250 01/01/18 5,381
2,500 Michigan St Hosp Fin Auth Rev Hosp Port Huron Hosp
Oblig Rfdg (FSA Insd)............................. 5.375 07/01/12 2,380
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd)...................... 5.060 04/01/04 1,890
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec
(Prerefunded @ 05/01/07) (MBIA Insd).............. * 05/01/17 1,381
500 Paw Paw, MI Pub Sch Dist Bldg & Site (FGIC
Insd)............................................. 5.625 05/01/25 485
----------
27,204
----------
MINNESOTA 1.0%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg
(Cap Guar Insd)................................... 6.650 03/01/17 1,057
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINNESOTA (CONTINUED)
$ 3,100 Minneapolis, MN Spl Sch Dist Ser A (MBIA Insd).... 5.900% 02/01/13 $ 3,139
5,600 Minneapolis-St Paul, MN Hsg & Redev Auth Hlth Care
Sys Rev Health One Ser A (MBIA Insd).............. 7.400 08/15/11 6,142
3,000 Minnesota St Hsg Fin Agy Rental Hsg Ser D (MBIA
Insd)............................................. 5.900 08/01/15 2,986
----------
13,324
----------
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 1,313
----------
MISSOURI 1.8%
2,700 Central MO St Univ Rev Hsg Sys (Prerefunded @
07/01/01) (MBIA Insd)............................. 7.000 07/01/14 3,010
3,905 Green Cnty, MO Single Family Mtg Rev (AMBAC
Insd)............................................. * 12/01/16 505
590 Jackson Cnty, MO Single Family Mtg Rev Tax Exempt
Multiplier Bond (MBIA Insd)....................... * 12/01/16 71
2,250 Kansas City, MO Muni Assistance Corp Rev Leasehold
H Roe Bartle Ser B1 Rfdg (AMBAC Insd)............. 7.125 04/15/16 2,480
5,650 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM
Hlth Care Proj Rfdg (MBIA Insd)................... 6.250 06/01/16 5,804
9,250 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev SSM
Hlth Care Proj Rfdg (Prerefunded @ 06/01/98) (MBIA
Insd)............................................. 7.750 06/01/16 10,030
1,000 Missouri St Hlth & Edl Fac Auth Rev Saint Luke's
Hosp KC Proj Rfdg & Impt (Prerefunded @ 11/15/01)
(MBIA Insd)....................................... 7.000 11/15/13 1,116
360 Saint Louis Cnty, MO Single Family Mtg Rev (AMBAC
Insd)............................................. 9.250 10/01/16 375
1,550 Saint Louis, MO Muni Fin Corp Leasehold Rev Rfdg &
Impt (FGIC Insd).................................. 6.250 02/15/12 1,612
----------
25,003
----------
NEBRASKA 0.2%
1,250 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med
Cent Inc Rfdg (AMBAC Insd)........................ 6.900 09/01/11 1,356
1,500 Douglas Cnty, NE Hosp Auth No 1 Rev Immanuel Med
Cent Inc Rfdg (AMBAC Insd)........................ 7.000 09/01/21 1,636
----------
2,992
----------
NEVADA 0.9%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj C Rfdg
(AMBAC Insd)...................................... 7.200 10/01/22 2,217
3,125 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser
B (Prerefunded @ 01/01/00) (MBIA Insd)............ 7.750 07/01/15 3,452
4,695 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser
C (Prerefunded @ 01/01/00) (MBIA Insd)............ 7.750 07/01/15 5,227
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd)........... * 07/01/07 2,030
----------
12,926
----------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE 0.2%
$ 2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse Fltg)
(FGIC Insd)....................................... 9.777% 11/01/17 $ 2,878
----------
NEW JERSEY 1.5%
765 Camden Cnty, NJ Muni Utils Auth Swr Rev (FGIC
Insd)............................................. 8.250 12/01/17 820
3,300 Essex Cnty, NJ Impt Auth Lease Rev Cnty Jail &
Youth House Proj Rfdg (AMBAC Insd)................ 5.350 12/01/24 3,088
5,500 Howell Twp, NJ Rfdg (FGIC Insd)................... 6.800 01/01/14 5,919
3,625 Morristown, NJ Rfdg (FSA Insd).................... 6.400 08/01/14 3,814
3,940 New Jersey St Hsg & Mtg Fin Agy Rev Home Mtg Ser B
(MBIA Insd)....................................... 8.100 10/01/17 4,157
2,250 Sussex Cnty, NJ Muni Util Auth Solid Waste Rev Ser
A (Prerefunded @ 12/01/98) (MBIA Insd)............ 7.875 12/01/13 2,477
----------
20,275
----------
NEW YORK 5.7%
4,350 New York City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd)....................... 6.375 11/15/14 4,551
15,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B (MBIA Insd)................................. 5.750 06/15/26 14,757
2,000 New York City Ser B (MBIA Insd)................... 6.950 08/15/12 2,190
50 New York City Ser C Subser C1 (MBIA Insd)......... 6.250 08/01/09 53
5,000 New York St Dorm Auth Rev City Univ Sys 3rd
Resolution (AMBAC Insd)........................... 6.250 07/01/18 5,148
4,000 New York St Dorm Auth Rev City Univ Sys Cons 2nd
Genl A (FGIC Insd)................................ 5.375 07/01/14 3,840
3,950 New York St Dorm Auth Rev City Univ Sys Ser C
(FGIC Insd)....................................... 7.000 07/01/14 4,284
675 New York St Med Care Fac Fin Agy Rev IBC Mental
Hlth Svcs Ser A (MBIA Insd)....................... 7.750 08/15/10 743
1,000 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Ser E (Cap Guar Insd)........................ 6.500 08/15/15 1,052
28,535 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)................................ 6.750 08/15/14 30,767
3,000 New York St Med Care Fac Fin Agy Rev Presbyterian
Hosp Ser A Rfdg (MBIA Insd)....................... 5.375 02/15/25 2,793
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev
Rochester Ser A (MBIA Insd)....................... 6.625 03/15/06 3,654
1,500 New York St Twy Auth Hwy & Brdg Trust Fund Ser B
(FGIC Insd)....................................... 6.000 04/01/14 1,519
3,500 New York St Urban Dev Corp Rev Correctional Fac
Rfdg (AMBAC Insd)................................. 5.250 01/01/18 3,243
----------
78,594
----------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH CAROLINA 0.1%
$ 1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs
(FGIC Insd)....................................... 6.625% 06/01/14 $ 1,341
500 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser
A (AMBAC Insd) (c)................................ 12.900 01/01/97 523
----------
1,864
----------
NORTH DAKOTA 0.4%
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly
Station Rfdg (AMBAC Insd)......................... 7.200 06/30/13 5,851
----------
OHIO 2.2%
3,600 Akron Bath Copley, OH St Twp Hosp Dist Rev Akron
Genl Med Cent Proj (AMBAC Insd)................... 6.500 01/01/19 3,766
1,000 Akron Bath Copley, OH St Twp Hosp Dist Rev
Children's Hosp Med Cent Akron (Prerefunded @
11/15/00) (AMBAC Insd)............................ 7.450 11/15/20 1,124
5,000 Clermont Cnty, OH Hosp Fac Rev Muni (Inverse Fltg)
(AMBAC Insd)...................................... 9.601 10/05/21 5,581
2,010 Cleveland, OH (MBIA Insd)......................... 6.500 11/15/09 2,166
2,285 Cleveland, OH (MBIA Insd)......................... 6.500 11/15/10 2,440
1,000 Cuyahoga Cnty, OH Hosp Rev Richmond Heights Genl
Hosp Rfdg (AMBAC Insd)............................ 10.000 12/01/11 914
8,625 Hamilton, OH Elec Sys Mtg Rev Mtg City of Hamilton
Ser B (Prerefunded @ 10/15/98) (FGIC Insd)........ 8.000 10/15/22 9,483
1,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl
Cleveland Co Proj Rfdg (FGIC Insd)................ 8.000 12/01/13 1,755
2,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl OH
Edison Ser A Rfdg (FGIC Insd)..................... 7.450 03/01/16 2,738
----------
29,967
----------
OKLAHOMA 1.8%
1,385 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd)............................................. 5.250 12/01/16 1,298
1,760 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd)............................................. 5.250 12/01/20 1,635
1,865 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (AMBAC
Insd)............................................. 5.250 12/01/21 1,731
1,000 Norman, OK Regl Hosp Auth Hosp Rev (MBIA Insd).... 6.900 09/01/21 1,073
2,200 Oklahoma City, OK (MBIA Insd)..................... 5.100 03/01/15 2,059
2,200 Oklahoma City, OK (MBIA Insd)..................... 5.100 03/01/16 2,055
4,030 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser A
(MBIA Insd)....................................... 7.200 03/01/11 4,261
500 Tulsa, OK Arpts Impt Trust Genl Rev (MBIA Insd)... 7.500 06/01/08 526
3,000 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd) (b)................... 6.000 06/01/17 2,968
7,780 Tulsa, OK Tulsa Indl Auth Rev Univ of Tulsa Ser A
Rfdg (MBIA Insd).................................. 5.000 10/01/22 6,960
----------
24,566
----------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OREGON 0.1%
$ 1,000 Wasco Cnty, OR Vets Home (FSA Insd)............... 6.200% 06/01/13 $ 1,041
----------
PENNSYLVANIA 2.4%
500 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Ohio
Edison Proj Ser A Rfdg (FGIC Insd)................ 7.750 09/01/24 547
6,130 Chester Cnty, PA Hlth & Edl Facs Auth Hosp Rev The
Chester Cnty Hosp Ser A (MBIA Insd) (b)........... 5.875 07/01/16 6,066
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Phoenixville Hosp Proj Ser B (FGIC Insd).......... 6.125 07/01/10 2,073
1,000 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool
Pgm Ser B Var Rate Cpn (BIGI Insd)................ 8.000 05/15/18 1,073
2,050 Harrisburg, PA Redev Auth Rev Cap Impt Ser A (FGIC
Insd)............................................. 7.875 11/02/16 2,184
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 1,034
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Ser E Rfdg (MBIA Insd)............................ 6.700 12/01/21 3,997
1,000 Northeastern PA Hosp & Edl Auth College Rev Gtd
Luzerne Cnty Cmnty College (AMBAC Insd)........... 6.625 08/15/15 1,061
3,040 Pennsylvania St Higher Edl Fac Allegheny DE Vly
Oblig (MBIA Insd)................................. 5.875 11/15/21 3,012
5,000 Pennsylvania St Higher Edl Fac Allegheny DE Vly
Oblig Ser A (MBIA Insd)........................... 5.875 11/15/21 4,961
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg (FSA
Insd)............................................. 6.375 07/01/14 2,344
1,300 Philadelphia, PA Hosps & Higher Ed Fac Auth Hosp
Rev Saint Agnes (MBIA Insd)....................... 5.250 07/01/10 1,234
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Saint Mary Ser A (MBIA Insd)...... 6.500 07/01/22 1,046
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Sys Ser B (MBIA Insd)............. 6.500 07/01/12 1,052
1,000 Sayre, PA Hlth Care Fac Auth Rev VHA Cap Asset Fin
Pgm Ser H2 (AMBAC Insd)........................... 7.625 12/01/15 1,111
1,000 State Pub Sch Bldg Auth PA Sch Rev Burgettstown
Sch Dist Ser D (MBIA Insd)........................ 6.500 02/01/14 1,053
----------
33,848
----------
RHODE ISLAND 1.6%
2,000 Rhode Island St Hlth & Edl Bldg Corp Rev Higher
Edl Fac Roger Williams (Connie Lee Insd).......... 7.250 11/15/24 2,195
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI Hosp
(Inverse Fltg) (FGIC Insd)........................ 9.715 08/15/21 20,227
----------
22,422
----------
SOUTH CAROLINA 0.5%
70 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd)............................................. 6.875 06/01/14 76
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 1,430 Charleston Cnty, SC Ctfs Partn Ser B (Prerefunded
@ 06/01/04) (MBIA Insd)........................... 6.875% 06/01/14 $ 1,621
3,000 Florence Cnty, SC Pub Fac Corp Ctfs Partn Law
Enforcement Proj Civic Cent (Prerefunded @
03/01/00) (AMBAC Insd)............................ 7.600 03/01/14 3,320
1,000 Greenville, SC Hosp Sys Hosp Fac Rev Ser A
(Prerefunded @ 05/01/98) (FGIC Insd).............. 7.800 05/01/15 1,081
635 Saint Andrews, SC Pub Svcs Dist Swr Sys Rev (FGIC
Insd)............................................. 7.750 01/01/18 676
----------
6,774
----------
SOUTH DAKOTA 0.7%
5,205 South Dakota St Lease Rev Trust Ctfs Ser A (Cap
Guar Insd)........................................ 6.625 09/01/12 5,735
4,000 South Dakota St Lease Rev Trust Ctfs Ser A (Cap
Guar Insd)........................................ 6.700 09/01/17 4,464
----------
10,199
----------
TENNESSEE 0.4%
2,000 Chattanooga-Hamilton Cnty, TN Hosp Auth Hosp Rev
Erlanger Med Cent Ser B (Inverse Fltg)
(Prerefunded @ 05/01/01) (FSA Insd)............... 9.875 05/25/21 2,385
3,320 Johnson City, TN Sch Sales Tax (AMBAC Insd)....... 6.700 05/01/18 3,553
----------
5,938
----------
TEXAS 6.3%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd)............ 9.119 01/01/22 3,210
12,900 Austin, TX Hotel Occupancy Tax Rev Ser A Rfdg
(AMBAC Insd)...................................... 5.125 11/15/19 11,754
1,000 Austin, TX Util Sys Rev (Prerefunded @ 05/15/02)
(BIGI Insd)....................................... 8.625 11/15/12 1,192
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA Insd).... * 11/15/10 5,417
2,300 Brazoria Cnty, TX Hlth Fac Dev Corp Hosp Rev
Brazosport Mem Hosp Rfdg (FSA Insd)............... 5.500 07/01/13 2,221
9,000 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
Proj B Rfdg (MBIA Insd)........................... 8.250 05/01/15 9,749
6,515 Brazos River Auth TX Rev Coll Houston Lt & Pwr Co
Proj C Rfdg (MBIA Insd)........................... 8.100 05/01/19 7,040
3,415 Corpus Christi, TX Hsg Fin Corp Single Family Mtg
Rev Ser A Rfdg (MBIA Insd)........................ 7.700 07/01/11 3,651
6,525 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd)............................................. * 02/15/07 3,326
6,780 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd)............................................. * 02/15/08 3,196
7,705 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd)............................................. * 02/15/09 3,345
475 Dallas Cnty, TX Util & Reclamation Dist
(Prerefunded @ 02/15/00) (MBIA Insd).............. * 02/15/07 249
470 Dallas Cnty, TX Util & Reclamation Dist
(Prerefunded @ 02/15/00) (MBIA Insd).............. * 02/15/08 228
895 Dallas Cnty, TX Util & Reclamation Dist
(Prerefunded @ 02/15/00) (MBIA Insd).............. * 02/15/09 402
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,340 Dallas, TX Wtrwks & Swr Sys Rev Ser A Rfdg & Impt
(MBIA Insd)....................................... 5.000% 10/01/14 $ 2,139
2,480 Dallas, TX Wtrwks & Swr Sys Rev Ser A Rfdg & Impt
(MBIA Insd)....................................... 5.000 10/01/15 2,261
18,475 El Paso, TX Hsg Fin Corp Mtg Rev Single Family
(FGIC Insd)....................................... * 11/01/16 2,158
3,595 Galveston Cnty, TX Hlth Fac Devereux Fndtn (AMBAC
Insd)............................................. 5.000 11/01/14 3,286
1,630 Galveston Cnty, TX Hlth Fac Devereux Fndtn (AMBAC
Insd)............................................. 5.000 11/01/19 1,439
2,745 Harris Cnty, TX Hlth Fac Dev Corp Spl Fac Rev TX
Med Cent Proj (MBIA Insd)......................... 7.375 05/15/20 3,004
1,250 Harris Cnty, TX Hlth Fac Dev Corp Thermal Util Rev
Teco Proj Ser A (AMBAC Insd)...................... 7.250 02/15/15 1,352
4,615 Harris Cnty, TX Toll Rd Tax & Sub Lien Ser A Rfdg
(FGIC Insd)....................................... * 08/15/07 2,496
245 Henderson, TX (AMBAC Insd)........................ 9.125 05/15/04 310
10,000 Matagorda Cnty, TX Navigation Dist No 1 Pollutn
Ctl Rev Cent Pwr & Light Co Proj Rfdg (MBIA
Insd) (c)......................................... 6.100 07/01/28 10,052
2,000 Plano, TX Muni Drainage Util Sys Rev (AMBAC
Insd)............................................. 5.250 05/15/16 1,874
1,975 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev
Ser A (FGIC Insd)................................. 5.000 09/01/15 1,771
----------
87,122
----------
UTAH 1.1%
3,000 Payson City, UT Cnty UT Elec Pwr Rev (MBIA
Insd)............................................. 8.000 08/15/03 3,231
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC Insd)... 10.375 09/15/15 1,036
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Inverse Fltg) (AMBAC Insd)....................... 9.566 05/15/20 3,880
500 Uintah Cnty, UT Pollutn Ctl Rev Natl Rural Util
Deseret Ser 1984 F (Prerefunded @ 06/15/01) (AMBAC
Insd)............................................. 10.000 06/15/09 613
7,385 Utah St Muni Fin Co-op Local Govt Rev Pool Cap
Salt Lake (FSA Insd).............................. * 03/01/09 3,543
3,115 West Jordan, UT Multi-Family Rev Broadmoor Village
Apts Proj Ser A Rfdg (FSA Insd)................... 6.800 01/01/15 3,250
----------
15,553
----------
VIRGINIA 0.6%
2,315 Chesapeake Bay Brdg & Tunl Comm VA Dist Rev Genl
Resolution Rfdg (MBIA Insd)....................... 6.375 07/01/22 2,517
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)............ 6.800 03/01/14 4,334
750 University of VA Hosp Rev Ser C Rfdg (Prerefunded
@ 06/01/00) (AMBAC Insd) (d)...................... 0/9.375 06/01/07 814
----------
7,665
----------
WASHINGTON 2.1%
1,250 Franklin Cnty, WA Pub Util Dist No 1 Elec Rev
(Prerefunded @ 09/01/01) (AMBAC Insd)............. 7.100 09/01/08 1,383
350 Pierce Cnty, WA Swr Rev Ser A (MBIA Insd)......... 9.000 02/01/05 440
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 1,000 Snohomish Cnty, WA Solid Waste Rev (MBIA Insd).... 7.000% 12/01/10 $ 1,098
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev (AMBAC
Insd)............................................. 6.250 12/01/11 5,173
205 University of WA Univ Rev Hsg & Dining (MBIA
Insd)............................................. 7.000 12/01/21 224
1,000 Washington St Hlth Care Fac Auth Rev VA Mason Med
Cent (MBIA Insd).................................. 8.000 07/01/15 1,054
9,435 Washington St Pub Pwr Supply Sys Nuclear Proj No 1
Rev Ser C Rfdg (FGIC Insd)........................ 7.750 07/01/08 10,549
3,015 Washington St Pub Pwr Supply Sys Nuclear Proj No 2
Rev Ser C Rfdg (MBIA Insd)........................ * 07/01/04 1,955
6,500 Washington St Pub Pwr Supply Sys Nuclear Proj No 2
Rev Ser C Rfdg (Prerefunded @ 01/01/01) (FGIC
Insd)............................................. 7.375 07/01/11 7,286
250 Washington St Pub Pwr Supply Sys Nuclear Proj No 3
Rev Ser A Rfdg (BIGI Insd)........................ 6.000 07/01/18 250
----------
29,412
----------
WEST VIRGINIA 0.1%
1,235 South Charleston, WV Hosp Rev Herbert J Thomas Mem
Hosp Rfdg (Prerefunded @ 10/01/98) (MBIA Insd).... 8.000 10/01/10 1,356
----------
WISCONSIN 0.3%
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Aurora Med
Group Inc Ser P (FSA Insd)........................ 5.600 11/15/16 4,769
----------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC
Insd)............................................. 6.700 05/01/12 2,145
----------
PUERTO RICO 0.2%
3,000 Puerto Rico Indl Tourist Edl Med & Environmental
Ctl Fac Hosp Auxilio (MBIA Insd).................. 6.250 07/01/16 3,097
----------
TOTAL LONG-TERM INVESTMENTS 95.6%
(Cost $1,250,879) (a)......................................................... 1,324,565
SHORT-TERM INVESTMENTS AT AMORTIZED COST 3.3%.................................. 45,350
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%..................................... 15,764
----------
NET ASSETS 100%................................................................ $1,385,679
==========
</TABLE>
*Zero coupon bond
(a) At June 30, 1996, cost for federal income tax purposes is $1,250,879,024,
the aggregate gross unrealized appreciation is $78,610,460 and the aggregate
gross unrealized depreciation is $4,924,545, resulting in net unrealized
appreciation including futures transactions of $73,685,915.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
(d) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
See Notes to Financial Statements
22
<PAGE> 24
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
All amounts, except for Maximum Offering Price information,
reported in thousands
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at Market Value (Cost $1,250,879) (Note 1)................... $1,324,565
Short-Term Investments (Note 1)........................................... 45,350
Cash...................................................................... 74
Receivables:
Securities Sold......................................................... 29,307
Interest................................................................ 20,823
Fund Shares Sold........................................................ 401
Other..................................................................... 383
----------
Total Assets........................................................ 1,420,903
----------
LIABILITIES:
Payables:
Securities Purchased.................................................... 30,434
Income Distributions.................................................... 1,984
Fund Shares Repurchased................................................. 981
Investment Advisory Fee (Note 2)........................................ 756
Distributor and Affiliates (Notes 2 and 6).............................. 735
Variation Margin on Futures (Note 5).................................... 160
Accrued Expenses.......................................................... 100
Deferred Compensation and Retirement Plans (Note 2)....................... 74
----------
Total Liabilities................................................... 35,224
----------
NET ASSETS................................................................ $1,385,679
==========
NET ASSETS CONSIST OF:
Capital (Note 3).......................................................... $1,317,255
Net Unrealized Appreciation on Securities................................. 73,686
Accumulated Distributions in Excess of Net Investment Income.............. (160)
Accumulated Net Realized Loss on Securities............................... (5,102)
----------
NET ASSETS................................................................ $1,385,679
==========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$1,310,259,452 and 69,919,194 shares of capital stock issued and
outstanding) (Note 3)................................................. $ 18.74
Maximum sales charge (4.75%* of offering price)....................... .93
----------
Maximum offering price to public...................................... $ 19.67
==========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$70,888,043 and 3,782,643 shares of capital stock issued and
outstanding) (Note 3)................................................. $ 18.74
==========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$4,531,245 and 241,803 shares of capital stock issued and outstanding)
(Note 3).............................................................. $ 18.74
==========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................... $ 42,600
---------
EXPENSES:
Investment Advisory Fee (Note 2)........................................... 3,465
Distribution (12b-1) and Service Fees (Allocated to Classes A, B, and C of
$1,439, $361 and $23, respectively) (Note 6)............................. 1,823
Shareholder Services (Note 2).............................................. 877
Legal (Note 2)............................................................. 46
Insurance (Note 1)......................................................... 36
Trustees Fees and Expenses (Note 2)........................................ 17
Other...................................................................... 391
---------
Total Expenses......................................................... 6,655
Less Expenses Reimbursed............................................... 5
---------
Net Expenses........................................................... 6,650
---------
NET INVESTMENT INCOME...................................................... $ 35,950
=========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments.............................................................. $ 540
Options.................................................................. (40)
Futures.................................................................. (100)
---------
Net Realized Gain on Securities............................................ 400
---------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.................................................. 132,803
End of the Period:
Investments............................................................ 73,686
---------
Net Unrealized Depreciation on Securities During the Period................ (59,117)
---------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES............................. $ (58,717)
=========
NET DECREASE IN NET ASSETS FROM OPERATIONS................................. $ (22,767)
=========
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995 (Unaudited)
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 35,950 $ 68,684
Net Realized Gain on Securities....................... 400 2,636
Net Unrealized Appreciation/Depreciation on Securities
During the Period................................... (59,117) 135,893
---------- ---------
Change in Net Assets from Operations.................. (22,767) 207,213
---------- ---------
Distributions from Net Investment Income*............. (35,950) (68,723)
Distributions in Excess of Net Investment Income*
(Note 1)............................................ (109) (319)
---------- ---------
Distributions from and in Excess of Net Investment
Income*........................................... (36,059) (69,042)
---------- ---------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (58,826) 138,171
---------- ---------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 300,972 373,368
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 24,807 47,663
Cost of Shares Repurchased............................ (327,059) (257,167)
---------- ---------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (1,280) 163,864
---------- ---------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (60,106) 302,035
NET ASSETS:
Beginning of the Period............................... 1,445,785 1,143,750
---------- ---------
End of the Period (Including undistributed net
investment income of $(160) and $(51),
respectively)....................................... $1,385,679 $1,445,785
========== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
---------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares....................... $(34,338) $(66,800)
Class B Shares....................... (1,618) (2,061)
Class C Shares....................... (103) (181)
-------- --------
$(36,059) $(69,042)
======== ========
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
Six Months Ended ---------------------------------
Class A Shares June 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $19.549 $17.572 $19.857 $18.721 $18.478
------- ------- ------- ------- -------
Net Investment Income.......... .497 1.021 1.051 1.107 1.146
Net Realized and Unrealized
Gain/Loss on Securities...... (.808) 1.982 (2.280) 1.145 .561
------- ------- ------- ------- -------
Total from Investment
Operations..................... (.311) 3.003 (1.229) 2.252 1.707
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .498 1.026 1.056 1.116 1.140
Distributions from Net Realized
Gain on Securities........... -0- -0- -0- -0- .324
------- ------- ------- ------- -------
Total Distributions.............. .498 1.026 1.056 1.116 1.464
------- ------- ------- ------- -------
Net Asset Value, End of the
Period......................... $18.740 $19.549 $17.572 $19.857 $18.721
======= ======= ======= ======= =======
Total Return (a)................. (1.65%)* 17.49% (6.31%) 12.32% 9.51%
Net Assets at End of the Period
(In millions).................. $1,310.3 $1,365.4 $1,110.2 $1,230.0 $999.9
Ratio of Expenses to Average Net
Assets......................... .92%** .88%** .88% .84% .83%
Ratio of Net Investment Income to
Average Net Assets............. 5.26%** 5.44%** 5.70% 5.69% 6.14%
Portfolio Turnover............... 39%* 70% 48% 79% 112%
</TABLE>
* Non-Annualized
** The Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets were not affected by the assumption of certain expenses
by VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
26
<PAGE> 28
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 1, 1993
Six Months (Commencement of
Ended Year Ended Year Ended Distribution) to
Class B Shares June 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $19.549 $17.563 $19.824 $19.320
------- ------- ------- -------
Net Investment
Income............. .422 .890 .899 .619
Net Realized and
Unrealized
Gain/Loss on
Securities......... (.808) 1.978 (2.276) .513
------- ------- ------- -------
Total from Investment
Operations........... (.386) 2.868 (1.377) 1.132
Less Distributions from
and in Excess of Net
Investment Income.... .423 .882 .884 .628
------- ------- ------- -------
Net Asset Value, End of
the Period........... $18.740 $19.549 $17.563 $19.824
======= ======= ======= =======
Total Return (a)....... (1.99%)* 16.67% (7.03%) 5.92%*
Net Assets at End of
the Period (In
millions)............ $70.9 $75.3 $30.0 $20.8
Ratio of Expenses to
Average Net Assets... 1.70%** 1.67%** 1.71% 1.68%
Ratio of Net Investment
Income to Average Net
Assets............... 4.47%** 4.69%** 4.88% 4.25%
Portfolio Turnover..... 39%* 70% 48% 79%
</TABLE>
* Non-Annualized
** The Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets were not affected by the assumption of certain expenses
by VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sale charge or the contingent deferred sales charge.
See Notes to Financial Statements
27
<PAGE> 29
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Six Months (Commencement of
Ended Year Ended Year Ended Distribution) to
Class C Shares June 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $19.548 $17.568 $19.823 $19.650
------- ------- ------- -------
Net Investment
Income............. .424 .883 .908 .350
Net Realized and
Unrealized
Gain/Loss on
Securities......... (.810) 1.979 (2.279) .181
------- ------- ------- -------
Total from Investment
Operations........... (.386) 2.862 (1.371) .531
Less Distributions from
and in Excess of Net
Investment Income.... .423 .882 .884 .358
------- ------- ------- -------
Net Asset Value, End of
the Period........... $18.739 $19.548 $17.568 $19.823
======= ======= ======= =======
Total Return (a)....... (2.04%)* 16.60% (6.98%) 2.70%*
Net Assets at End of
the Period (In
millions)............ $4.5 $5.1 $3.5 $5.0
Ratio of Expenses to
Average Net Assets... 1.70%** 1.67%** 1.70% 1.68%
Ratio of Net Investment
Income to Average Net
Assets............... 4.47%** 4.68%** 4.89% 4.21%
Portfolio Turnover..... 39%* 70% 48% 79%
* Non-Annualized
</TABLE>
** The Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets were not affected by the assumption of certain expenses
by VKAC.
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Insured Tax Free Income Fund (the "Fund") is
organized as a series of Van Kampen American Capital Tax Free Trust (the
"Trust"), a Delaware business trust and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors with a high
level of current income exempt from federal income taxes, with liquidity and
safety of principal, primarily through an investment in a diversified portfolio
of insured municipal securities. The Fund commenced the distribution of its
Class B and Class C shares on May 1, 1993 and August 13, 1993, respectively. On
May 2, 1995, all Class D shareholders redeemed their shares and the class was
eliminated. The Fund will no longer offer Class D shares.
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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1995, the Fund had an accumulated capital loss carryforward for
tax purposes of $5,502,403. Of this amount, $91,852, $17,995, $110,103,
$595,553, $319,218 and $4,367,682 will expire on December 31, 1996, 1997, 2000,
2001, 2002 and 2003, respectively.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
F. 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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .525 of 1%
Next $500 million....................................... .500 of 1%
Next $500 million....................................... .475 of 1%
Over $1.5 billion....................................... .450 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $56,800 representing Van Kampen American Capital Distributors,
Inc.'s or
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
its affiliates' (collectively "VKAC") cost of providing accounting, cash
management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $655,800,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 132 and 129 shares of Classes B and C,
respectively.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C,
each with a par value of $.01 per share. There are an unlimited number of shares
of each class authorized.
At June 30, 1996, capital aggregated $1,240,841,104, $71,562,704 and
$4,851,223 for Classes A, B and C, respectively. For the six months ended June
30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 15,483,073 $ 294,836,805
Class B.................................. 291,925 5,551,316
Class C.................................. 30,814 583,436
----------- -------------
Total Sales................................ 15,805,812 $ 300,971,557
=========== =============
Dividend Reinvestment:
Class A.................................. 1,257,720 $ 23,892,554
Class B.................................. 43,919 833,820
Class C.................................. 4,271 81,109
----------- -------------
Total Dividend Reinvestment................ 1,305,910 $ 24,807,483
=========== =============
Repurchases:
Class A.................................. (16,667,370) $(318,328,110)
Class B.................................. (403,971) (7,657,969)
Class C.................................. (55,542) (1,073,311)
----------- -------------
Total Repurchases.......................... (17,126,883) $(327,059,390)
=========== =============
</TABLE>
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $1,240,439,855, $72,835,537 and
$5,259,989 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 17,358,362 $ 324,651,466
Class B.................................. 2,506,874 46,741,719
Class C.................................. 105,778 1,974,750
Class D.................................. -0- -0-
----------- -------------
Total Sales................................ 19,971,014 $ 373,367,935
=========== =============
Dividend Reinvestment:
Class A.................................. 2,467,735 $ 46,428,605
Class B.................................. 56,865 1,075,245
Class C.................................. 8,455 159,166
Class D.................................. -0- 3
----------- -------------
Total Dividend Reinvestment................ 2,533,055 $ 47,663,019
=========== =============
Repurchases:
Class A.................................. (13,162,194) $(248,224,027)
Class B.................................. (422,533) (7,986,889)
Class C.................................. (51,141) (953,892)
Class D.................................. (111) (2,099)
----------- -------------
Total Repurchases.......................... (13,635,979) $(257,166,907)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<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>
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$252,500 and CDSC on redeemed shares of approximately $127,600. Sales charges do
not represent expenses of the Fund.
On September 27, 1995, the Fund acquired all of the assets and liabilities
of the Van Kampen American Capital Tax-Exempt Trust-Insured Municipal Portfolio
(the "AC Fund"), through a tax free reorganization approved by AC Fund
shareholders on September 21, 1995. The Fund issued 3,513,425 Class A shares,
1,958,037 Class B shares and 73,421 Class C shares valued at $65,701,115,
$36,595,879 and $1,372,231, respectively, in exchange for AC Fund's net assets.
Shares issued in connection with this reorganization are included in common
share sales for the year ended December 31, 1995. Combined net assets on the
date of acquisition were $1,236,253,953.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $535,106,776 and $595,257,653,
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 on securities. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995............... -0- $ -0-
Options Written and Purchased (Net)............ 2,700 (1,318,670)
Options Terminated in Closing Transactions
(Net)........................................ (2,700) 1,318,670
----- -----------
Outstanding at June 30, 1996................... -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, 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 cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995........................... -0-
Futures Opened............................................. 4,740
Futures Closed............................................. (4,690)
-----
Outstanding at June 30, 1996............................... 50
=====
</TABLE>
The futures contracts outstanding as of June 30, 1996, and the description
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
September 1996--Buys to Open................. 50 $404
== ====
</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.
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
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 shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $355,500.
35
<PAGE> 37
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
36
<PAGE> 38
VAN KAMPEN AMERICAN CAPITAL INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, 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.
37
<PAGE> 39
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 20
Statement of Operations.......................... 21
Statement of Changes in Net Assets............... 22
Financial Highlights............................. 23
Notes to Financial Statements.................... 26
</TABLE>
TFHI SAR 8/96
<PAGE> 40
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley
Group Inc. While this announcement [PHOTO]
may appear commonplace in an DENNIS J. MCDONNELL AND DON G. POWELL
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 41
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at rates more moderate than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. In particular,
we expect 10-year Treasury yields to trade within their current range of 5.7 and
6.3 percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.3 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing
political momentum for tax reform, which could have eroded the value of the
market's tax-exempt status. However, the momentum slowed substantially and
now appears to be on the back burner until after the 1996 Presidential
election. This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal
market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a Question and Answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 42
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND
<TABLE>
<CAPTION>
TOTAL RETURNS A Shares B Shares C Shares
<S> <C> <C> <C>
Six-month total return based on NAV(1)... (1.06%) (1.52%) (1.51%)
Six-month total return(2)................ (5.78%) (5.34%) (2.47%)
One-year total return(2)................. 1.00% 1.17% 4.22%
Five-year average annual total
return(2).............................. 4.82% N/A N/A
Ten-year average annual total
return(2).............................. 6.33% N/A N/A
Life-of-Fund average annual total
return(2).............................. 7.47% 4.77% 4.46%
Commencement date........................ 06/28/85 05/01/93 08/13/93
</TABLE>
DISTRIBUTION RATES AND YIELD
<TABLE>
<S> <C> <C> <C>
Distribution rate(3)..................... 6.37% 5.90% 5.90%
Taxable equivalent distribution
rate(4)................................ 9.95% 9.22% 9.22%
SEC Yield(5)............................. 5.17% 4.64% 4.64%
N/A=Not Applicable
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996.
A portion of the interest income may be subject to the federal alternative
minimum tax (AMT).
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 43
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois .............. 14.3%
New York .............. 9.9%
Colorado .............. 8.7%
Pennsylvania .......... 6.9%
California ............ 6.6%
Florida ............... 6.6%
Massachusetts ......... 5.7%
Michigan .............. 4.7%
Texas ................. 4.7%
Tennessee ............. 3.1%
</TABLE>
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
AAA....... 21.2%
AA........ 5.7%
A......... 3.6%
BBB....... 22.1%
BB........ 6.8%
B......... 1.1%
Non-Rated... 39.5%
[PIE CHART]
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
AAA....... 29.0%
AA........ 2.7%
A......... 4.9%
BBB....... 17.2%
BB........ 6.9%
B......... 1.4%
Non-Rated... 37.9%
[PIE CHART]
</TABLE>
Based on credit quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care .......... 20.1%
Industrial Revenue ... 17.7%
Other Care ........... 10.4%
Multi-Family
Housing ............ 9.8%
Tax District ......... 7.3%
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
Health Care .......... 18.4%
Industrial Revenue ... 14.7%
Multi-Family
Housing ............ 10.0%
Other Care ........... 9.2%
General Purpose ...... 7.7%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 8.13 years 7.66 years
</TABLE>
4
<PAGE> 44
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Tax Free High Income Fund about the key events and economic forces that shaped
the markets during the first half of the Fund's fiscal year. The team includes
David C. Johnson, portfolio manager, and Peter W. Hegel, executive vice
president for fixed-income investments. The following excerpts reflect their
views on the Fund's performance during the six-month period ended June 30, 1996.
Q THE MUNICIPAL BOND MARKET EXPERIENCED SOME FLUCTUATIONS DURING THE FIRST
SIX MONTHS OF 1996. COULD YOU EXPLAIN WHAT HAPPENED IN THE MARKET DURING
THIS PERIOD AND WHAT FACTORS PLAYED THE GREATEST ROLE?
A We did see some significant price fluctuations in the municipal bond
market during the first half of the year. January was the only period that
enjoyed the same positive investment environment that dominated the bond
market through most of 1995. In contrast, February brought an abrupt end to the
increase in bond prices, and this environment continued throughout the rest of
the reporting period. Instead of anticipating further interest rate reductions,
the market grew wary that interest rates might be increased (tightened) by the
Federal Reserve Board. This concern was triggered by two main factors:
- - The federal government was shut down twice, which indicated that balanced
budget legislation was not imminent.
- - Several economic indicators pointed to accelerating economic growth.
Consecutive monthly employment reports showed significant increases in
employment. For example, 239,000 non-farm jobs were added to the economy in
June.
These factors led to fears that inflation, which had been holding steady
around 3 percent, might increase. Fears heightened when agricultural commodity
and oil prices rose to their highest levels in two years. As a result, the Fed
shifted policy from an accommodative mode (lowering interest rates) in January
to a stable, or neutral, mode. Thereafter, bond prices generally began to
decrease.
Q HOW WAS THE FUND STRUCTURED OVER THE LAST SIX MONTHS?
A The Fund is managed to seek to provide both an attractive tax-exempt yield
and a relatively stable net asset value. A fair percentage of the Fund's
holdings are investment-grade bonds (BBB-rated or higher), with 30.5
percent rated single-A or higher. As of June 30, 1996, more than 40 percent of
the Fund was invested in non-rated securities and those rated below
investment-grade. By utilizing both kinds of issues, we are able to position the
Fund defensively against bond price fluctuations. This is because values of
non-rated and lower-rated securities are less dependent on interest rates and
more dependent on credit quality considerations. In contrast, the values of
higher-rated securities are more responsive to changes in interest rates, but
these securities incur less credit risk.
5
<PAGE> 45
Over the past six months, the Fund's duration stood at approximately 8
years. Duration is a measurement of a portfolio's sensitivity to changes in
interest rates--the shorter the duration, the less sensitive the portfolio is
expected to be to interest rate movements. The Fund's 8-year duration is
consistent with major municipal bond indices and is a level that allows us to
achieve a balance between maintaining an attractive dividend and protecting the
portfolio against diverse market changes.
We continue to see value in 15- to 20-year maturities. Acquisitions in the
Fund have emphasized this maturity range, which we believe offers the best
relative value compared to Treasury yields at this time, with less price
volatility than is usually associated with long-term maturities. Please refer to
page four for Fund portfolio highlights.
Q WERE THERE OTHER FACTORS THAT INFLUENCED THE MUNICIPAL BOND MARKET OVER
THE LAST SIX MONTHS?
A The supply and demand relationship continued to be a positive influence on
the municipal bond market over the reporting period--supply remained low
while demand remained fairly strong. This helped support bond prices and
partly offset the negative effect that rising interest rates had on bond prices.
Another influence was the role that potential major tax reform played on
municpal bonds. The market's initial reaction to this issue was negative,
because major reform may remove the tax advantage municipal bonds now offer. We
believe the market has now discounted the potential impact of tax reform, and we
do not expect any type of reform to be implemented until 1997, at the earliest.
However, this issue may continue to receive media coverage throughout the
remainder of 1996, primarily near the presidential election in November, and we
will continue to monitor it closely for any developments.
Q WHAT WERE THE MOST ATTRACTIVE SECTORS FOR THE FUND?
A We continued to find value in a wide array of sectors and individual
issues across many categories for both investment and non-investment grade
acquisitions. One sector that continues to remain attractive is healthcare
and its related areas. Because we have dedicated analysts who specialize in
thoroughly researching each sector, we continue to find issues offering the
greatest relative value. Recently, the housing sector has also provided some
attractive holdings for the Fund.
Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1996?
A For the six months ended June 30, 1996, the Fund's total return was -1.06
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index earned a total return of -0.45 percent over the
same period. Longer term, the Fund generated a one-year total return of 6.04
percent(1) (Class A shares at net asset value) through June 30, 1996. The Lehman
Index is a broad-based, unmanaged index of municipal bonds and does not reflect
any commissions or fees that would be paid by an investor purchasing the
securities it represents. Please refer to the chart on page three for additional
Fund performance results.
6
<PAGE> 46
At its current annualized dividend level of $0.96 per share, the Fund
provides shareholders with a tax-free distribution rate of 6.37 percent(3)
(Class A shares) as of June 30, 1996. At this distribution rate, the Fund
provides shareholders in the 36 percent federal income tax bracket with a yield
equivalent to a taxable investment earning 9.95 percent(4).
Q
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET IN THE UPCOMING MONTHS,
AND WHAT FACTORS COULD INFLUENCE YOUR MANAGEMENT OF THE FUND?
A
The municipal market should remain stable over the next few months,
especially if the current market fundamentals--including low inflation and
a positive supply and demand ratio--remain in place. We do not anticipate
any significant changes in the management of the Fund. However, if the economy
continues to show signs of strong growth, we could see some changes in market
fundamentals:
- - INFLATION has been holding at a low 2 to 3 percent range for some time now,
but going forward, there is some concern that inflation could slowly creep
upward, which could have a negative effect on the market.
- - INTEREST RATES: We anticipate the Federal Reserve will remain in a neutral
policy mode, but it may become necessary to tighten interest rates if the
economy continues to strengthen. However, the Fund is structured defensively
against such increases with its high-yielding, non-rated holdings.
- - The positive ratio between LOWER SUPPLY AND HIGHER DEMAND should continue in
the upcoming months, which is a stabilizing influence on municipal bond
values. If there is a rally in bond prices, we could see an increase in
refundings, which could bring more supply into the market.
[SIG]
Peter W. Hegel
Executive Vice President
Fixed Income Investments
[SIG]
David C. Johnson
Portfolio Manager
Please see footnotes on page three
7
<PAGE> 47
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 0.5%
$ 2,840 Birmingham-Carraway, AL Methodist Hlth Sys Ser A
(Connie Lee Insd)................................ 5.875% 08/15/25 $ 2,839,773
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg.................. 6.950 01/01/20 1,042,770
-----------
3,882,543
-----------
ALASKA 0.3%
2,250 Seward, AK Rev Alaska Sealife Cent Proj.......... 7.650 10/01/16 2,262,915
-----------
ARIZONA 1.1%
6,325 Chandler, AZ Indl Dev Auth Indl Dev Rev Chandler
Fin Cent Proj (d)................................ 7.125 12/01/16 5,376,250
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev
Borden Inc Proj (Var Rate Cpn)................... 5.040 10/01/12 990,810
2,700 Maricopa Cnty, AZ Unified Sch Dist No 41 Gilbert
Rfdg (FGIC Insd)................................. * 01/01/08 1,433,160
1,245 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A....... 11.000 07/01/00 1,392,819
-----------
9,193,039
-----------
ARKANSAS 0.3%
2,100 Arkansas St Dev Fin Auth Single Family Mtg Rev
Replacement Ser C................................ 8.600 02/01/17 2,213,967
-----------
CALIFORNIA 6.5%
1,310 California Edl Fac Auth Rev Univ of La Verne..... 6.375 04/01/13 1,313,314
1,950 California Hlth Fac Auth Rev Vly Presbytern
Hosp............................................. 9.000 05/01/12 1,979,250
8,000 California St Rfdg (Cap Guar Insd) (c)........... 5.125 10/01/17 7,249,200
4,000 Calipatria, CA Unified Sch Dist Ser A (AMBAC
Insd)............................................ 5.800 08/01/20 3,981,760
1,500 Colton, CA Pub Fin Auth Rev Elec Sys Impts....... 7.500 10/01/20 1,522,650
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd)...................................... * 09/01/17 1,338,950
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser C... 8.375 07/01/11 2,457,575
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent
for the Arts (AMBAC Insd)........................ * 09/01/15 1,033,887
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent
for the Arts (AMBAC Insd)........................ * 09/01/18 845,431
20,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien Ser
A................................................ * 01/01/27 2,615,800
3,500 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev
Multi Cap Fac Proj IV (MBIA Insd)................ 5.000 12/01/07 3,432,730
2,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev
Multi Cap Fac Proj IV (MBIA Insd)................ 5.250 12/01/16 1,850,100
2,850 Riverside Cnty, CA Ctfs Partn Air Force Village
West Inc A....................................... 8.125 06/15/20 2,951,773
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC Insd)....... 5.500 08/15/10 1,983,400
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC Insd)....... 5.500 08/15/11 1,873,970
</TABLE>
See Notes to Financial Statements
8
<PAGE> 48
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 7,625 San Francisco, CA City & Cnty Redev Agy Lease Rev
Gains (Crossover Rfdg @ 07/01/04) (g)............ 0/8.500% 07/01/14 $ 5,500,980
3,300 San Francisco, CA City & Cnty Redev Fin Auth Tax
Alloc Rev........................................ 5.250 08/01/21 2,897,730
3,000 Santa Ana, CA Cmnty Redev Agy Tax Ser B Rfdg..... 7.500 09/01/16 3,018,990
2,250 Valley Hlth Sys CA Hosp Rev Rfdg & Impt Proj Ser
A................................................ 6.500 05/15/15 2,157,863
3,000 Westminster, CA Redev Agy Tax Alloc Rev
Commercial Redev Proj No 1....................... 6.200 08/01/23 2,924,910
-----------
52,930,263
-----------
COLORADO 8.7%
11,920 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy........ * 08/31/10 4,541,520
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................. * 08/31/26 2,082,590
66 Arapahoe Cnty, CO Centennial Downs Metro Dist
Cash Payment Deficiency Bond..................... 8.090 12/01/34 63,044
336 Arapahoe Cnty, CO Centennial Downs Metro Dist
Interest Certificate (f)......................... 6.000 12/01/09 319,369
650 Arapahoe Cnty, CO Centennial Downs Metro Dist Ltd
Tax Bond Ser 1993 Rfdg........................... 8.090 12/01/34 617,869
1,000 Bowles Metro Dist CO............................. 7.750 12/01/15 995,040
6,470 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj...................................... 10.500 01/01/19 6,962,884
6,200 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj...................................... 9.000 01/01/25 6,386,496
2,969 Colorado Hlth Fac Auth Rev Univ Hills Christian
Nursing Rfdg..................................... 8.750 12/01/11 3,078,695
1,000 Colorado Hlth Fac Auth Rev Vail Vly Med Cent Proj
Ser A Rfdg....................................... 6.600 01/15/20 1,000,780
605 Colorado Hsg Fin Auth Single Family Residential
Rev Ser C Rfdg................................... 8.750 09/01/17 638,039
1,000 Denver, CO City & Cnty Arpt Rev Ser A............ 6.900 11/15/98 1,051,930
1,175 Denver, CO City & Cnty Arpt Rev Ser A............ 8.400 11/15/98 1,273,618
3,000 Denver, CO City & Cnty Arpt Rev Ser A............ 8.875 11/15/12 3,554,580
10,000 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 11,430,400
2,500 Denver, CO City & Cnty Arpt Rev Ser D............ 7.750 11/15/13 2,945,450
1,001 East River Regl Santn Dist CO Var Rfdg (Var Rate
Cpn)............................................. * 12/01/08 716,315
3,216 Gunnison Cnty, CO Indl Rev Bond Crested Butte Mtn
Resort Inc....................................... 9.250 10/01/07 3,269,643
4,408 Himalaya Wtr & Santn Dist Adams Cnty, CO Genl
Oblig Ltd Tax Bond Ser 1995...................... 9.500 12/01/24 3,235,351
5,385 Littleton, CO Riverfront Auth Rev Rfdg (e)....... 9.625 12/01/00 1,884,750
4,680 Skyland Metro Dist CO Gunnison Cnty Rfdg (Var
Rate Cpn)........................................ * 12/01/08 3,348,722
14,709 Tower Metro Dist Adams Cnty, CO Genl Oblig Ltd
Tax Bond Ser 1995................................ 9.500 12/01/24 10,796,447
-----------
70,193,532
-----------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 49
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONNECTICUT 0.5%
$ 3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Windsor Proj........................ 7.125% 11/01/24 $ 4,182,741
-----------
DISTRICT OF COLUMBIA 0.5%
1,700 District of Columbia Ser A1 Rfdg (MBIA Insd)..... 6.500 06/01/10 1,866,413
2,000 District of Columbia Ser E (FSA Insd)............ 6.000 06/01/11 2,010,860
-----------
3,877,273
-----------
FLORIDA 6.5%
2,700 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC
Insd)............................................ 5.100 07/01/07 2,665,332
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser
A Rfdg (MBIA Insd) (c)........................... * 02/01/18 7,464,800
5,115 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev
Cent............................................. 10.250 07/01/11 5,303,743
2,155 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev
Cent
Ser A............................................ 10.250 07/01/11 2,234,520
12,000 Florida Hsg Fin Agy Hsg Bradley Park Apts Proj
(e).............................................. 9.750 12/01/19 3,415,200
1,000 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt
Rev.............................................. 7.875 05/01/17 991,860
290 Largo, FL Sun Coast Hlth Sys Rev Hosp Rfdg....... 5.750 03/01/03 277,434
5,500 Miramar, FL Wastewater Impt Assmt Rev (FGIC Insd)
(c).............................................. 6.750 10/01/25 5,927,075
3,950 Monroe Cnty, FL Indl Dev Auth First Mtg Med Fac
Rev Kennedy Dr Invt Ltd Proj Rfdg................ 11.000 11/01/12 3,950,000
4,030 Pinellas Cnty, FL Hlth Fac Auth Sun Coast Hlth
Sys Rev Sun Coast Hosp Ser A (Prerefunded @
03/01/00)........................................ 8.500 03/01/20 4,627,327
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac
Sunnyside Pptys.................................. 6.700 07/01/25 5,588,760
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt Ser
A (e)............................................ 10.000 12/15/11 9,478,350
1,000 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................... 8.500 05/01/17 995,560
-----------
52,919,961
-----------
GEORGIA 2.2%
19,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev Renaissance on Peachtree Apts
Proj (e)......................................... 8.500 04/01/26 17,700,210
-----------
IDAHO 1.6%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg
(Inverse Fltg) (c)............................... 8.510 02/15/21 8,592,960
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev
Envirosafe Services of ID Inc.................... 8.250 11/01/02 4,377,056
-----------
12,970,016
-----------
ILLINOIS 14.1%
1,000 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent
Proj (Prerefunded @ 09/01/99).................... 8.375 09/01/14 1,115,030
1,950 Bridgeview, IL Tax Increment Rev Rfdg............ 9.000 01/01/11 2,120,099
4,500 Chicago, IL Emergency Telephone Sys (FGIC
Insd)............................................ 5.800 01/01/13 4,495,725
</TABLE>
See Notes to Financial Statements
10
<PAGE> 50
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American
Airls Inc Proj Ser A............................. 7.875% 11/01/25 $ 3,216,840
24,440 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84A (c)....................... 8.850 05/01/18 27,269,174
2,730 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc
Ser B............................................ 8.950 05/01/18 3,066,254
4,250 Chicago, IL Rev Chatham Ridge Tax Increment...... 10.250 01/01/07 4,705,430
2,000 Huntley, IL Incrmnt Alloc Rev Huntley Redev Proj
Ser A............................................ 8.500 12/01/15 1,999,200
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj..................................... 8.000 11/15/16 1,375,425
7,375 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj
Rfdg............................................. 7.000 08/01/24 7,666,313
2,000 Illinois Edl Fac Auth Rev Trinity Med Cent (FSA
Insd)............................................ 6.000 07/01/28 1,981,720
4,890 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser
D................................................ 9.500 11/15/15 5,589,221
3,825 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser
D (Prerefunded @ 11/15/00)....................... 9.500 11/15/15 4,600,404
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig
Group B.......................................... 8.000 02/15/25 1,026,750
5,000 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj................................... 8.100 11/15/14 5,286,950
995 Illinois Hlth Fac Auth Rev Mt Sinai Hosp Med Cent
Chicago Ser A.................................... 10.250 02/01/13 994,025
21,500 Illinois Hlth Fac Auth Rev Northwestern Mem Hosp
Ser A Rfdg (b)................................... 6.000 08/15/24 21,069,140
3,000 Illinois Hlth Fac Auth Rev Rfdg Fairview Oblig
Group Ser A...................................... 7.400 08/15/23 2,978,790
3,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Var
Rate Cpn) (Prerefunded @ 08/15/01)............... 8.000 08/15/21 3,461,700
1,250 Mill Creek Wtr Reclamation Dist IL Sewage Rev.... 8.000 03/01/10 1,278,600
750 Mill Creek Wtr Reclamation Dist IL Wtrwks Rev.... 8.000 03/01/10 767,160
2,095 Regional Tran Auth IL Ser B (AMBAC Insd)......... 8.000 06/01/17 2,653,778
6,000 Robbins, IL Res Recovery Rev Robbins Res Recovery
Partners Ser A................................... 9.250 10/15/14 5,805,000
-----------
114,522,728
-----------
INDIANA 0.1%
1,000 Wabash, IN Solid Waste Disposal Rev Jefferson
Smurfit Corp
Proj............................................. 7.500 06/01/26 1,008,450
-----------
KANSAS 0.0%
3,055 Kansas City, KS Crawford Cnty Leavenworth Single
Family Mtg Rev (AMBAC Insd)...................... * 04/01/16 364,156
-----------
KENTUCKY 0.4%
2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj
(Inverse Fltg) (MBIA Insd)....................... 8.952 10/09/08 3,000,375
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 51
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA 1.2%
$ 3,000 Louisiana Pub Fac Auth Rev Student Ln Subser
A3............................................... 7.000% 09/01/06 $ 3,198,240
12,500 New Orleans, LA Rfdg (AMBAC Insd)................ * 09/01/17 3,516,500
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd)...... * 02/01/15 3,254,500
-----------
9,969,240
-----------
MAINE 0.2%
1,250 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA
Insd)............................................ 7.000 07/01/24 1,369,675
-----------
MARYLAND 0.9%
7,500 Baltimore, MD Cap Apprec Cons Pub Impt Ser A
(FGIC Insd)...................................... * 10/15/11 3,059,025
1,440 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Multi-Family Hsg Rev Ser A Rfdg.................. 8.300 05/15/17 1,494,677
1,750 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Seventh Ser................ 7.300 04/01/25 1,834,297
1,000 Maryland St Energy Fin Admin Ltd Oblig Rev
Cogeneration AES Warrior Run..................... 7.400 09/01/19 1,033,090
-----------
7,421,089
-----------
MASSACHUSETTS 5.7%
13,770 Canton, MA Hsg Auth Multi-Family Hsg Mtg Rev
Canton Arboretum Apts (Var Rate Cpn)............. 6.500 09/01/19 13,081,500
5,000 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap) (MBIA
Insd)............................................ 3.100 07/01/13 4,200,600
1,670 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Annes Hosp Ser A................................. 9.375 07/01/14 1,667,812
9,415 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 7,546,311
1,385 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A Rfdg.......................... 5.500 10/01/02 1,260,059
2,200 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental
Ser A Rfdg (AMBAC Insd).......................... 6.650 07/01/19 2,258,146
640 Massachusetts St Hsg Fin Agy Hsg Rev Ser A....... 9.000 12/01/18 670,131
575 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent........................................ 8.000 12/01/06 589,933
1,085 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent........................................ 8.375 12/01/13 1,140,877
675 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent........................................ 8.500 12/01/20 694,413
4,000 Massachusetts St Indl Fin Agy Rev Cent For
Autism........................................... 9.500 11/01/17 4,312,200
7,000 Massachusetts St Indl Fin Agy Rev Swr Fac Res Ctl
Composting....................................... 9.250 06/01/10 7,496,300
1,275 Massachusetts St Indl Fin Agy Solid Waste Disp
Rev Res Recovery Sys............................. 9.200 12/01/99 1,288,222
-----------
46,206,504
-----------
MICHIGAN 4.7%
2,000 Battle Creek, MI Downtown Dev Auth Tax Increment
Rev.............................................. 7.600 05/01/16 2,206,220
3,000 Detroit, MI Downtown Dev Auth Tax Increment
Rev.............................................. 6.200 07/01/17 3,016,380
</TABLE>
See Notes to Financial Statements
12
<PAGE> 52
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev First
Mtg Burcham Hills Ser A.......................... 7.500% 07/01/13 $ 2,389,976
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev First
Mtg Burcham Hills Ser A.......................... 7.750 07/01/19 3,432,092
8,100 Meridian, MI Econ Dev Corp Ltd Oblig Rev First
Mtg Burcham Hills Ser A.......................... 9.625 07/01/19 8,788,176
3,380 Michigan St Hosp Fin Auth Rev Garden City Hosp... 8.300 09/01/02 3,506,074
12,500 Michigan St Strategic Fund Ltd Oblig Rev Great
Lakes Pulp & Fibre Proj.......................... 10.250 12/01/16 10,943,250
1,500 North Branch, MI Area Sch Lapeer Cnty Rfdg (AMBAC
Insd)............................................ 5.250 05/01/13 1,409,640
1,495 Pontiac, MI Hosp Fin Auth Hosp Rev NOMC Oblig
Group Rfdg....................................... 6.000 08/01/13 1,348,580
775 Saint Clair Cnty, MI Econ Dev Corp Kmart Proj.... 9.500 02/01/06 775,295
-----------
37,815,683
-----------
MINNESOTA 2.4%
5,490 Eden Prairie, MN Multi-Family Hsg Rev Sterling
Ponds Proj
Ser A............................................ 10.000 01/15/20 4,950,333
495 Eden Prairie, MN Multi-Family Hsg Rev Sterling
Ponds Proj
Ser B............................................ * 01/15/20 720,856
2,800 Minneapolis, MN Coml Dev Rev Holiday Inn
Metrodome Proj
Rfdg............................................. 10.000 06/01/98 2,825,284
1,750 Minnesota St Hsg Fin Agy Single Family Mtg Ser
D................................................ 8.800 07/01/16 1,847,685
25,460 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A
(MBIA Insd)...................................... * 01/01/20 6,243,811
5,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A
(MBIA Insd)...................................... * 01/01/21 1,153,700
8,160 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A
(MBIA Insd)...................................... * 01/01/23 1,666,598
-----------
19,408,267
-----------
MISSISSIPPI 0.7%
5,000 Claiborne Cnty, MS Pollutn Ctl Rev Refd Sys
Energy Res Inc................................... 6.200 02/01/26 4,708,250
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res
Inc Rfdg......................................... 7.300 05/01/25 1,030,770
-----------
5,739,020
-----------
MISSOURI 1.1%
1,000 Jefferson Cnty, MO Indl Dev Auth Indl Rev Cedars
Hlthcare Cent Proj Ser A Rfdg.................... 8.250 12/01/15 977,240
4,815 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Skaggs Cmnty Hosp Rfdg........................... 9.500 05/15/13 5,069,184
905 Oak Grove, MO Combined Wtrwks & Swr Sys Rev Rfdg
(Prerefunded @ 11/01/96)......................... 9.250 11/01/07 948,521
615 Oak Grove, MO Combined Wtrwks & Swr Sys Rev Rfdg
(Prerefunded @ 11/01/96)......................... 9.375 11/01/12 644,828
</TABLE>
See Notes to Financial Statements
13
<PAGE> 53
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$ 1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)........... 6.000% 06/01/15 $ 1,044,470
-----------
8,684,243
-----------
MONTANA 0.5%
4,000 Montana St Brd Invt Res Recovery Rev Yellowstone
Energy L P Proj.................................. 7.000 12/31/19 3,762,960
-----------
NEBRASKA 0.7%
2,400 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)............. 9.962 10/17/23 2,538,000
3,100 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)............. 11.287 09/10/30 3,444,875
-----------
5,982,875
-----------
NEVADA 0.2%
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev Proj
Ser E Rfdg....................................... 5.600 09/01/09 1,822,660
-----------
NEW HAMPSHIRE 1.8%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights....................... 7.350 01/01/18 1,989,300
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights....................... 7.450 01/01/25 1,985,960
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Hosp
Catholic Med Cent Rfdg........................... 8.250 07/01/13 4,299,880
1,440 New Hampshire Higher Edl & Hlth Franklin Pierce
College Issue.................................... 7.000 10/01/16 1,445,069
2,160 New Hampshire Higher Edl & Hlth Franklin Pierce
College Issue.................................... 7.125 10/01/26 2,166,674
3,000 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co NH Proj C............................ 7.650 05/01/21 3,088,710
-----------
14,975,593
-----------
NEW JERSEY 1.1%
6,710 New Jersey Econ Dev Auth Rev First Mtg Gross Rev
Oakridge Manor Proj Rfdg......................... 9.500 11/01/14 6,975,112
1,000 New Jersey Econ Dev Auth Rev First Mtg Winchester
Gardens Ser A.................................... 8.500 11/01/16 997,510
1,000 New Jersey Econ Dev Auth Rev First Mtg Winchester
Gardens Ser A.................................... 8.625 11/01/25 994,830
-----------
8,967,452
-----------
NEW MEXICO 0.5%
5,835 Albuquerque, NM Retirement Fac Rev OGL Retirement
Fac Rfdg (d)..................................... 10.000 10/01/13 4,261,884
-----------
NEW YORK 9.8%
1,315 Clifton Springs, NY Hosp & Clin Rfdg & Impt Ser
B................................................ 7.000 01/01/05 1,318,406
</TABLE>
See Notes to Financial Statements
14
<PAGE> 54
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY Inst of
Technology Rfdg.................................. 7.500% 03/01/26 $ 1,506,015
3,000 New York City Indl Dev Agy Civic Fac Rev
Nightingale Bamford Sch Proj..................... 5.850 01/15/20 2,918,490
1,500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj............................................. 7.950 01/01/28 1,549,080
5,000 New York City Ser A (b).......................... 7.000 08/01/07 5,244,950
3,000 New York City Ser D.............................. 6.000 02/15/15 2,865,510
3,000 New York City Ser D Rfdg......................... 8.000 02/01/05 3,372,270
3,000 New York City Ser F.............................. 5.750 02/01/12 2,812,020
2,000 New York City Ser I Rfdg......................... 5.875 03/15/13 1,891,000
2,000 New York City Ser J.............................. 5.875 02/15/19 1,862,780
5,000 New York St Dorm Auth Rev City Univ Ser F........ 5.500 07/01/12 4,633,500
5,000 New York St Dorm Auth Rev City Univ Ser F........ 5.000 07/01/20 4,171,300
2,000 New York St Dorm Auth Rev Dept Of Hlth........... 5.500 07/01/25 1,799,020
2,500 New York St Dorm Auth Rev Ser A Upstate Cmnty
Colleges Ser A................................... 5.700 07/01/21 2,325,700
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg)................................... 8.755 04/01/20 2,553,125
6,000 New York St Energy Resh & Dev Auth Gas Fac Rev
Ser D (Inverse Fltg) (MBIA Insd) (c)............. 5.635 07/08/26 5,533,140
225 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent B....... 5.500 04/01/00 226,953
1,000 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent B....... 5.500 04/01/01 998,670
750 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent B....... 5.250 04/01/02 731,407
1,750 New York St Med Care Fac Fin Agy Rev Mental Hlth
Svcs Ser F Rfdg (MBIA Insd)...................... 5.250 02/15/19 1,613,920
10,000 New York St Med Care Fac Fin Agy Rev Presbyterian
Hosp Ser A Rfdg (MBIA Insd) (c).................. 5.375 02/15/25 9,310,400
1,500 New York St Thruway Auth Hwy & Brdg Tr Fund Ser
A................................................ 6.000 04/01/14 1,520,280
13,000 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg....................................... 5.500 01/01/16 11,875,370
3,000 New York, NY City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.250 11/15/06 3,251,280
1,500 New York, NY City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.375 11/15/07 1,630,950
2,000 New York, NY City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)................. 6.500 11/15/09 2,162,180
-----------
79,677,716
-----------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 55
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH CAROLINA 1.0%
$ 8,450 Eastern Band Cherokee Indians NC Spl Oblig Rev
Carolina Mirror Co Proj.......................... 10.250% 09/01/09 $ 8,450,000
-----------
NORTH DAKOTA 0.3%
2,100 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph Hosp
Corp Proj........................................ 8.875 11/15/24 2,280,117
-----------
OHIO 1.9%
2,000 East Liverpool, OH Hosp Rev East Liverpool City
Hosp Ser A....................................... 8.125 10/01/11 2,105,120
1,685 Franklin Cnty, OH First Mtg Rev Heinzerling Fndtn
Proj Rfdg (Prerefunded @ 08/01/96)............... 10.000 08/01/11 1,739,695
7,750 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) (GNMA Collateralized)(c).......... 9.855 03/31/31 8,089,063
1,200 Ohio St Solid Waste Rev Rep Engineered Steels
Proj............................................. 8.250 10/01/14 1,181,664
1,000 Ohio St Solid Waste Rev Rep Engineered Steels
Proj............................................. 9.000 06/01/21 1,012,190
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj..... 7.750 12/01/09 1,509,555
-----------
15,637,287
-----------
OKLAHOMA 0.8%
2,000 Oklahoma City, OK Indl & Cultr Hlth Fac (MBIA
Insd)............................................ 5.875 06/01/21 1,999,900
4,000 Tulsa, OK Indl Auth Hosp Rev Tulsa Regional Med
Cent (Prerefunded @ 06/01/03).................... 7.200 06/01/17 4,547,440
-----------
6,547,340
-----------
PENNSYLVANIA 6.9%
2,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Rfdg............ 7.625 05/01/20 2,027,200
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Ser A Rfdg........... 7.750 05/01/20 6,140,820
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Village
Inc
Proj Rfdg........................................ 7.700 05/15/22 986,630
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg................... 7.500 09/01/15 4,097,360
1,775 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp
Proj............................................. 8.500 07/01/13 1,918,029
2,000 Cumberland Cnty, PA Auth Rev First Mtg Carlisle
Hosp & Hlth...................................... 6.800 11/15/14 2,001,260
3,000 Lancaster Cnty, PA Solid Waste Mgmt Auth Res
Recovery Sys Rev Ser A........................... 8.500 12/15/10 3,183,360
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp
Proj (Crossover Rfdg @ 10/01/00)................. 8.875 10/01/20 2,324,440
3,800 Montgomery Cnty, PA Higher Edl & Hlth Auth
Nursing Home Rev Delco Sys Svcs Proj A........... 9.875 11/01/18 3,858,748
8,100 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Proj A (Prerefunded @
12/01/00)........................................ 10.000 12/01/19 9,810,558
500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg.......................... 7.000 12/01/10 498,170
</TABLE>
See Notes to Financial Statements
16
<PAGE> 56
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg.......................... 7.250% 12/01/15 $ 2,443,875
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg.......................... 7.400 12/01/20 5,821,860
3,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj................... 7.600 12/01/20 3,296,430
1,500 Pennsylvania Econ Dev Fin Auth Recycling Rev
Ponderosa Fibres Proj Ser A...................... 9.250 01/01/22 1,454,160
2,700 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Northampton Generating Ser A..................... 6.600 01/01/19 2,574,963
2,300 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Northampton Generating Ser A..................... 6.500 01/01/13 2,221,777
1,000 Philadelphia, PA Auth for Indl Dev Rev Long Term
Care............................................. 8.000 01/01/24 1,039,290
-----------
55,698,930
-----------
RHODE ISLAND 0.3%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A........ 8.000 09/01/24 2,127,800
-----------
SOUTH CAROLINA 0.5%
2,385 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd)............................................ 7.000 06/01/19 2,723,575
115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd)............................................ 7.000 06/01/19 125,162
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc Ser
84 (Var Rate Cpn)................................ 6.157 06/15/04 1,000,000
-----------
3,848,737
-----------
TENNESSEE 3.0%
3,000 SCA Tax Exempt Trust Multi-Family Mtg Memphis
Hlth Edl Rev Bond Receipt A6 (FSA Insd).......... 7.350 01/01/30 3,209,820
4,610 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR
Open Arms Dev Cent Ser A......................... 9.750 08/01/19 4,962,619
4,670 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR
Open Arms Dev Cent Ser C......................... 9.750 08/01/19 5,027,208
6,155 Sullivan Cnty, TN Hlth Edl & Hsg Fac Brd Rev
First Mtg RHA/Sullivan Inc Fac Rev............... 9.750 09/01/19 6,661,187
4,455 Trenton, TN Hlth & Edl Fac Brd Rev ICF/MR
RHA/Trenton Golden Door.......................... 10.000 05/01/19 4,808,371
-----------
24,669,205
-----------
TEXAS 4.7%
14,900 Alliance Arpt Auth Inc TX Spl Fac Rev Federal
Express Corp
Proj............................................. 6.375 04/01/21 14,699,297
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd)........... 9.193 01/01/22 2,140,000
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg......... * 08/01/00 487,199
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg......... * 08/01/01 789,089
</TABLE>
See Notes to Financial Statements
17
<PAGE> 57
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg......... * 08/01/02 $ 210,189
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg......... * 08/01/11 565,987
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg......... 8.750% 08/01/11 830,095
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg......... 8.750 08/01/12 2,859,810
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil
Proj
Ser 84 Rfdg (Var Rate Cpn)....................... 5.630 04/01/04 2,505,525
2,780 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs............................................. 7.250 08/15/11 2,807,367
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (FGIC Insd)........ 6.750 01/01/15 2,155,280
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (FGIC Insd)........ 6.600 01/01/23 2,133,500
5,000 West Side Calhoun Cnty, TX Navig Dist Solid Waste
Disp Union Carbide Chem & Plastics............... 8.200 03/15/21 5,577,600
-----------
37,760,938
-----------
UTAH 1.2%
1,000 Hilldale, UT Elec Rev Gas Turbine Elec Fac
Proj............................................. 7.800 09/01/15 975,040
1,165 Hilldale, UT Elec Rev Gas Turbine Elec Fac
Proj............................................. 8.000 09/01/20 1,151,416
1,000 Hilldale, UT Elec Rev Gas Turbine Elec Fac
Proj............................................. 7.800 09/01/25 965,470
5,000 Murray City, UT Hosp Rev Inc Hlth Serv Inc Rfdg
(MBIA Insd)...................................... 4.750 05/15/20 4,186,900
285 Saint George, UT Indl Dev Rev Kmart Corp Ser A
1984............................................. 10.750 10/15/08 285,351
1,600 Utah St Hsg Fin Agy Single Family Mtg Mezz A 1
(AMBAC Insd)..................................... 6.100 07/01/13 1,599,984
180 Utah St Hsg Fin Agy Single Family Mtg Sr Bond Ser
A................................................ 8.400 07/01/08 185,027
-----------
9,349,188
-----------
VIRGINIA 2.0%
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev.......... 6.625 07/15/20 2,722,372
3,000 Loudoun Cnty, VA Indl Dev Auth (FSA Insd)........ 5.800 06/01/20 2,963,550
5,310 Upper Occoquan Sewage Auth VA Regl Sewage Rev
Rfdg (FGIC Insd)................................. 5.000 07/01/15 4,810,382
1,430 Virginia St Hsg Dev Auth Comwlth Mtg Ser D....... 6.000 01/01/12 1,434,562
1,470 Virginia St Hsg Dev Auth Comwlth Mtg Ser D....... 6.000 07/01/12 1,474,689
1,510 Virginia St Hsg Dev Auth Comwlth Mtg Ser D....... 6.050 01/01/13 1,519,030
1,555 Virginia St Hsg Dev Auth Comwlth Mtg Ser D....... 6.050 07/01/13 1,560,940
-----------
16,485,525
-----------
WASHINGTON 0.3%
1,000 Port Walla Walla, WA Pub Corp Solid Waste
Recycling Rev Ponderosa Fibres Proj.............. 9.125 01/01/26 953,610
5,500 Washington St Pub Pwr Supply Comp Interest Ser C
Rfdg (MBIA Insd)................................. * 07/01/17 1,500,400
-----------
2,454,010
-----------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 58
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN 1.1%
$ 4,340 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa Vly
Hosp Ser F Rfdg.................................. 9.500% 11/15/12 $ 5,004,931
2,185 Wisconsin St Hlth & Edl Fac Auth Rev Eau Claire
Manor Refin...................................... 9.625 06/01/13 2,253,609
1,975 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn........................................ 7.875 11/01/22 1,937,100
------------
9,195,640
------------
PUERTO RICO 0.2%
2,000 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z Rfdg..... 5.250 07/01/21 1,812,980
------------
TOTAL LONG-TERM INVESTMENTS 99.0%
(Cost $794,187,228) (a)...................................................... 803,604,727
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.6%................................. 13,450,000
LIABILITIES IN EXCESS OF OTHER ASSETS (0.6)%.................................. (5,233,728)
------------
NET ASSETS 100%............................................................... $811,820,999
============
</TABLE>
*Zero coupon bond
(a) At June 30, 1996, for federal income tax purposes, cost is $796,366,711; the
aggregate gross unrealized appreciation is $38,358,724 and the aggregate
gross unrealized depreciation is $32,515,368, resulting in net unrealized
appreciation including open future transactions of $5,843,356.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
(d) Security is producing income of less than the stated coupon.
(e) Non-Income producing security.
(f) Currently is a payment-in-kind security which will convert to a cash paying
security with a higher coupon at a predetermined date.
(g) Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
See Notes to Financial Statements
19
<PAGE> 59
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $794,187,228) (Note 1)............... $803,604,727
Short-Term Investments (Note 1)......................................... 13,450,000
Cash.................................................................... 391,162
Receivables:
Interest.............................................................. 20,147,741
Securities Sold....................................................... 6,336,177
Fund Shares Sold...................................................... 2,181,760
Other................................................................... 80,213
------------
Total Assets...................................................... 846,191,780
------------
LIABILITIES:
Payables:
Securities Purchased.................................................. 29,610,533
Income Distributions.................................................. 2,506,276
Fund Shares Repurchased............................................... 785,878
Variation Margin on Futures (Note 5).................................. 562,500
Investment Advisory Fee (Note 2)...................................... 317,393
Distributor and Affiliates (Notes 2 and 6)............................ 240,682
Accrued Expenses........................................................ 286,524
Deferred Compensation and Retirement Plans (Note 2)..................... 60,995
------------
Total Liabilities................................................. 34,370,781
------------
NET ASSETS.............................................................. $811,820,999
============
NET ASSETS CONSIST OF:
Capital (Note 3)........................................................ $897,307,490
Net Unrealized Appreciation on Securities............................... 8,022,839
Accumulated Distributions in Excess of Net Investment Income (Note 1)... (10,490,059)
Accumulated Net Realized Loss on Securities............................. (83,019,271)
------------
NET ASSETS.............................................................. $811,820,999
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $651,594,388 and 45,453,744 shares of capital stock issued and
outstanding) (Note 3)............................................. $ 14.34
Maximum sales charge (4.75%* of offering price)..................... .72
------------
Maximum offering price to public.................................... $ 15.06
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$147,874,050 and 10,316,176 shares of capital stock issued and
outstanding) (Note 3)............................................. $ 14.33
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$12,352,561 and 861,528 shares of capital stock issued and
outstanding) (Note 3)............................................. $ 14.34
============
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
20
<PAGE> 60
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................... $ 28,609,865
-------------
EXPENSES:
Investment Advisory Fee (Note 2)....................................... 1,932,063
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C
of $735,134, $707,443 and $53,050, respectively) (Note 6)............ 1,495,627
Shareholder Services (Note 2).......................................... 439,708
Legal (Note 2)......................................................... 100,100
Trustees Fees and Expenses (Note 2).................................... 16,899
Other.................................................................. 317,011
-------------
Total Expenses..................................................... 4,301,408
Less Expenses Reimbursed........................................... 4,987
-------------
Net Expenses....................................................... 4,296,421
-------------
NET INVESTMENT INCOME.................................................. $ 24,313,444
=============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments (Including reorganization and restructuring costs of
$275,166).......................................................... $ 704,754
Options.............................................................. (549,305)
Futures.............................................................. (3,256,120)
-------------
Net Realized Loss on Securities........................................ (3,100,671)
-------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 39,038,275
-------------
End of the Period:
Investments........................................................ 9,417,499
Futures............................................................ (1,394,660)
-------------
8,022,839
-------------
Net Unrealized Depreciation on Securities During the Period............ (31,015,436)
-------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES......................... $ (34,116,107)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS............................. $ (9,802,663)
=============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 61
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 24,313,444 $ 52,928,406
Net Realized Loss on Securities....................... (3,100,671) (18,443,786)
Net Unrealized Appreciation/Depreciation on
Securities During the Period........................ (31,015,436) 75,421,063
---------- ----------
Change in Net Assets from Operations.................. (9,802,663) 109,905,683
---------- ----------
Distributions from Net Investment Income.............. (24,313,444) (49,750,600)
Distributions in Excess of Net Investment Income (Note
1).................................................. (1,730,036) -0-
---------- ----------
Total Distributions from and in Excess of Net
Investment Income*................................ (26,043,480) (49,750,600)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (35,846,143) 60,155,083
---------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 74,789,901 98,267,869
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 11,313,510 21,929,512
Cost of Shares Repurchased............................ (51,703,501) (92,025,233)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 34,399,910 28,172,148
---------- ----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (1,446,233) 88,327,231
NET ASSETS:
Beginning of the Period............................... 813,267,232 724,940,001
----------- ----------
End of the Period (Including undistributed net
investment income of $(10,490,059) and $(8,760,023),
respectively)....................................... $811,820,999 $813,267,232
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
------------------------------------------------------
<S> <C> <C>
Distributions from and
in Excess of Net
Investment Income:
Class A Shares........ $(21,592,258) $(42,013,439)
Class B Shares........ (4,141,577) (7,196,226)
Class C Shares........ (309,645) (469,250)
Class D Shares........ -- (71,685)
------------ ------------
$(26,043,480) $(49,750,600)
============ ============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 62
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, ----------------------------------------
Class A Shares 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period................................ $14.984 $13.848 $15.629 $14.529 $15.687
------ ------ ------ ------ ------
Net Investment Income................... .453 1.024 .956 1.052 1.064
Net Realized and Unrealized
Gain/Loss on Securities............... (.622) 1.072 (1.717) 1.158 (1.047)
------ ------ ------ ------ ------
Total from Investment Operations........ (.169) 2.096 (.761) 2.210 .017
Less Distributions from and in
Excess of Net Investment Income
(Note 1).............................. .480 .960 1.020 1.110 1.175
------ ------ ------ ------ ------
Net Asset Value, End of the Period...... $14.335 $14.984 $13.848 $15.629 $14.529
======= ======= ======= ======= =======
Total Return (a)........................ (1.06%)* 15.52% (4.93%) 15.82% .08%
Net Assets at End of the Period (In
millions)............................. $651.6 $665.8 $603.0 $636.2 $566.1
Ratio of Expenses to Average Net
Assets**.............................. .92% .95% .87% 1.03% 1.08%
Ratio of Net Investment Income to
Average Net Assets**.................. 6.21% 7.05% 6.48% 6.95% 7.07%
Portfolio Turnover...................... 31%* 59% 101% 91% 44%
</TABLE>
* Non-Annualized
** The Ratios of Expenses and Net Investment Income to Average Net Assets were
not affected by the assumption of expenses by VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
23
<PAGE> 63
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months May 1, 1993
Ended (Commencement of
June 30, Year Ended Year Ended Distribution) to
Class B Shares 1996 December 31, 1995 December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net Asset Value, Beginning
of the Period............. $14.983 $13.850 $15.621 $14.670
------ ------ ------ ------
Net Investment Income....... .392 .908 .841 .656
Net Realized and Unrealized
Gain/Loss on Securities... (.618) 1.071 (1.718) .945
------- ------ ------ ------
Total from Investment
Operations................ (.226) 1.979 (.877) 1.601
Less Distributions from and
in Excess of Net
Investment Income (Note
1)........................ .423 .846 .894 .650
------- ------ ------ ------
Net Asset Value, End of the
Period.................... $14.334 $14.983 $13.850 $15.621
======= ======= ======= =======
Total Return (a)............ (1.52%)* 14.62% (5.69%) 11.12%*
Net Assets at End of the
Period (In millions)...... $147.9 $137.9 $112.4 $56.6
Ratio of Expenses to Average
Net Assets**.............. 1.70% 1.70% 1.64% 1.74%
Ratio of Net Investment
Income to Average Net
Assets**.................. 5.42% 6.25% 5.70% 5.95%
Portfolio Turnover.......... 31%* 59% 101% 91%
</TABLE>
* Non-Annualized
** The Ratios of Expenses and Net Investment Income to Average Net Assets were
not affected by the assumption of expenses by VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
24
<PAGE> 64
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Six Months (Commencement of
Ended Year Ended Year Ended Distribution) to
Class C Shares June 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning
of the Period............ $14.987 $13.846 $15.610 $15.030
------- ------- ------- -------
Net Investment Income...... .398 .910 .824 .369
Net Realized and Unrealized
Gain/Loss on
Securities............... (.624) 1.077 (1.694) .580
------- ------- ------ ------
Total from Investment
Operations............... (.226) 1.987 (.870) .949
Less Distributions from and
in Excess of Net
Investment Income (Note
1)....................... .423 .846 .894 .369
------- ------- ------ ------
Net Asset Value,
End of the Period........ $14.338 $14.987 $13.846 $15.610
======= ======= ======= =======
Total Return (a)........... (1.51%)* 14.70% (5.62%) 6.37%*
Net Assets at End of the
Period (In millions)..... $12.4 $9.5 $7.6 $5.2
Ratio of Expenses to
Average Net Assets**..... 1.70% 1.69% 1.64% 1.82%
Ratio of Net Investment
Income to Average Net
Assets**................. 5.40% 6.19% 5.71% 5.21%
Portfolio Turnover......... 31%* 59% 101% 91%
</TABLE>
* Non-Annualized
** The Ratios of Expenses and Net Investment Income to Average Net Assets were
not affected by the assumption of expenses by VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
25
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Tax Free High Income Fund (the "Fund") is organized
as a series of the Van Kampen American Capital 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. On July 7, 1995, all Class D shareholders redeemed their shares
and the class was eliminated. The Fund will no longer offer Class D shares.
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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Investments
valued using estimates of market value are generally those non-rated securities
in which the Fund owns over 90% of the original bond issue. At June 30, 1996,
19% of the Fund's net assets consisted of such securities. Short-term securities
with remaining maturities of less than 60 days are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
26
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
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 December 31, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $73,224,534. Of this amount, $1,295,852,
$42,680,935 and $29,247,747 will expire on December 31, 1999, 2002 and 2003,
respectively. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of the deferral of post October 31
losses and the capitalization of reorganization and restructuring costs for tax
purposes.
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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .50 of 1%
Over $500 million....................................... .45 of 1%
</TABLE>
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $13,400 representing legal services provided by Skadden, Arps,
Slate,
27
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Meagher & Flom, counsel to the Fund, of which a trustee of the Fund is an
affiliated person.
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $43,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $359,400,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the six months ended June 30, 1996, the Fund reimbursed
VKAC approximately $92,500 related to the cost of consolidating the VKAC
open-end fund complex. The reimbursement represents savings realized by the Fund
as a result of the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 100 shares each of Classes B and C.
28
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
At June 30, 1996, capital aggregated $730,926,832, $153,376,738 and
$13,003,920 for Classes A, B and C, respectively. For the six months ended June
30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 3,078,503 $ 44,880,568
Class B.................................... 1,780,744 25,891,954
Class C.................................... 277,461 4,017,379
---------- ------------
Total Sales.................................. 5,136,708 $ 74,789,901
========== ============
Dividend Reinvestment:
Class A.................................... 659,132 $ 9,564,111
Class B.................................... 106,188 1,539,773
Class C.................................... 14,472 209,626
---------- ------------
Total Dividend Reinvestment.................. 779,792 $ 11,313,510
========== ============
Repurchases:
Class A.................................... (2,717,786) $(39,511,192)
Class B.................................... (776,456) (11,251,163)
Class C.................................... (65,054) (941,146)
---------- ------------
Total Repurchases............................ (3,559,296) $(51,703,501)
========== ============
</TABLE>
29
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $715,993,345, $137,196,174 and
$9,718,061 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 4,222,270 $ 59,289,997
Class B.................................... 2,414,527 35,122,032
Class C.................................... 265,279 3,855,840
Class D.................................... -0- -0-
----------- -------------
Total Sales.................................. 6,902,076 $ 98,267,869
========== ============
Dividend Reinvestment:
Class A.................................... 1,304,961 $ 18,980,521
Class B.................................... 181,510 2,642,279
Class C.................................... 21,072 306,708
Class D.................................... -0- 4
----------- -------------
Total Dividend Reinvestment.................. 1,507,543 $ 21,929,512
========== ============
Repurchases:
Class A.................................... (4,634,819) $(65,107,747)
Class B.................................... (1,504,466) (21,894,277)
Class C.................................... (197,847) (2,860,089)
Class D.................................... (147,327) (2,163,120)
----------- -------------
Total Repurchases............................ (6,484,459) $(92,025,233)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear
30
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
the expense of their respective deferred sales arrangements, including higher
distribution and service fees and incremental transfer agency costs.
<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 June 30, 1996, VKAC, as distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$182,700 and CDSC on redeemed shares of approximately $276,100. 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 and reorganization and restructuring costs,
were $259,888,090 and $241,234,329, 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
31
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (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 June 30, 1996, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995................. -0- $ -0-
Options Written and Purchased (Net).............. 3,100 (821,724)
Options Terminated in Closing Transactions
(Net).......................................... (2,240) 421,422
Options Expired (Net)............................ (760) 326,135
Options Exercised (Net).......................... (100) 74,167
------ ---------
Outstanding at June 30, 1996..................... -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, 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 cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts for the six months ended June 30, 1996,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995........................... 900
Futures Opened............................................. 6,517
Futures Closed............................................. (6,917)
------
Outstanding at June 30, 1996............................... 500
======
</TABLE>
32
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The futures contracts outstanding as of June 30, 1996, and the description
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
US Treasury Bond Futures
Sept 1996 - Sells to Open....................... 500 $1,394,660
==== ==========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996 are payments to VKAC of approximately $556,700.
33
<PAGE> 73
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
34
<PAGE> 74
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, 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.
35
<PAGE> 75
VAN KAMPEN AMERICAN CAPITAL TAX FREE HIGH INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
36
<PAGE> 76
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>
CAI SAR 8/96
<PAGE> 77
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley
Group Inc. While this announcement [PHOTO]
may appear commonplace in an DENNIS J. MCDONNELL AND DON G. POWELL
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen
American Capital's reputation for competitive long-term performance and superior
investor services, together we will offer a broader range of investment
opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at rates more moderate than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an
Continued on page two
1
<PAGE> 78
upward bias for short-term interest rates and for yields on long-term bonds to
remain steady at current levels. In particular, we expect 10-year Treasury
yields to trade within a range of 5.7 and 6.3 percent, particularly when
compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing
political momentum for tax reform, which could have eroded the value of the
market's tax-exempt status. However, the momentum slowed substantially and
now appears to be on the back burner until after the 1996 presidential
election. This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal
market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 79
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV(1).... (1.38%) (1.75%) (1.75%)
Six-month total return(2)................. (4.61%) (4.64%) (2.72%)
One-year total return(2).................. 3.04% 2.73% 4.73%
Five-year average annual total
return(2)............................... 6.78% N/A N/A
Ten-year average annual total return(2)... 7.01% N/A N/A
Life-of-Fund average annual total
return(2)............................... 7.71% 3.37% 2.65%
Commencement date......................... 12/13/85 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)...................... 4.83% 4.22% 4.22%
Taxable equivalent distribution rate(4)... 8.47% 7.40% 7.40%
SEC Yield(5).............................. 4.51% 3.89% 3.89%
N/A = Not Applicable
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (3.25% for A shares) or contingent deferred
sales charge for early withdrawal (3% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a combined federal and state income
tax rate of 43%, which takes into consideration the deductibility of individual
state taxes paid.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 80
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
San Jose, CA Financial Authority Revenue
Convention Project ............................ 3.5%
Los Angeles, CA Unified School District,
Certificates of Participation ................. 3.5%
Corona, CA Redevelopment Agency Tax Allocation
Redevelopment Project, Area A ................. 3.2%
CA State Variable Purpose ....................... 2.7%
CA State Public Works Board Lease Revenue
Department of Corrections, CA State Prison .... 2.6%
South Orange County, CA Public Financial
Authority Special Tax Revenue, Senior Lien .... 2.6%
Anaheim, CA Public Financial Authority Tax
Allocation Revenue ........................... 2.5%
Grossmont, CA Union High School District,
Certificates of Participation ................ 2.2%
South Orange County, CA Public Financial
Authority Special Tax Revenue, Senior Lien .... 2.0%
Palm Desert, CA Financial Authority Tax
Allocation Revenue ............................ 1.9%
</TABLE>
CREDIT QUALITY
<TABLE>
<S> <C>
AAA ...................... 100%
</TABLE>
Based on credit quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C> <C>
Tax District ......... 22.0% Tax District ......... 21.2%
Public Education ..... 20.9% Public Education ..... 19.7%
Water & Sewer ........ 12.3% Public Building ...... 14.9%
General Purpose ...... 12.3% Health Care .......... 12.5%
Public Building ...... 12.0% Water & Sewer ........ 11.9%
</TABLE>
DURATION
<TABLE>
<CAPTION>
ON JUNE 30, 1996 ON DECEMBER 31, 1995
<S> <C> <C>
Duration 8.32 years 7.37 years
</TABLE>
4
<PAGE> 81
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND
We recently spoke with the management team of the Van Kampen American Capital
California Insured Tax Free Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Joseph A. Piraro, portfolio manager, and Peter W. Hegel, executive vice
president for fixed-income investments. The following excerpts reflect their
views on the Fund's performance during the six-month period ended June 30, 1996.
Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?
A Early in the year, indicators pointing to a stronger, expanding economy
sparked concern over inflation and expectations that the Federal Reserve
Board would increase short-term interest rates in order to keep the
economy from overheating. The prospect of higher rates was a concern to the
market, which responded by trading toward lower prices and higher yields.
On the other hand, municipal market concerns that major tax reform proposals
would gain acceptance--and potentially erode the tax-exempt status associated
with municipals--eased in the first half of 1996. So, even though bond prices
generally declined, they did so to a lesser extent in the municipal market.
Q WHAT ACTIONS DID YOU TAKE TO ADJUST THE FUND'S PORTFOLIO?
A The Fund is structured with a duration of approximately 8 years. Duration
is a measure of a portfolio's sensitivity to changes in interest rates.
The shorter the duration, the less sensitive the portfolio is expected to
be to interest rates.
Our focus has been on 15- to 20-year maturity bonds. We have tended to
emphasize the lower end of that range in order to help minimize overall
portfolio volatility. We believe the 15- to 20-year segment provided the best
relative value given the market conditions experienced in the first half of the
year. It also provides a high level of liquidity, due to the broad base of
investors seeking tax-exempt securities of this maturity, such as insurance
companies, mutual funds, and individuals. Please refer to page four for Fund
portfolio highlights.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund's total return (Class A shares at net asset value) over the
six-month period ended June 30, 1996, was -1.38 percent(1). In comparison,
the market return, as represented by the Lehman Brothers Municipal Bond
Index, was -0.45 percent for the same period. Longer term, the Fund generated a
one-year total return of 6.52 percent(1) (Class A shares at net asset value)
through June 30, 1996. The Lehman Index is a broad-based, unmanaged index of
municipal bonds and does not reflect any commissions or fees that would be paid
by an investor purchasing the securities it represents. Please refer to the
chart on page three for additional Fund
performance results.
5
<PAGE> 82
From an income standpoint, the Fund's Class A shares ended the period with
an annualized dividend of $0.852 per share. The Fund's Board of Trustees
approved a reduction in the monthly dividend from $.0710 to $.0695 per share
(Class A shares), effective July 1, 1996. Based upon this reduced dividend
level, the Fund continues to provide a respectable level of tax-exempt income
with a distribution rate of 4.73 percent based on the maximum offering price as
of June 30, 1996--the equivalent of a 8.30 percent taxable distribution rate for
investors in the 43 percent combined federal and state income tax bracket.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A We expect to see continued low inflation, and the economy is likely to
grow at a more moderate pace than the second quarter's swift pace. After
sharp increases in the first half of 1996, we expect yields to remain in a
trading range around current levels.
The California market once again led the nation in new issuance last year,
and the supply of California municipal bonds in the marketplace should keep pace
with last year's volume. The demand for insured municipals* continues to be very
strong, partly in response to last year's Orange County situation. In fact, more
than 50 percent of all California municipal bonds are now issued as insured
bonds, up from about 38 percent two years ago. We are investing in a sector with
good supply and strong demand, which bodes well for the Fund.
Q HOW HAVE YOU POSITIONED THE PORTFOLIO AS WE MOVE INTO THE LAST HALF OF THE
YEAR?
A We expect to maintain our emphasis on what we see as the more attractive
sectors within the municipal market, such as essential services and
housing. These sectors offer high liquidity, strong issuer backing, and
the added enhancement of insurance. In addition, housing issues have
historically provided high yield with generally low volatility. We continue to
maintain our position in general obligation bonds, believing that this sector is
currently fully priced.
California's economy has improved greatly, with most sectors recovering from
their depressed levels of two to three years ago. The state was number one in
the nation in job creation last year, driven by a recovery in the
defense/aerospace and entertainment / tourism industries. The real estate sector
has not bounced back fully, but remains relatively stable. We believe that the
state's general obligation bonds may be upgraded by the major rating agencies in
the future.
[SIG]
Peter W. Hegel
Executive Vice President
Fixed Income Investments
[SIG]
Joseph A. Piraro
Portfolio Manager
* The terms of the insurance are more fully described in the prospectus, and no
representation is made as to the insurer's ability to meet its commitments. In
addition, the insurance does not remove market risk since it does not apply to
the securities in the Fund's portfolio, and the Fund's net asset value may
increase or decrease depending on changes in interest rates and other factors
affecting the municipal credit markets.
Please see footnotes on page three
6
<PAGE> 83
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 98.4%
$1,000 Alameda, CA Ctfs Partn Alameda Swr Impt Fin Corp
(Prerefunded @ 03/01/98) (AMBAC Insd)........... 7.400% 03/01/18 $ 1,085,570
4,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (MBIA
Insd)........................................... 6.450 12/28/18 4,224,560
1,000 Antioch Area Pub Fac Fin Agy CA Spl Tax Cmnty
Fac Dist (FGIC Insd)............................ 5.000 08/01/18 885,680
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Ser A2 (Cap Guar Insd)..................... 6.400 12/15/14 3,145,650
750 Berkeley, CA Ctfs Partn Cap Imp Berkeley Civic
Impt (AMBAC Insd)............................... 7.500 06/01/19 802,260
1,000 Brea & Olinda, CA Unified Sch Dist Ctfs Partn Sr
High Sch Pgm Ser A Rfdg (Cap Guar Insd)......... 6.000 08/01/09 1,027,320
1,300 California Edl Fac Auth Rev Univ San Diego Proj
Stanford Univ Ser I (MBIA Insd)................. 6.750 10/01/15 1,380,171
2,000 California Hlth Fac Fin Auth Rev Adventist Hlth
Ser A Rfdg (MBIA Insd).......................... 6.500 03/01/14 2,083,660
2,650 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (AMBAC Insd)................... 5.550 08/15/25 2,491,742
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)..................... 5.550 08/15/25 1,877,940
15 California Hsg Fin Agy Rev Hsg Ser B (MBIA
Insd)........................................... 8.625 08/01/15 15,546
1,180 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (MBIA Insd)............................... 8.100 03/01/18 1,241,926
1,500 California St (FGIC Insd)....................... 6.250 09/01/12 1,616,850
4,650 California St Pub Wks Brd Lease Rev Dept of
Corrections CA St Prison Coalinga Ser B (MBIA
Insd)........................................... 5.375 12/01/19 4,344,774
1,000 California St Pub Wks Brd Lease Rev Ser A (AMBAC
Insd)........................................... 5.750 09/01/21 979,720
1,000 California St Univ Fresno Assn Inc Rev Auxiliary
Residence Student Proj (MBIA Insd).............. 6.250 02/01/17 1,027,870
1,000 California St Var Purp (MBIA Insd).............. 6.000 10/01/10 1,056,480
4,500 California St Var Purp (MBIA Insd).............. 6.000 10/01/14 4,550,580
1,000 California St Var Purp (FSA Insd)............... 5.500 04/01/19 947,160
2,460 California Statewide Cmntys Ctfs Devereux Fndtn
(AMBAC Insd).................................... 5.250 11/01/19 2,271,687
1,570 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Insd Children's Hosps Rfdg (MBIA Insd).... 6.000 06/01/10 1,623,176
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt
Proj Ser A Rfdg (MBIA Insd)..................... 7.000 08/01/12 2,286,220
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)...... 6.200 09/01/18 1,140,250
2,350 Chino, CA Unified Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)............................ 6.250 03/01/09 2,485,172
1,500 Chino, CA Unified Sch Dist Ctfs Partn Master
Lease Pgm (FSA Insd)............................ 6.000 03/01/14 1,519,065
1,200 Colton, CA Jt Unified Sch Dist Cmnty Fac Dist
Spl Tax Southridge Village Rfdg (Cap Guar
Insd)........................................... 5.900 09/01/14 1,199,892
</TABLE>
See Notes to Financial Statements
7
<PAGE> 84
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,500 Compton, CA Cmnty Redev Agy Tax Alloc Walnut
Indl Park Ser A Rfdg (Prerefunded @ 08/01/99)
(AMBAC Insd).................................... 7.500% 08/01/13 $ 1,661,250
20 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd).................... 8.000 07/01/18 21,641
1,000 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)..................... 7.800 06/01/06 1,092,710
500 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)..................... 7.800 06/01/07 546,355
1,000 Contra Costa Cnty, CA Santn Dist No 7A Ctfs
Partn Sub-Delta Diablo Fin Corp (Prerefunded @
12/01/98) (MBIA Insd)........................... 7.600 12/01/08 1,097,720
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev Ser
A Rfdg (FGIC Insd).............................. 5.750 10/01/14 1,538,592
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj Area A
Ser A Rfdg (FGIC Insd).......................... 6.250 09/01/13 5,371,445
2,000 Fairfield Suisun, CA Swr Dist Swr Rev Ser A Rfdg
(MBIA Insd)..................................... 6.250 05/01/16 2,032,560
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)... 6.000 10/01/12 1,022,410
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)... 6.000 10/01/19 1,405,726
1,745 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J
Cap Projs Rfdg (FSA Insd)....................... 5.875 09/01/06 1,844,779
1,810 Gilroy, CA Unified Sch Dist Ctfs Partn Measure J
Cap Projs Rfdg (FSA Insd)....................... 6.250 09/01/12 1,890,853
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)..................................... * 11/15/21 3,629,600
1,750 Irwindale, CA Cmnty Redev Agy Tax Alloc Indl Dev
Proj Rfdg (AMBAC Insd).......................... 7.000 08/01/15 1,807,750
1,835 Local Govt Fin Auth CA Rev Cap Apprec San
Francisco Redev (MBIA Insd)..................... * 08/01/08 918,252
2,000 Local Govt Fin Jt Pwrs Auth CA Rev Anaheim Redev
Agy Ser A (Prerefunded @ 09/01/98) (MBIA Insd)
(c)............................................. 7.950 09/01/09 2,197,220
1,850 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent
Proj B Rfdg (AMBAC Insd)........................ 7.000 12/01/15 1,995,391
2,500 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent
Rfdg (MBIA Insd)................................ 5.375 12/01/22 2,298,700
1,000 Long Beach, CA Redev Agy Downtown Redev Proj Ser
A (Prerefunded @ 11/01/98) (AMBAC Insd)......... 7.750 11/01/10 1,098,460
100 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive
View Med Ser A (Prerefunded @ 04/01/99) (AMBAC
Insd)........................................... 9.100 04/01/01 114,068
85 Los Angeles Cnty, CA Hlth Fac Auth Rev Olive
View Med Ser A (Prerefunded @ 04/01/99) (AMBAC
Insd)........................................... 9.200 04/01/02 97,162
794 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR
Lease Ltd (FSA Insd)............................ 7.375 12/15/06 880,490
6,000 Los Angeles, CA Unified Sch Dist Ctfs Partn
Multi-Ppty Proj Rfdg (FSA Insd)................. 5.625 11/01/13 5,934,060
1,200 Los Angeles, CA Wastewtr Sys Rev (Prerefunded @
08/01/98) (MBIA Insd) (c)....................... 7.700 08/01/18 1,309,020
</TABLE>
See Notes to Financial Statements
8
<PAGE> 85
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser E
(MBIA Insd)..................................... 6.000% 07/01/22 $ 501,175
1,300 Martinez, CA Ctfs Partn Martinez Pub Impt Corp
(Prerefunded @ 12/01/98) (AMBAC Insd)........... 7.700 12/01/18 1,441,791
750 Mesa, CA Cons Wtr Dist Ctfs Partn Mesa Cons Wtr
Impt Co Cap Impt (AMBAC Insd)................... 7.625 03/15/08 809,423
2,000 Mojave, CA Wtr Agy Impt Dist M Morongo Basin
Rfdg (FGIC Insd)................................ 5.800 09/01/22 1,990,480
4,075 New Haven, CA Unified Sch Dist Ser D (FGIC
Insd)........................................... * 08/01/16 1,156,037
4,355 New Haven, CA Unified Sch Dist Ser D (FGIC
Insd)........................................... * 08/01/17 1,160,390
1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (Cap Guar Insd).......................... 5.750 09/01/15 1,246,287
1,640 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (Cap Guar Insd).......................... 6.000 09/01/19 1,651,808
500 Northern CA Pwr Agy Pub Pwr Rev Combustion
Turbine Proj 1 Ser A Rfdg (MBIA Insd)........... 6.000 08/15/10 506,275
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec Proj
1 Ser A Rfdg (Prerefunded @ 07/01/21) (AMBAC
Insd)........................................... 7.500 07/01/23 467,584
2,500 Oakland, CA Jt Pwrs Fin Auth Lease Rev Oakland
Admin Bldgs (AMBAC Insd)........................ 5.750 08/01/26 2,462,900
2,760 Oakland, CA Unified Sch Dist Alameda Cnty Cap
Apprec Ser A (FGIC Insd)........................ * 08/01/13 968,815
3,475 Oakland, CA Unified Sch Dist Alameda Cnty Cap
Apprec Ser A (FGIC Insd)........................ * 08/01/14 1,147,341
750 Oceanside, CA Ctfs Partn Corp Yard Proj Fin
(Prerefunded @ 08/01/02) (AMBAC Insd)........... 7.300 08/01/21 864,165
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)........................................... 5.750 06/01/15 988,030
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)............................... 8.806 04/01/22 3,183,750
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA
Insd)........................................... 6.100 03/01/16 1,010,450
1,945 Pittsburg, CA Unified Sch Dist Ctfs Partn (AMBAC
Insd)........................................... 6.300 09/01/15 2,004,186
2,065 Pomona, CA Pub Fin Auth Rev Ser Q (MBIA Insd)... 5.900 12/01/25 2,067,437
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm Rfdg
(MBIA Insd)..................................... 6.000 04/01/19 1,403,588
1,680 Rancho CA Wtr Dist Spl Tax Cmnty Fac Dist 883
Ser A Rfdg (AMBAC Insd) (b)..................... 6.000 09/01/17 1,656,110
1,000 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd).......................... 7.125 09/01/19 1,080,360
1,235 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd).......................... 6.750 09/01/20 1,302,851
1,265 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (Prerefunded @ 09/01/99) (MBIA
Insd)........................................... 6.750 09/01/20 1,375,903
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse
Fltg) (MBIA Insd)............................... 8.901 07/08/22 1,125,000
2,495 Rio Linda, CA Univ Sch Dist Ser A (AMBAC
Insd)........................................... 6.250 08/01/15 2,559,246
</TABLE>
See Notes to Financial Statements
9
<PAGE> 86
<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,000 Rohnert Park, CA Hsg Fin Auth Rev Rancho Feliz
Mobile Home Park (FSA Insd)..................... 5.600% 12/01/15 $ 1,942,320
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser A
Rfdg (MBIA Insd)................................ 5.750 08/15/13 1,985,860
2,000 Saddle Back Cmnty College CA Cap Impt Fin Proj
(MBIA Insd)..................................... 5.500 06/01/21 1,907,420
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)..................... 7.350 07/01/16 2,374,800
1,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (MBIA Insd)............................... 6.400 09/01/18 1,036,870
1,000 San Gabriel, CA Unified Sch Dist Ctfs Partn (FSA
Insd)........................................... 6.000 09/01/15 1,012,490
5,750 San Jose, CA Fin Auth Rev Convention Proj Ser C
(Cap Guar Insd)................................. 6.375 09/01/13 5,966,832
2,000 San Mateo Cnty, CA Jt Pwrs Fin Auth Lease Rev
San Mateo Cnty Hlth Care Cent Ser A (FSA
Insd)........................................... 6.000 07/15/09 2,062,320
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (AMBAC Insd)............. 6.875 11/15/14 1,098,630
1,000 Shasta Lake, CA Ctfs Partn Ctfs Partn (FSA
Insd)........................................... 6.000 04/01/16 1,012,140
1,990 South Cnty, CA Regl Wastewtr Auth Rev Regl
Wastewtr Fac Proj Ser A (FGIC Insd)............. 6.000 08/01/14 2,012,089
3,735 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev
Sr Lien Ser A Rfdg (MBIA Insd).................. 7.000 09/01/08 4,293,495
3,000 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev
Sr Lien Ser A Rfdg (MBIA Insd).................. 7.000 09/01/09 3,437,340
2,490 Southern CA Pub Pwr Auth Pwr Proj Rev San Juan
Unit 3 Ser A (MBIA Insd)........................ 5.000 01/01/20 2,196,902
2,000 Southern CA Pub Pwr Auth Pwr Proj Rev Ser A Rfdg
(AMBAC Insd).................................... 5.000 07/01/15 1,799,080
1,050 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (FGIC Insd)............... 6.400 09/01/07 1,142,715
1,015 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (FGIC Insd)............... 6.500 09/01/08 1,102,798
1,710 Temecula Vly, CA Unified Sch Dist Ctfs Partn
Rfdg (FSA Insd) (b)............................. 6.000 09/01/18 1,710,445
2,000 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd)..................................... 6.750 01/01/12 2,060,580
3,000 University of CA Rev Multi Purp Proj Ser D (MBIA
Insd)........................................... 6.300 09/01/14 3,101,190
------------
TOTAL LONG-TERM INVESTMENTS 98.4%
(Cost $161,617,672) (a).................................................... 168,504,833
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.7%............................... 2,900,000
LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%)................................ (199,038)
------------
NET ASSETS 100%............................................................. $171,205,795
============
*Zero coupon bond
</TABLE>
(a) At June 30, 1996, cost for federal income tax purposes is $161,617,672; the
aggregate gross unrealized appreciation is $7,495,674 and the aggregate
gross unrealized depreciation is $608,513, resulting in net unrealized
appreciation of $6,887,161.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
See Notes to Financial Statements
10
<PAGE> 87
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at Market Value (Cost $161,617,672) (Note 1)............... $168,504,833
Short-Term Investments (Note 1)......................................... 2,900,000
Cash.................................................................... 108,017
Receivables:
Interest.............................................................. 2,644,392
Securities Sold....................................................... 977,344
Fund Shares Sold...................................................... 168,585
Other................................................................... 7,127
------------
Total Assets...................................................... 175,310,298
------------
LIABILITIES:
Payables:
Securities Purchased.................................................. 3,345,049
Income Distributions.................................................. 276,667
Distributor and Affiliates (Notes 2 and 6)............................ 147,815
Fund Shares Repurchased............................................... 71,641
Investment Advisory Fee (Note 2)...................................... 66,600
Accrued Expenses........................................................ 131,936
Deferred Compensation and Retirement Plans (Note 2)..................... 64,795
------------
Total Liabilities................................................. 4,104,503
------------
NET ASSETS.............................................................. $171,205,795
============
NET ASSETS CONSIST OF:
Capital (Note 3)........................................................ $170,678,418
Net Unrealized Appreciation on Securities............................... 6,887,161
Accumulated Undistributed Net Investment Income......................... 24,449
Accumulated Net Realized Loss on Securities............................. (6,384,233)
------------
NET ASSETS.............................................................. $171,205,795
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $142,619,095 and 8,347,626 shares of capital stock issued and
outstanding) (Note 3)............................................... $ 17.08
Maximum sales charge (3.25%* of offering price)..................... .57
------------
Maximum offering price to public.................................... $ 17.65
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$26,751,279 and 1,565,794 shares of capital stock issued and
outstanding) (Note 3)............................................... $ 17.08
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$1,835,421 and 107,434 shares of capital stock issued and
outstanding) (Note 3)............................................... $ 17.08
============
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
11
<PAGE> 88
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest............................................................... $ 5,143,064
------------
EXPENSES:
Investment Advisory Fee (Note 2)....................................... 410,588
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C
of $172,449,
$125,764 and $9,158, respectively) (Note 6).......................... 307,371
Shareholder Services (Note 2).......................................... 82,998
Trustees Fees and Expenses (Note 2).................................... 16,899
Legal (Note 2)......................................................... 13,104
Insurance (Note 1)..................................................... 1,618
Other.................................................................. 152,649
------------
Total Expenses..................................................... 985,227
Less Expenses Reimbursed........................................... 4,986
------------
Net Expenses....................................................... 980,241
------------
NET INVESTMENT INCOME.................................................. $ 4,162,823
============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments.......................................................... $ 1,073,427
Options.............................................................. (189,372)
Futures.............................................................. 77,215
------------
Net Realized Gain on Securities........................................ 961,270
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 14,349,301
End of the Period:
Investments........................................................ 6,887,161
------------
Net Unrealized Depreciation on Securities During the Period............ (7,462,140)
------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES......................... $ (6,500,870)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS............................. $ (2,338,047)
============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 89
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 4,162,823 $ 8,348,656
Net Realized Gain on Securities................... 961,270 20,891
Net Unrealized Appreciation/Depreciation on
Securities During the Period.................... (7,462,140) 18,451,807
------------ ------------
Change in Net Assets from Operations.............. (2,338,047) 26,821,354
------------ ------------
Distributions from Net Investment Income:
Class A Shares.................................. (3,574,443) (7,355,019)
Class B Shares.................................. (525,725) (897,526)
Class C Shares.................................. (38,206) (115,024)
------------ ------------
Total Distributions............................... (4,138,374) (8,367,569)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (6,476,421) 18,453,785
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold......................... 15,080,241 24,793,274
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 2,485,354 4,996,930
Cost of Shares Repurchased........................ (13,890,701) (24,371,464)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 3,674,894 5,418,740
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS............. (2,801,527) 23,872,525
NET ASSETS:
Beginning of the Period........................... 174,007,322 150,134,797
------------ ------------
End of the Period (Including undistributed net
investment income
of $24,449 and $0, respectively)................ $171,205,795 $174,007,322
============ ============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 90
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
Year Ended December 31
Six Months Ended ------------------------------
Class A Shares June 30, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $17.736 $15.802 $18.286 $16.858 $16.259
------- ------- ------- ------- -------
Net Investment Income............. .429 .884 .912 .967 1.004
Net Realized and Unrealized
Gain/Loss on Securities......... (.655) 1.938 (2.484) 1.441 .585
------- ------- ------- ------- -------
Total from Investment
Operations...................... (.226) 2.822 (1.572) 2.408 1.589
Less Distributions from and in
Excess of Net Investment
Income.......................... .426 .888 .912 .980 .990
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $17.084 $17.736 $15.802 $18.286 $16.858
======= ======= ======= ======= =======
Total Return* (a)................. (1.38%)** 18.28% (8.75%) 14.54% 10.08%
Net Assets at End of the Period
(In millions)................... $142.6 $147.6 $130.3 $151.1 $74.2
Ratio of Expenses to Average
Net Assets*..................... 1.02% .89% .78% .69% .69%
Ratio of Net Investment Income to
Average Net Assets*............. 4.98% 5.23% 5.46% 5.37% 6.07%
Portfolio Turnover................ 15%* 42% 56% 36% 61%
* If certain expenses had not been assumed by VKAC, total return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets...................... 1.03% 1.05% 1.08% 1.01% 1.08%
Ratio of Net Investment Income to
Average Net Assets.............. 4.98% 5.07% 5.16% 5.05% 5.68%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
14
<PAGE> 91
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
Six Months From May 1, 1993
Ended Year Ended Year Ended (Commencement of
June 30, December 31, December 31, Distribution) to
Class B Shares 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $17.736 $15.805 $18.266 $17.570
------- ------- ------- -------
Net Investment Income....... .360 .766 .785 .549
Net Realized and Unrealized
Gain/Loss on Securities... (.652) 1.926 (2.482) .705
------- ------- ------- -------
Total from Investment
Operations................ (.292) 2.692 (1.697) 1.254
Less Distributions from and
in Excess of Net
Investment Income......... .360 .761 .764 .558
------- ------- ------- -------
Net Asset Value,
End of the Period......... $17.084 $17.736 $15.805 $18.266
======= ======= ======= =======
Total Return* (a)........... (1.75%)** 17.33% (9.39%) 7.25%**
Net Assets at End of the
Period (In millions)...... $26.8 $24.6 $17.1 $15.3
Ratio of Expenses to Average
Net Assets*............... 1.79% 1.61% 1.52% 1.45%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.21% 4.51% 4.71% 4.06%
Portfolio Turnover.......... 15%** 42% 56% 36%
* If certain expenses had not been assumed by VKAC, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................ 1.79% 1.77% 1.82% 1.77%
Ratio of Net Investment
Income to Average Net
Assets.................... 4.20% 4.35% 4.41% 3.74%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
15
<PAGE> 92
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- ----------------------------------------------------------------------------------------
From August 13,
Six Months 1993
Ended Year Ended Year Ended (Commencement of
June 30, December 31, December 31, Distribution) to
Class C Shares 1996 1995 1994 December 31, 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period... $17.736 $15.798 $18.257 $18.010
------- ------- ------- -------
Net Investment Income....... .362 .758 .773 .307
Net Realized and Unrealized
Gain/Loss on Securities... (.654) 1.941 (2.468) .258
------- ------- ------- -------
Total from Investment
Operations................ (.292) 2.699 (1.695) .565
Less Distributions from and
in Excess of Net
Investment Income......... .360 .761 .764 .318
------- ------- ------- -------
Net Asset Value,
End of the Period......... $17.084 $17.736 $15.798 $18.257
======= ======= ======= =======
Total Return* (a)........... (1.75%)** 17.40% (9.40%) 3.17%**
Net Assets at End of the
Period
(In millions)............. $1.8 $1.8 $2.8 $4.0
Ratio of Expenses to Average
Net Assets*............... 1.79% 1.60% 1.51% 1.45%
Ratio of Net Investment
Income
to Average Net Assets*.... 4.21% 4.50% 4.71% 3.82%
Portfolio Turnover.......... 15%** 42% 56% 36%
*If certain expenses had not been assumed by VKAC, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................ 1.80% 1.75% 1.82% 1.76%
Ratio of Net Investment
Income to Average Net
Assets.................... 4.20% 4.34% 4.39% 3.52%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
16
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital California Insured Tax Free Fund (the "Fund") is
organized as a series of the Van Kampen American Capital 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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
17
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $7,345,503. Of this amount, $1,014,876,
$105,997, $5,623,922 and $600,708 will expire on December 31, 1996, 2001, 2002
and 2003, respectively. Net realized gains or losses may differ for financial
and tax reporting purposes primarily as a result of post October 31 losses which
are not recognized for tax purposes until the first day of the following fiscal
year.
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.
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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $100 million...................................... .500 of 1%
Next $150 million....................................... .450 of 1%
Next $250 million....................................... .425 of 1%
Over $500 million....................................... .400 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
18
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $13,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $65,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the six months ended June 30, 1996, the Fund reimbursed
VKAC approximately $32,400 related to the cost of consolidating the VKAC
open-end fund complex. The reimbursement represents savings realized by the Fund
as a result of the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 100 shares each of Classes B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
19
<PAGE> 96
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $140,515,693, $27,872,836 and
$2,289,889 for Classes A, B and C, respectively. For the six months ended June
30, 1996, transactions were as follows:
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 607,986 $ 10,566,890
Class B.................................. 237,763 4,103,400
Class C.................................. 23,610 409,951
-------- ------------
Total Sales................................ 869,359 $ 15,080,241
======== ============
Dividend Reinvestment:
Class A.................................. 123,772 $ 2,139,082
Class B.................................. 18,591 321,103
Class C.................................. 1,458 25,169
-------- ------------
Total Dividend Reinvestment................ 143,821 $ 2,485,354
======== ============
Repurchases:
Class A.................................. (703,716) $(12,161,595)
Class B.................................. (78,348) (1,356,397)
Class C.................................. (21,231) (372,709)
-------- ------------
Total Repurchases.......................... (803,295) $(13,890,701)
======== ============
</TABLE>
20
<PAGE> 97
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $139,971,316, $24,804,730 and
$2,227,478 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 986,569 $ 16,771,568
Class B.................................. 434,181 7,401,889
Class C.................................. 36,228 619,817
--------- ------------
Total Sales................................ 1,456,978 $ 24,793,274
========= ============
Dividend Reinvestment:
Class A.................................. 258,526 $ 4,396,599
Class B.................................. 31,979 544,950
Class C.................................. 3,266 55,381
--------- ------------
Total Dividend Reinvestment................ 293,771 $ 4,996,930
========= ============
Repurchases:
Class A.................................. (1,170,822) $(19,801,544)
Class B.................................. (157,415) (2,652,072)
Class C.................................. (112,218) (1,917,848)
--------- ------------
Total Repurchases.......................... (1,440,455) $(24,381,464)
========= ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<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>
21
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$7,300 and CDSC on redeemed shares of approximately $19,200. 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 $26,248,684 and $26,307,562,
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 on securities. Upon disposition, a realized gain or
loss is recognized accordingly.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the six months ended June 30, 1996 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995................ -0- $ -0-
Options Written and Purchased (Net)............. 600 (275,156)
Options Terminated in Closing Transactions
(Net)......................................... (600) 275,156
---- ---------
Outstanding at June 30, 1996.................... -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.
22
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Upon entering into futures 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 the broker based upon changes in the value
of the contract (the variation margin). The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
- ------------------------------------------------------------------------
Outstanding at December 31, 1995.......................... -0-
Futures Opened............................................ 250
Futures Closed............................................ (250)
----
Outstanding at June 30, 1996.............................. -0-
====
</TABLE>
B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
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 shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $100,400.
23
<PAGE> 100
VAN KAMPEN AMERICAN CAPITAL CALIFORNIA INSURED TAX FREE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the (C) Van Kampen American Capital
Fund, as defined in the Investment Distributors, Inc., 1996 All rights
Company Act of 1940. reserved.
(SM) denotes a service mark of Van
Kampen American Capital
Distributors, 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.
24
<PAGE> 101
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 28
Statement of Operations.......................... 29
Statement of Changes in Net Assets............... 30
Financial Highlights............................. 31
Notes to Financial Statements.................... 34
</TABLE>
MIF SAR 8/96
<PAGE> 102
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley [PHOTO]
Group Inc. While this announcement DENNIS J. MCDONNELL AND DON G. POWELL
may appear commonplace in an
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and asset management and Van Kampen American
Capital's reputation for competitive long-term performance and superior investor
services, together we will offer a broader range of investment opportunities and
expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 103
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at rates more moderate than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. In particular,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing political
momentum for tax reform, which could have eroded the value of the market's
tax-exempt status. However, the momentum slowed substantially and now
appears to be on the back burner until after the 1996 Presidential election.
This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a Question and Answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 104
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on
NAV(1)............................... (.76%) (1.13%) (1.20%)
Six-month total return(2).............. (5.50%) (4.99%) (2.16%)
One-year total return(2)............... 1.18% 1.46% 4.40%
Five-year average annual total
return(2)............................ 6.36% N/A N/A
Life-of-Fund average annual total
return(2)............................ 6.75% 4.23% 2.90%
Commencement date...................... 08/01/90 08/24/92 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)................... 5.60% 5.12% 5.13%
Taxable-equivalent distribution
rate(4).............................. 8.75% 8.00% 8.02%
SEC Yield(5)........................... 5.15% 4.64% 4.64%
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996.
A portion of the interest income may be subject to the federal alternative
minimum tax (AMT).
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 105
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
New York............... 12.5%
Illinois............... 11.9%
California............. 7.8%
Texas.................. 6.9%
Colorado............... 6.0%
Florida................ 5.0%
Michigan............... 3.4%
Pennsylvania........... 3.2%
Oklahoma............... 3.0%
Utah................... 3.0%
</TABLE>
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C> <C> <C>
/ / AAA......... 34.9%
/ / AA.......... 8.1%
/ / A........... 12.1%
/ / BBB......... 19.0% [Pie Chart]
/ / BB.......... 4.1%
/ / B........... 0.4%
/ / Non-Rated... 21.4%
AS OF DECEMBER 31, 1995
/ / AAA......... 38.9%
/ / AA.......... 5.7%
/ / A........... 13.9% [Pie Chart]
/ / BBB......... 17.3%
/ / BB.......... 3.4%
/ / B........... 0.6%
/ / CCC......... 0.2%
/ / Non-Rated... 20.0%
</TABLE>
Based on credit quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care........... 21.3%
Industrial Revenue.... 14.8%
General Purpose....... 7.7%
Single Family
Housing............. 7.2%
Tax District.......... 6.1%
AS OF DECEMBER 31, 1995
Health Care........... 20.6%
Industrial Revenue.... 10.5%
Single Family
Housing............. 7.2%
Transportation........ 7.0%
General Purpose....... 6.9%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 8.01 years 7.93 years
</TABLE>
4
<PAGE> 106
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Municipal Income Fund about the key events and economic forces that shaped the
markets during the first half of the Fund's fiscal year. The team includes David
C. Johnson, portfolio manager, and Peter W. Hegel, executive vice president for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1996.
Q THE MUNICIPAL BOND MARKET EXPERIENCED SOME FLUCTUATIONS DURING THE FIRST
SIX MONTHS OF 1996. COULD YOU EXPLAIN WHAT HAPPENED IN THE MARKET DURING
THIS PERIOD, AND WHAT FACTORS PLAYED THE GREATEST ROLE?
A We did see some significant price fluctuations in the municipal bond
market during the first half of the year. January was the only period that
enjoyed the same positive investment environment that dominated the bond
market through most of 1995. In contrast, February brought an abrupt end to the
increase in bond prices, and this environment continued throughout the rest of
the reporting period. Instead of anticipating further interest rate reductions,
the market grew wary that interest rates might be increased (tightened) by the
Federal Reserve Board. This concern was triggered by two main factors:
- - The federal government was shut down twice, which indicated that balanced
budget legislation was not imminent.
- - Several economic indicators pointed to accelerating economic growth.
Consecutive monthly employment reports showed significant increases in
employment. For example, 239,000 non-farm jobs were added to the economy in
June.
These factors led to fears that inflation, which had been holding steady
around 3 percent, might increase. Fears heightened when agricultural commodity
and oil prices rose to their highest levels in two years. As a result, the Fed
shifted policy from an accommodative mode (lowering interest rates) in January
to a stable, or neutral, mode. Thereafter, bond prices generally began to
decrease.
Q HOW WAS THE FUND STRUCTURED OVER THE LAST SIX MONTHS?
A The Fund is managed to seek to provide both an attractive tax-exempt yield
and a relatively stable net asset value. The majority of the Fund's
holdings are investment-grade bonds (BBB-rated or higher), with 55 percent
rated single-A or higher. As of June 30, 1996 more than 25 percent of the Fund
was invested in non-rated securities and those rated below investment-grade. By
utilizing both kinds of issues, we are able to position the Fund defensively
against bond price fluctuations. This is because values of non-rated and
lower-rated securities are less dependent on interest rates and more dependent
on credit quality considerations. In contrast, the values of higher-rated
securities are more responsive to changes in interest rates, but these
securities incur less credit risk.
5
<PAGE> 107
Over the past six months, the Fund's duration stood at approximately 8
years. Duration is a measurement of a portfolio's sensitivity to changes in
interest rates--the shorter the duration, the less sensitive the portfolio is
expected to be to interest rate movements. The Fund's 8-year duration is
consistent with major municipal bond indices and is a level that allows us to
achieve a balance between maintaining an attractive dividend and protecting the
portfolio against diverse market changes.
We continue to see value in 15- to 20-year maturities. Acquisitions in the
Fund have emphasized this maturity range, which we believe offers the best
relative value compared to Treasury yields at this time, with less price
volatility than is usually associated with long-term maturities. Please refer to
page four for Fund portfolio highlights.
Q WERE THERE SOME OTHER FACTORS THAT INFLUENCED THE MUNICIPAL BOND MARKET
OVER THE LAST SIX MONTHS?
A The supply and demand relationship continued to be a positive influence on
the municipal bond market over the reporting period--supply remained low
while demand remained fairly strong. This helped support bond prices and
partly offset the negative effect that rising interest rates had on bond prices.
Another influence was the role that potential major tax reform played on
municipal bonds. The market's initial reaction to this issue was negative,
because major reform may remove the tax advantage municipal bonds now offer. We
believe the market has now discounted the potential impact of tax reform, and we
do not expect any type of reform to be implemented until 1997, at the earliest.
However, this issue may continue to receive media coverage throughout the
remainder of 1996, primarily near the presidential election in November, and we
will continue to monitor it closely for any developments.
Q WHAT WERE THE MOST ATTRACTIVE SECTORS FOR THE FUND?
A We continued to find value in a wide array of sectors and individual
issues across many categories for both investment and non-investment grade
acquisitions. One sector that continues to remain attractive is healthcare
and its related areas. Because we have dedicated analysts who specialize in
thoroughly researching each sector, we continue to find issues offering the
greatest relative value. Recently, the housing sector has also provided some
attractive holdings for the Fund.
Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1996?
A For the six months ended June 30, 1996, the Fund's total return was -0.76
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index earned a total return of -0.45 percent over the
same period. Longer term, the Fund generated a one-year total return of 6.26
percent(1) (Class A shares at net asset value) through June 30, 1996. The Lehman
Index is a broad-based, unmanaged index of municipal bonds and does not reflect
any commissions or fees that would be paid by an investor purchasing the
securities it represents. Please refer to the chart on page three for additional
Fund performance results.
6
<PAGE> 108
At its current annualized dividend level of $0.882 per share, the Fund
provides shareholders with a tax-free distribution rate of 5.60 percent(3)
(Class A shares) as of June 30, 1996. At this distribution rate, the Fund
provides shareholders in the 36 percent federal income tax bracket with a yield
equivalent to a taxable investment earning 8.75 percent(4).
Q
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET IN THE UPCOMING MONTHS,
AND WHAT FACTORS COULD INFLUENCE YOUR MANAGEMENT OF THE FUND?
A
The municipal market should remain stable over the next few months,
especially if the current market fundamentals--including low inflation and
a positive supply and demand ratio--remain in place. We do not anticipate
any significant changes in the management of the Fund. However, if the economy
continues to show signs of strong growth, we could see some changes in market
fundamentals:
- - INFLATION has been holding at a low 2 to 3 percent range for some time now,
but going forward, there is some concern that inflation could slowly creep
upward, which could have a negative effect on the market.
- - INTEREST RATES: We anticipate the Federal Reserve will remain in a neutral
policy mode, but it may become necessary to tighten interest rates if the
economy continues to strengthen. However, the Fund is structured defensively
against such increases with its high-yielding, non-rated holdings.
- - The positive ratio between LOWER SUPPLY AND HIGHER DEMAND should continue in
the upcoming months, which is a stabilizing influence on municipal bond
values. If there is a rally in bond prices, we could see an increase in
refundings, which could bring more supply into the market.
[SIG]
Peter W. Hegel
Executive Vice President
Fixed Income Investments
[SIG]
David C. Johnson
Portfolio Manager
Please see footnotes on page three
7
<PAGE> 109
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 1.6%
$ 2,100 Alabama St Indl Dev Auth Rev (Var Rate Cpn).... 7.500% 09/15/11 $ 2,056,593
3,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd) (c)......................... 6.750 08/15/17 3,218,250
5,055 Bay Minette, AL Indl Dev Brd Indl Dev Rev
Coltec Inds Inc Rfdg (c)....................... 6.500 02/15/09 5,021,435
700 Citronelle, AL Util Brd Wtr Swr & Gas Rev
(Prerefunded @ 05/01/97)....................... 9.000 05/01/13 729,001
1,250 Fort Payne, AL Waterworks Brd Wtr Rev (MBIA
Insd).......................................... 5.300 07/01/11 1,207,950
1,050 IDB of the City of Bessemer, AL Rohn Inc Ser
91A (Var Rate Cpn)............................. 9.000 09/15/01 1,116,213
1,750 IDB of the City of Bessemer, AL Rohn Inc Ser
91A (Var Rate Cpn)............................. 9.500 09/15/11 2,039,187
1,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg................ 6.950 01/01/20 1,042,770
--------------
16,431,399
--------------
ALASKA 0.4%
2,500 Alaska Energy Auth Pwr Rev First Ser Bradley
Lake Proj (BIGI Insd).......................... 6.250 07/01/21 2,518,650
1,000 Valdez, AK Marine Term Rev Sohio Pipeline
Rfdg........................................... 7.125 12/01/25 1,096,240
--------------
3,614,890
--------------
ARIZONA 2.1%
1,000 Maricopa Cnty, AZ Indl Dev Auth Indl Dev Rev
Borden Inc Proj................................ 5.040 10/01/12 990,810
1,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev Rfdg................................... 6.500 07/01/09 1,028,120
1,000 Pima Cnty, AZ Indl Dev Auth Single Family Mtg
Rev (GNMA Collateralized) (c).................. 6.625 11/01/14 1,030,850
5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A..... 9.500 07/01/10 6,034,529
500 Scottsdale, AZ Indl Dev Auth Rev Mtg
Westminster Village A.......................... 8.250 06/01/15 523,785
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd) (b)............... 6.000 09/01/12 1,826,962
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd) (b)............... 6.125 09/01/17 1,706,495
500 Tempe, AZ Indl Dev Auth Indl Dev Rev Ser A..... 6.750 12/01/13 495,425
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev Lockheed
Aermod Cent Inc (c)............................ 8.700 09/01/19 7,944,580
--------------
21,581,556
--------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 110
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -0-------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARKANSAS 0.7%
$ 5,470 Dogwood Addition PRD Muni Ppty Owners Multi
Purp Impt Dist No 8 AR Impt Ser A (d).......... 7.500% 01/31/06 $ 5,251,200
5,470 Dogwood Addition PRD Muni Ppty Owners Multi
Purp Impt Dist No 8 AR Impt Ser B (d).......... 7.500 01/31/06 1,641,000
--------------
6,892,200
--------------
CALIFORNIA 7.7%
5,385 California Edl Fac Auth Rev College of
Osteopathic Med Pacific (Prerefunded @
06/01/03)...................................... 7.500 06/01/18 6,048,701
2,880 California Edl Fac Auth Rev Univ of La Verne... 6.300 04/01/09 2,897,942
4,980 California Hlth Fac Fin Auth Rev Kaiser
Permanente Med Cent............................ 5.450 10/01/13 4,659,637
2,500 California Pollutn Ctl Fin Auth Pollutn Ctl San
Diego Gas & Elec Co Ser A...................... 5.900 06/01/14 2,520,825
2,000 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Sisters Charity.......................... 4.875 12/01/10 1,801,740
2,000 Compton, CA Ctfs Partn Ser B................... 7.500 08/01/15 2,106,760
4,285 Delano, CA Ctfs Partn Ser A.................... 9.250 01/01/22 4,789,987
1,000 El Centro, CA Ctfs Partn....................... 7.000 06/01/19 991,480
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/10 1,135,687
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/11 2,329,203
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/13 1,318,321
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/14 1,728,858
970 Fairfield, CA Hsg Auth Mtg Rev Creekside
Estates Proj Rfdg.............................. 7.875 02/01/15 991,660
28,000 Foothill/Eastern Tran Agy Cap Apprec Sr Lien
Ser A.......................................... * 01/01/27 3,662,120
75,145 Foothill/Eastern Tran Corridor Agy CA Toll Road
Rev Sr Lien Ser A.............................. * 01/01/29 8,601,097
2,800 Los Angeles Cnty, CA Ctfs Partn (Embedded
Swap).......................................... 7.660 11/01/01 2,883,552
1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin
Auth Rev Grand Cent Sq Ser A................... 5.850 12/01/26 887,800
1,000 Los Angeles, CA Cmnty Redev Agy Cmnty Redev Fin
Auth Rev Grand Cent Sq Ser A................... 5.900 12/01/26 930,160
3,065 Los Angeles, CA Wastewtr Sys Rev Ser A (FGIC
Insd) (c)...................................... 5.000 02/01/13 2,807,325
1,000 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd).................................... 6.125 03/15/23 1,014,800
1,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd).................................... 5.750 03/15/28 1,477,260
1,100 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/05 684,882
900 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/10 397,800
800 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/11 330,192
</TABLE>
See Notes to Financial Statements
9
<PAGE> 111
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 700 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/12 $ 267,820
700 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/13 248,234
700 Monterey, CA Regl Wastewater Fin Auth
Wastewater Contract Rev (FSA Insd)............. * 06/01/14 233,485
500 Norco, CA Swr & Wtr Rev Rfdg................... 6.700% 10/01/13 501,215
500 Norco, CA Swr & Wtr Rev Rfdg................... 7.200 10/01/19 519,955
300 Northern CA Pwr Agy Pub Pwr Rev Geothermal Proj
No 3 Ser A..................................... 5.000 07/01/09 278,028
3,200 Orange Cnty, CA Cmnty Fac Dist Spl Tax No 88-1
Aliso Viejo Ser A (Prerefunded @ 08/15/02) (c). 7.350 08/15/18 3,688,544
6,450 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd).......................................... 6.000 07/01/07 6,729,865
4,000 Riverside Cnty, CA Ctfs Partn Air Force Village
West Inc A..................................... 8.125 06/15/20 4,142,840
920 San Jose, CA Fin Auth Rev Reassmt Ser C Rfdg... 7.000 09/02/15 924,223
2,000 Santa Ana, CA Cmnty Redev Agy Tax Ser B Rfdg... 7.500 09/01/16 2,012,660
2,000 Shasta, CA Jt Pwrs Fin Auth Lease Rev Justice
Cent Proj Ser A Rfdg........................... 5.900 09/01/14 1,892,240
--------------
78,436,898
--------------
COLORADO 5.9%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A..... 8.875 08/01/11 3,762,830
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A
(c)............................................ 8.875 08/01/12 5,349,185
10,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C............................... * 08/31/26 1,150,905
1,120 Arapahoe Cnty, CO Single Family Mtg Rev Ser A
(GNMA Collateralized).......................... 8.375 08/01/19 1,164,554
500 Berry Creek Metro Dist CO...................... 8.250 12/01/11 546,910
500 Boulder Cnty, CO Indl Dev Rev Boulder Med Cent
Proj........................................... 8.875 01/01/17 515,290
1,000 Bowles Metro Dist CO........................... 7.750 12/01/15 995,040
500 Colorado Hlth Fac Auth Rev Cleo Wallace Cent
Proj........................................... 7.000 08/01/15 504,390
3,400 Colorado Hlth Fac Auth Rev Hosp North CO Med
Cent (MBIA Insd) (c)........................... 6.000 05/15/20 3,431,144
1,500 Colorado Hlth Fac Auth Rev PLS Hlth Sys Proj
Ser A (Prerefunded @ 02/15/01) (FSA Insd)
(c)............................................ 6.250 02/15/21 1,618,860
1,000 Colorado Hlth Fac Auth Rev Vail Vly Med Cent
Proj Ser A..................................... 6.500 01/15/13 1,003,280
2,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 7.000 11/15/99 2,126,680
8,550 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/23 9,772,992
5,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.000 11/15/25 5,593,400
1,000 Dove Vly Metro Dist CO Arapahoe Cnty........... 9.500 12/01/08 1,035,170
1,000 Edgewater, CO Redev Auth Tax Increment Rev..... 6.750 12/01/08 1,057,870
</TABLE>
See Notes to Financial Statements
10
<PAGE> 112
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 950 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/12 $ 340,508
905 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/13 302,216
1,320 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/14 413,965
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/15 418,218
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/16 370,095
1,330 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/18 303,945
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/19 303,880
3,690 Jefferson Cnty, CO Residential Mtg Rev (c)..... 11.500% 09/01/12 5,912,376
5,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg............................ 7.500 12/01/11 5,415,300
630 Mountain Village Metro Dist CO San Miguel
Cnty........................................... 7.950 12/01/03 693,315
500 Mountain Village Metro Dist CO San Miguel
Cnty........................................... 8.100 12/01/11 556,570
5,000 University of CO Hosp Auth Hosp Rev Ser A
(AMBAC Insd)................................... 6.400 11/15/22 5,201,550
--------------
59,860,438
--------------
CONNECTICUT 0.6%
5,005 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford.......................... 7.125 11/01/14 5,611,806
--------------
DISTRICT OF COLUMBIA 0.3%
2,500 District of Columbia Rev Natl Pub Radio........ 7.700 01/01/23 2,628,400
--------------
FLORIDA 4.9%
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.500 10/01/02 522,955
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.875 10/01/08 549,630
2,000 Brevard Cnty, FL Sch Brd Ctfs Ser B (AMBAC
Insd).......................................... 5.500 07/01/21 1,914,940
1,000 Broward Cnty, FL Edl Fac Auth Rev Rfdg
(Prerefunded @ 04/01/99)....................... 8.500 04/01/10 1,120,950
1,700 Broward Cnty, FL Res Recovery Rev.............. 7.950 12/01/08 1,878,262
2,220 Broward Cnty, FL Res Recovery Rev.............. 7.950 12/01/08 2,452,789
1,000 Charlotte Cnty, FL Hosp Rev Bon Secours Hlth
Saint Joseph Ser A (Prerefunded @ 08/15/98).... 8.250 08/15/18 1,100,810
3,000 Collier Cnty, FL Indl Dev Auth Indl Dev Rev
Rfdg........................................... 6.500 10/01/25 2,880,810
14,465 Dade Cnty, FL Special Oblig Cap Apprec Ser B
Rfdg (b)....................................... * 10/01/21 2,981,526
24,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)......................... * 02/01/18 6,398,400
</TABLE>
See Notes to Financial Statements
11
<PAGE> 113
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 2,000 Dade Cnty, FL Prof Sports Franchise Fac Tax Rev
(MBIA Insd).................................... * 10/01/24 $ 371,980
560 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg........................................... 7.250% 06/01/23 619,629
590 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg
(Prerefunded @ 06/01/00)....................... 7.250 06/01/23 654,841
2,500 Florida St Muni Pwr Agy Rev (AMBAC Insd)....... 4.500 10/01/27 1,992,475
2,255 Greater Orlando Aviation Auth Orlando FL Arpt
Fac Rev........................................ 8.375 10/01/16 2,459,483
245 Greater Orlando Aviation Auth Orlando FL Arpt
Fac Rev (Prerefunded @ 10/01/98)............... 8.375 10/01/16 270,610
335 Largo, FL Sun Coast Hlth Sys Rev Hosp Rfdg..... 5.750 03/01/02 325,359
2,875 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg............ 7.875 12/15/25 3,220,000
1,000 Orange Cnty, FL Hlth Fac Auth Rev Hosp
Adventist Hlth Sys (AMBAC Insd)................ 5.250 11/15/20 915,850
1,000 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd) (c)...................................... 6.000 10/01/16 1,006,040
5,040 Pinellas Cnty, FL Hlth Fac Auth Sun Coast Hlth
Sys Rev Sun Coast Hosp Ser A (Prerefunded @
03/01/00) (c).................................. 8.500 03/01/20 5,787,029
4,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac
Sunnyside Pptys................................ 6.700 07/01/25 3,725,840
4,220 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Park (Prerefunded @
07/01/02)...................................... 10.000 07/01/22 5,330,873
1,000 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 8.500 05/01/17 995,560
670 Tampa, FL Cap Impt Pgm Rev Ser A............... 8.250 10/01/18 716,243
--------------
50,192,884
--------------
GEORGIA 1.1%
3,000 Atlanta, GA Arpt Fac Rev....................... 6.250 01/01/21 3,040,710
2,813 Cobb Cnty, GA Dev Auth Rev Grantor Trust Ctfs
Franklin Forest Ser A.......................... 8.000 06/01/22 2,854,687
1,250 Georgia Muni Elec Auth Pwr Rev Ser O........... 8.125 01/01/17 1,339,400
1,750 Georgia Muni Elec Auth Pwr Rev Ser Q........... 8.375 01/01/16 1,882,545
1,500 Municipal Elec Auth GA Spl Oblig (MBIA Insd)
(c)............................................ 6.500 01/01/20 1,636,875
500 Rockdale Cnty, GA Dev Auth Solid Waste Disposal
Rev............................................ 7.500 01/01/26 505,505
--------------
11,259,722
--------------
HAWAII 2.5%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA Insd)
(c)............................................ 6.350 07/01/07 4,403,771
14,100 Hawaii St Dept Budget & Fin Spl Purp Rev
Hawaiian Elec Co (MBIA Insd) (c)............... 6.550 12/01/22 14,629,737
220 Hawaii St Dept Tran Spl Fac Rev Continental
Airls Inc...................................... 9.600 06/01/08 233,290
2,350 Hawaii St Dept Tran Spl Fac Rev Continental
Airls Inc...................................... 9.700 06/01/20 2,493,232
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd)
(c)............................................ 6.350 07/01/07 1,601,865
</TABLE>
See Notes to Financial Statements
12
<PAGE> 114
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HAWAII (CONTINUED)
$ 1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd)
(c)............................................ 6.400% 07/01/08 $ 1,689,106
500 Hawaii St Harbor Cap Impt Rev (MBIA Insd)...... 7.000 07/01/17 535,350
--------------
25,586,351
--------------
ILLINOIS 11.7%
4,500 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj (c)....................... 9.250 02/01/12 5,045,310
1,350 Bridgeview, IL Tax Increment Rev Rfdg.......... 9.000 01/01/11 1,467,760
7,000 Broadview, IL Tax Increment Rev Sr Lien (c).... 8.250 07/01/13 7,544,390
1,000 Chicago, IL Gas Supply Rev Ser A............... 8.100 05/01/20 1,106,050
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr
Chicago........................................ 7.000 01/01/11 1,150,220
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc...................................... 8.500 05/01/18 4,362,480
395 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc
Ser A.......................................... 8.400 05/01/18 426,446
4,955 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc
Ser B.......................................... 8.950 05/01/18 5,565,307
2,000 Chicago, IL Single Family Mtg Rev Coll Ser A
(GNMA Collateralized).......................... 7.000 09/01/27 2,177,960
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750 01/01/07 1,259,990
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd).......... * 12/01/08 840,514
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd).......... * 12/01/09 783,904
1,665 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd).......... * 12/01/10 714,668
1,690 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd).......... * 12/01/11 678,974
1,700 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor Ser B (FGIC Insd).......... * 12/01/12 638,673
1,000 Crestwood, IL Tax Increment Rev Rfdg........... 7.250 12/01/08 1,004,910
910 Hanover Park, IL Rev First Mtg Winsdor Park
Manor Proj..................................... 9.250 12/01/07 978,377
1,300 Hodgkins, IL Tax Increment..................... 9.500 12/01/09 1,509,287
3,500 Hodgkins, IL Tax Increment (Prerefunded @
12/01/01)...................................... 9.500 12/01/09 4,339,370
1,500 Hodgkins, IL Tax Increment Rev Ser A Rfdg...... 7.625 12/01/13 1,521,435
1,500 Huntley, IL Incrmnt Alloc Rev Huntley Redev
Proj Ser A..................................... 8.500 12/01/15 1,499,400
1,000 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Twrs A............................ 6.500 09/01/09 1,019,940
650 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................... 8.000 11/15/06 640,490
1,000 Illinois Edl Fac Auth Rev Lake Forest College
(FSA Insd)..................................... 6.750 10/01/21 1,061,280
1,000 Illinois Edl Fac Auth Rev Northwestern Univ Ser
1985 (Prerefunded @ 12/01/01).................. 6.900 12/01/21 1,114,420
</TABLE>
See Notes to Financial Statements
13
<PAGE> 115
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,000 Illinois Edl Fac Auth Rev Sarah Bush Lincoln
Hlth Rfdg (AMBAC Insd)......................... 6.000% 01/01/27 $ 1,982,020
2,000 Illinois Edl Fac Auth Rev Trinity Med Cent (FSA
Insd).......................................... 6.000 07/01/28 1,981,720
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Proj A (Prerefunded @ 10/01/02)................ 9.500 10/01/22 5,099,170
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Proj B (Prerefunded @ 10/01/02)................ 9.000 10/01/22 2,438,140
2,500 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Ser A Rfdg..................................... 7.400 08/15/23 2,482,325
545 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D.......................................... 9.500 11/15/15 622,930
425 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D (Prerefunded @ 11/15/00)................. 9.500 11/15/15 511,156
1,000 Illinois Hlth Fac Auth Rev IL Masonic Med Cent
Ser B (Prerefunded @ 10/01/99)................. 7.700 10/01/19 1,111,730
1,000 Illinois Hlth Fac Auth Rev Mem Hosp............ 7.250 05/01/22 1,029,930
500 Illinois Hlth Fac Auth Rev Mercy Cent for Hlth
Care Serv...................................... 6.625 10/01/12 503,565
4,000 Illinois Hlth Fac Auth Rev Mt Sinai Hosp Med
Cent Chicago Ser A............................. 10.250 02/01/13 3,996,080
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem
Hosp........................................... 6.750 08/15/11 1,051,470
20,000 Illinois Hlth Fac Auth Rev Northwestern Mem
Hosp Ser A Rfdg (b)............................ 6.000 08/15/24 19,599,200
2,600 Illinois Hlth Fac Auth Rev United Med Cent
(Prerefunded @ 07/01/03)....................... 8.375 07/01/12 3,099,018
6,100 Illinois Hsg Dev Auth Residential Mtg Rev
(Inverse Fltg)................................. 9.726 02/13/18 6,305,875
1,250 Mill Creek Wtr Reclamation Dist IL Sew Rev..... 8.000 03/01/10 1,278,600
750 Mill Creek Wtr Reclamation Dist IL Wtrwrks
Rev............................................ 8.000 03/01/10 767,160
1,755 Northern Cook Cnty, IL Solid Waste Agy Contract
Rev Ser A Rfdg (MBIA Insd)..................... 5.300 05/01/09 1,643,242
2,800 Regional Tran Auth IL Ser A (AMBAC Insd) (c)... 8.000 06/01/17 3,546,816
7,000 Robbins, IL Res Recovery Rev Robbins Res
Recovery Partners Ser A........................ 9.250 10/15/14 6,772,500
865 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.200 12/01/04 888,407
500 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.500 12/01/13 511,740
1,665 Saint Charles, IL Indl Dev Rev Tri City Proj... 7.500 11/01/13 1,677,288
1,490 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A
(MBIA Insd) (c)................................ 5.800 04/01/10 1,503,172
--------------
118,854,809
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 116
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA 0.8%
$ 2,750 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc....................................... 7.000% 07/01/12 $ 2,959,495
550 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.............................................. 6.750 02/01/14 606,776
450 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.............................................. 6.500 02/01/22 455,409
1,000 Marion Cnty, IN Hosp Auth Hosp Fac Rev......... 6.500 09/01/13 1,045,100
1,500 Saint Joseph Cnty, IN Hosp Auth Hosp Fac Rev
Mem Hosp South B (MBIA Insd)................... 6.250 08/15/22 1,516,290
1,500 Wells Cnty, IN Hosp Auth Rev Caylor-Nickel Med
Cent Inc Rfdg.................................. 8.500 04/15/03 1,676,445
--------------
8,259,515
--------------
IOWA 0.5%
21,115 Iowa Hsg Fin Auth Single Family Hsg Rev 1984
Ser A (AMBAC Insd)............................. * 09/01/16 2,255,082
3,000 Muscatine, IA Elec Rev Rfdg.................... 5.000 01/01/08 2,884,440
145 Pocahontas, IA Indl Dev Rev Intl Harvester
Co............................................. 10.250 10/01/00 146,905
--------------
5,286,427
--------------
KANSAS 0.2%
1,000 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd).......................... 7.000 06/01/31 1,090,300
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser
A.............................................. 7.750 11/15/24 1,037,390
--------------
2,127,690
--------------
KENTUCKY 2.3%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds Inc
Rfdg........................................... 6.550 03/01/09 1,007,900
2,800 Elizabethtown, KY Indl Dev Rev Coltec Inds
Inc............................................ 9.875 10/01/10 2,827,888
10,950 Jefferson Cnty, KY Cap Projs Corp Rev Muni
Multi-Lease Ser A.............................. * 08/15/14 3,209,664
4,000 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys
Proj (Inverse Fltg) (MBIA Insd) (c)............ 8.759 10/09/08 4,445,000
1,250 Kentucky Econ Dev Fin Auth Med Cent Rev Ashland
Hosp Corp Ser A Rfdg & Impt (FSA Insd)......... 6.125 02/01/12 1,292,900
1,855 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA Gtd)... 7.450 01/01/23 1,945,190
8,000 Kentucky St Tpk Auth Res Recovery Road Rev Ser
A.............................................. 5.000 07/01/08 7,628,080
1,000 Kentucky St Tpk Auth Toll Road Rev Ser A....... 5.500 07/01/07 1,000,220
--------------
23,356,842
--------------
LOUISIANA 1.2%
1,000 Hodge, LA Util Rev Stone Container Corp Ser
1990........................................... 9.000 03/01/10 1,082,500
1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev
Advanced Polymer Proj Ser 1985................. 10.000 11/15/04 2,637,068
1,000 Lake Charles, LA Harbor & Terminal Dist Port
Fac Rev Trunkline Rfdg......................... 7.750 08/15/22 1,115,470
</TABLE>
See Notes to Financial Statements
15
<PAGE> 117
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA (CONTINUED)
$ 460 Louisiana Pub Fac Auth Rev Beverly Enterprises
Inc Rfdg....................................... 8.250% 09/01/08 $ 494,735
10,000 Orleans Parish, LA Sch Brd Rfdg (FGIC Insd).... * 02/01/15 3,254,500
1,000 Port New Orleans, LA Indl Dev Rev Var Avondale
Inds Inc Proj Rfdg............................. 8.250 06/01/04 1,049,460
1,000 Saint Charles Parish, LA Pollutn Ctl Rev LA Pwr
& Lt Co........................................ 8.250 06/01/14 1,093,710
1,400 West Feliciana Parish, LA Pollutn Ctl Rev Gulf
Sts Util Ser A................................. 7.500 05/01/15 1,481,004
--------------
12,208,447
--------------
MAINE 0.3%
1,500 Maine Edl Ln Marketing Corp Student Ln Rev Ser
A4............................................. 5.450 11/01/99 1,527,360
1,000 Maine Edl Ln Marketing Corp Student Ln Rev Ser
A4............................................. 5.600 11/01/00 1,018,790
--------------
2,546,150
--------------
MARYLAND 0.8%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser A Rfdg..................... 7.550 06/01/17 1,550,940
5,300 Baltimore, MD Cap Apprec Cons Pub Impt Ser
(FGIC Insd).................................... * 10/15/10 2,312,655
1,000 Maryland St Energy Fin Admin Ltd Oblig Rev
Cogeneration AES Warrior Run................... 7.400 09/01/19 1,033,090
3,000 Northeast MD Waste Disp Auth Solid Waste Rev
Montgomery Cnty Res Recovery Proj Ser A........ 6.200 07/01/10 3,036,060
--------------
7,932,745
--------------
MASSACHUSETTS 2.6%
1,000 Boston, MA Rev Boston City Hosp (FHA Gtd)...... 7.625 02/15/21 1,135,150
1,560 Massachusetts Edl Ln Auth Edl Ln Rev Issue E
Ser A (AMBAC Insd) (c)......................... 7.000 01/01/10 1,587,893
5,000 Massachusetts St Hlth & Edl Fac Auth Rev
Emerson Hosp Issue Ser D Rfdg (FSA Insd)....... 5.700 08/15/12 4,927,100
4,200 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd).................................... 3.100 07/01/13 3,528,504
4,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................. 5.750 10/01/06 3,512,480
1,000 Massachusetts St Hsg Fin Agy Multi-Family
Residential Hsg Ser A.......................... 8.750 08/01/08 1,055,670
550 Massachusetts St Hsg Fin Agy Residential Hsg
Ser A.......................................... 8.400 08/01/21 580,030
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl
Ctrs Inc Proj.................................. 8.450 07/01/18 1,506,360
990 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth Assoc Proj......................... 8.800 06/01/14 1,027,174
1,000 Massachusetts St Indl Fin Agy Rev Reeds
Landing........................................ 8.625 10/01/23 1,049,400
700 Massachusetts St Indl Fin Agy Rev Vinfen Corp
Issue.......................................... 7.100 11/15/18 692,958
1,000 Massachusetts St Indl Fin Agy Rev Wtr Treatment
American Hingham............................... 6.600 12/01/15 1,002,560
</TABLE>
See Notes to Financial Statements
16
<PAGE> 118
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 2,000 Massachusetts St Wtr Res Auth Ser A
(Prerefunded @ 04/01/00) (c)................... 7.500% 04/01/16 $ 2,231,240
2,000 Plymouth Cnty, MA Ctfs Partn Ser A............. 7.000 04/01/22 2,206,020
--------------
26,042,539
--------------
MICHIGAN 3.4%
1,000 Detroit, MI Area No 1 Ser A (Prerefunded @
07/01/99)...................................... 7.600 07/01/10 1,101,270
3,500 Detroit, MI Downtown Dev Auth Tax Increment
Rev............................................ 6.200 07/01/17 3,519,110
2,000 Grand Traverse Cnty, MI Hosp Fin Auth Hosp Rev
Munson Hlthcare Ser A Rfdg (AMBAC Insd)........ 6.250 07/01/12 2,070,580
2,000 Michigan St Hosp Fin Auth Rev Garden City
Hosp........................................... 8.300 09/01/02 2,074,600
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Hlth
Sys Ser A Rfdg................................. 7.500 10/01/07 1,041,510
3,140 Michigan St Hosp Fin Auth Rev Hosp Port Huron
Hosp Oblig Rfdg (FSA Insd)..................... 5.375 07/01/12 2,989,437
5,600 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd)................... 5.060 04/01/04 5,291,216
11,000 Michigan St Strategic Fund Ltd Oblig Rev Great
Lakes Pulp & Fibre Proj........................ 10.250 12/01/16 9,630,060
4,500 Michigan St Strategic Fund Solid Waste......... 7.500 01/01/21 4,525,110
1,000 Mount Clemens, MI Hsg Corp Multi-Family Rev Hsg
Ser A Rfdg (FHA Gtd)........................... 6.600 06/01/13 1,039,540
1,000 Royal Oak, MI Hosp Fin Auth Hosp Rev Ser D..... 6.750 01/01/20 1,052,270
--------------
34,334,703
--------------
MINNESOTA 0.4%
1,000 North Saint Paul, MN Multi-Family Rev
Cottages....................................... 9.250 02/01/22 1,061,850
2,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev
Ser A Rfdg..................................... 5.000 01/01/16 1,800,520
1,250 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser
C.............................................. 5.000 01/01/17 1,100,288
--------------
3,962,658
--------------
MISSISSIPPI 0.8%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy
Res Inc Rfdg................................... 7.300 05/01/25 1,546,155
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn Ctl
Rev Weyerhaeuser Co Rfdg (Inverse Fltg)........ 8.600 04/01/22 5,355,150
1,155 Ridgeland, MS Urban Renewal Rev Orchard Ltd
Proj Ser A Rfdg................................ 7.750 12/01/15 1,184,753
--------------
8,086,058
--------------
MISSOURI 1.6%
2,835 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A..................................... 5.750 10/01/06 2,841,237
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev John
Knox Vlg Proj Rfdg & Impt...................... 7.125 08/15/12 2,103,940
</TABLE>
See Notes to Financial Statements
17
<PAGE> 119
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$ 1,660 Missouri St Econ Dev Export & Infrastructure
Brd Med Office Fac Rev (MBIA Insd)............. 7.250% 06/01/04 $ 1,863,749
3,920 Missouri St Econ Dev Export & Infrastructure
Brd Med Office Fac Rev (MBIA Insd) (c)......... 7.250 06/01/14 4,416,115
1,000 Missouri St Hlth & Edl Fac Auth (c)............ 8.125 10/01/10 1,121,470
2,165 Saint Louis Cnty, MO Indl Dev Auth Nursing Home
Rev Mary Queen & Mother Proj Rfdg (GNMA
Collateralized)................................ 7.125 03/20/23 2,328,176
945 Saint Louis, MO Tax Increment Rev Scullin
Redev Area Ser A............................... 10.000 08/01/10 1,124,531
--------------
15,799,218
--------------
MONTANA 0.6%
7,000 Montana St Brd Invt Res Recovery Rev
Yellowstone Energy
L P Proj....................................... 7.000 12/31/19 6,585,180
--------------
NEBRASKA 0.8%
4,900 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 9.962 10/17/23 5,181,750
850 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized) (c)....... 9.475 09/15/24 869,125
1,600 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 11.287 09/10/30 1,778,000
--------------
7,828,875
--------------
NEVADA 1.5%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser
A
(FGIC Insd) (c)................................ 6.700 06/01/22 4,191,000
2,480 Henderson, NV Loc Impt Dist No T-4 Ser A....... 8.500 11/01/12 2,596,213
2,575 Humboldt Genl Hosp Dist NV..................... 6.125 06/01/13 2,480,420
2,065 Nevada Hsg Div Multi-Unit Hsg Arville Et Cetera
Proj........................................... 6.500 10/01/16 2,078,236
3,475 Nevada Hsg Div Multi-Unit Hsg Arville Et Cetera
Proj........................................... 6.600 10/01/23 3,497,136
--------------
14,843,005
--------------
NEW HAMPSHIRE 0.8%
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev... 7.500 06/01/05 1,045,510
1,555 New Hampshire Higher Edl & Hlth Fac Auth Rev... 8.800 06/01/09 1,623,296
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev... 7.625 07/01/16 2,086,660
1,000 New Hampshire St Business Fin Auth Elec Fac
Rev............................................ 7.750 06/01/14 1,011,770
1,000 New Hampshire St Indl Dev Auth Rev............. 10.750 10/01/12 1,093,810
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC
Insd).......................................... 6.750 11/01/11 1,103,470
--------------
7,964,516
--------------
NEW JERSEY 1.6%
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg
(MBIA Insd) (c)................................ 7.209 08/15/10 6,584,172
</TABLE>
See Notes to Financial Statements
18
<PAGE> 120
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,600 New Jersey Econ Dev Auth Holt Hauling & Warehsg
Rev Ser G Rfdg................................. 8.400% 12/15/15 $ 1,638,336
2,000 New Jersey Econ Dev Auth Indl Dev Rev Newark
Airport Marriott Hotel Rfdg.................... 7.000 10/01/14 1,999,500
1,000 New Jersey Econ Dev Auth Rev United Methodist
Homes.......................................... 7.500 07/01/20 982,540
1,000 New Jersey Econ Dev Auth Rev United Methodist
Homes
Oblig Ser A.................................... 7.500 07/01/25 999,990
3,200 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg
(MBIA Insd) (c)................................ 6.500 01/01/16 3,541,184
--------------
15,745,722
--------------
NEW MEXICO 0.3%
2,500 New Mexico St Hosp Equip Ln Council Hosp Rev
San Juan Regl Med Cent Inc Proj................ 7.900 06/01/11 2,792,200
--------------
NEW YORK 12.3%
3,415 Clifton Springs, NY Hosp & Clinic Hosp Rev
Rfdg........................................... 8.000 01/01/20 3,462,503
2,500 Herkimer Cnty, NY Indl Dev Agy Indl Dev Rev
Burrows Paper Corp Recycling................... 8.000 01/01/09 2,615,500
5,000 Metropolitan Tran Auth NY Svcs Contract Tran
Fac
Ser 5 Rfdg..................................... 7.000 07/01/12 5,333,750
3,500 Metropolitan Tran Auth NY Svcs Contract Tran
Fac
Ser 7 Rfdg..................................... 4.750 07/01/19 2,825,585
1,500 Metropolitan Tran Auth NY Tran Fac Rev Ser G
(MBIA Insd) (c)................................ 5.500 07/01/15 1,446,060
1,000 New York City Indl Dev Agy Civic Fac Marymount
Manhattan College Proj......................... 7.000 07/01/23 1,020,380
3,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser A (Prerefunded @ 06/15/00) (MBIA Insd)
(c)............................................ 7.250 06/15/15 3,317,400
1,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser A (Prerefunded @ 06/15/97)............. 7.625 06/15/16 1,051,920
4,100 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev
Ser B (c)...................................... 5.000 06/15/17 3,598,939
5,000 New York City Ser A (b)........................ 7.000 08/01/07 5,244,950
2,500 New York City Ser B............................ 7.500 02/01/07 2,753,350
8,000 New York City Ser B (AMBAC Insd) (c)........... 7.250 08/15/07 9,355,760
5,000 New York City Ser C Rfdg....................... 6.500 08/01/04 5,216,600
7,500 New York City Ser C Subser C1.................. 7.500 08/01/20 8,280,225
2,000 New York City Ser D Rfdg....................... 8.000 02/01/05 2,248,180
2,200 New York City Ser E............................ 5.700 08/01/08 2,091,078
2,000 New York City Ser G............................ 5.750 02/01/17 1,844,740
2,000 New York City Ser I Rfdg....................... 5.875 03/15/13 1,891,000
</TABLE>
See Notes to Financial Statements
19
<PAGE> 121
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,000 New York City Ser J............................ 5.875% 02/15/19 $ 1,862,780
14,600 New York St Dorm Auth Rev City Univ 3rd Genl
Resources
Ser E (MBIA Insd) (c).......................... 6.750 07/01/24 15,785,374
5,000 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 4,633,500
2,750 New York St Dorm Auth Rev Court Fac Lease Ser
A.............................................. 5.500 05/15/10 2,569,902
2,000 New York St Dorm Auth Rev Dept of Hlth......... 5.500 07/01/25 1,799,020
3,250 New York St Dorm Auth Rev St Univ Edl Fac Ser A
(Prerefunded @ 05/15/00)....................... 7.700 05/15/12 3,659,922
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg)................................. 8.755 04/01/20 2,553,125
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 2,238,900
1,000 New York St Environmental Fac Corp Wtr Fac Rev
Long Island Wtr Corp Proj A.................... 10.000 10/01/17 1,077,140
1,955 New York St Med Care Fac Fin Agy Rev Hosp &
Nursing Home Mtg (FHA Gtd)..................... 7.250 02/15/09 2,093,082
490 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs
Fac Ser A...................................... 7.750 08/15/11 546,909
1,320 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs
Fac Ser A (Prerefunded @ 02/15/01)............. 7.750 08/15/11 1,510,832
495 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs
Fac Ser C...................................... 7.300 02/15/21 537,293
1,505 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs
Fac Ser C (Prerefunded @ 08/15/01)............. 7.300 02/15/21 1,706,700
1,000 New York St Med Care Fac Fin Agy Rev Mtg Hosp
Ser A Rfdg (Prerefunded @ 08/15/97) (FHA
Gtd)........................................... 8.000 02/15/25 1,066,790
1,000 New York St Med Care Fac Fin Agy Rev North Genl
Hosp........................................... 7.400 02/15/19 1,046,150
5,000 New York St Mtg Agy Rev Amt Homeowner Mtg Ser
52 (b)......................................... 6.100 04/01/26 4,859,200
2,400 New York St Urban Dev Corp Rev Correctional Fac
Rfdg........................................... 5.625 01/01/07 2,321,520
2,000 New York St Urban Dev Corp Rev St Fac
(Prerefunded @ 04/01/01)....................... 7.500 04/01/20 2,274,140
1,000 Port Auth NY & NJ Cons 95th Ser................ 6.125 07/15/22 1,017,210
4,000 Port Auth NY & NJ Cons Rev Bonds (MBIA Insd)
(c)............................................ 5.750 09/15/12 3,989,160
1,000 Triborough Bridge & Tunnel Auth NY Rev Ser N
(Prerefunded @ 01/01/98) (c)................... 7.875 01/01/18 1,072,870
1,000 Troy, NY Indl Dev Auth Lease Rev City of Troy
Proj........................................... 8.000 03/15/22 907,860
--------------
124,727,299
--------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 122
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH CAROLINA 1.1%
$ 4,435 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth
Rev Solid Waste Weyerhaeuser Co................ 5.650% 12/01/23 $ 4,148,233
7,695 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
(Prerefunded @ 01/01/22)....................... 4.500 01/01/24 6,393,698
335 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser A Rfdg (Prerefunded @ 01/01/98)............ 8.000 01/01/21 360,879
--------------
10,902,810
--------------
NORTH DAKOTA 0.3%
1,230 Mercer Cnty, ND Pollutn Ctl Rev Basin Elec Pwr
Ser E.......................................... 7.000 01/01/19 1,302,201
2,000 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph's
Hosp
Corp Proj...................................... 8.875 11/15/24 2,171,540
--------------
3,473,741
--------------
OHIO 1.9%
500 Cleveland, OH Parking Fac Rev Impt............. 8.000 09/15/12 546,580
750 Coshocton Cnty, OH Solid Waste Disp Rev Stone
Container Corp Proj Rfdg....................... 7.875 08/01/13 790,837
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings
Hall........................................... 7.300 11/15/23 966,640
500 Fairfield, OH Econ Dev Rev Beverly Enterprises
Proj........................................... 8.500 01/01/03 535,565
2,045 Montgomery Cnty, OH Hosp Rev Dayton Osteopathic
Hosp
Proj Rfdg...................................... 6.000 12/01/12 1,867,535
8,240 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) (GNMA Collateralized) (c)....... 9.855 03/31/31 8,600,500
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding
Ltd Partnership Proj Rfdg (AMBAC Insd)......... 6.375 04/01/29 1,031,780
1,000 Ohio St Solid Waste Rev Rep Engineered Steels
Proj........................................... 8.250 10/01/14 984,720
2,000 Ohio St Solid Waste Rev Rep Engineered Steels
Proj........................................... 9.000 06/01/21 2,024,380
1,500 Sandusky Cnty, OH Hosp Fac Rev Mem Hosp Proj... 7.750 12/01/09 1,509,555
--------------
18,858,092
--------------
OKLAHOMA 3.0%
7,685 Grand River Dam Auth OK Rev.................... 5.000 06/01/12 7,115,157
1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd).......................................... 5.250 12/01/22 1,834,846
2,725 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B
(GNMA Collateralized).......................... 7.997 08/01/18 2,979,025
1,635 Tulsa, OK Indl Auth Hosp Rev Tulsa Reg Med Cent
(Prerefunded @ 06/01/03) (c)................... 7.200 06/01/17 1,858,766
13,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc............................................ 7.375 12/01/20 13,694,590
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc............................................ 7.600 12/01/30 1,066,880
1,500 Woodward, OK Muni Auth Sales Tax & Util
(Prerefunded @ 11/01/97)....................... 8.000 11/01/12 1,589,265
--------------
30,138,529
--------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 123
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OREGON 0.4%
$ 4,000 Oregon St Econ Dev Rev GA Pacific Corp......... 6.350% 08/01/25 $ 4,001,680
500 Salem, OR Hosp Fac Auth Rev Cap Manor Inc...... 7.500 12/01/24 513,405
--------------
4,515,085
--------------
PENNSYLVANIA 3.1%
500 Chartiers Vly, PA Indl & Commercial Dev Auth
First Mtg Rev.................................. 7.250 12/01/11 506,420
500 Chartiers Vly, PA Indl & Commercial Dev Auth
First Mtg Rev.................................. 7.400 12/01/15 505,015
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys
Rev
(AMBAC Insd) (c)............................... 5.650 05/15/20 4,700,750
1,750 Emmaus, PA Genl Auth Rev Ser A (BIGI Insd)
(c)............................................ 8.150 05/15/18 1,884,540
2,500 Emmaus, PA Genl Auth Rev Ser C (BIGI Insd)
(c)............................................ 7.900 05/15/18 2,694,400
500 Erie Cnty, PA Hosp Auth Rev Metropolitan Hlth
Cent........................................... 7.250 07/01/12 447,660
1,000 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev
United Church of Christ Homes Rfdg............. 6.750 10/01/10 1,008,560
980 Lehigh Cnty, PA Indl Dev Auth Indl Dev Rev
Rfdg........................................... 8.000 08/01/12 992,515
1,315 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross
Rev Rfdg....................................... 7.875 12/01/13 1,319,629
1,500 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00).......... 8.875 10/01/20 1,743,330
1,000 McKeesport, PA Hosp Auth Rev McKeesport Hosp
Proj Rfdg...................................... 6.500 07/01/08 981,250
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev (Embedded Swap) (AMBAC Insd)............... 8.002 06/01/12 2,970,660
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev...................................... 6.300 01/01/13 938,610
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recovery....................................... 7.500 01/01/12 1,064,350
500 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Hahnemann Univ Proj (MBIA Insd)....... 7.200 07/01/19 546,705
250 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/99)...... 7.500 03/01/14 268,453
2,500 Pennsylvania St Higher Edl Fac Auth Univ PA Ser
A Rfdg......................................... 5.750 01/01/22 2,449,225
825 Philadelphia, PA Auth for Indl Dev Rev......... 6.125 02/15/03 816,403
685 Philadelphia, PA Hosp & Higher Edl Fac Auth
Hosp Rev....................................... 7.250 03/01/24 648,318
985 Philadelphia, PA Muni Auth Rev Lease Ser B
Rfdg........................................... 6.400 11/15/16 986,625
1,825 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev Ser
1993 A......................................... 6.000 12/01/13 1,661,553
1,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Allied Svcs Rehab Hosp Ser A................... 7.375 07/15/08 1,025,960
500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Moses Taylor Hosp Proj......................... 8.250 07/01/09 530,930
1,000 Washington Cnty, PA Hosp Auth Rev Hosp
Canonsburg Genl Hosp Rfdg...................... 7.350 06/01/13 958,020
--------------
31,649,881
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 124
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RHODE ISLAND 0.6%
$ 2,000 Providence, RI Redev Agy Ctfs Partn Ser A...... 8.000% 09/01/24 $ 2,127,800
2,345 Rhode Island Hsg & Mtg Fin Corp Rental Hsg Pgm
Ser B
(FHA Gtd)...................................... 7.950 10/01/30 2,464,173
1,285 West Warwick, RI Ser A......................... 6.800 07/15/98 1,331,209
600 West Warwick, RI Ser A......................... 7.300 07/15/08 649,188
--------------
6,572,370
--------------
SOUTH CAROLINA 0.1%
1,070 Piedmont Muni Pwr Agy SC Elec Rev.............. 5.000 01/01/25 903,604
--------------
SOUTH DAKOTA 0.3%
1,000 South Dakota St Hlth & Edl Fac Auth Rev Huron
Reg Med Cent................................... 7.250 04/01/20 1,025,120
150 South Dakota St Hlth & Edl Fac Auth Rev Sioux
Vly Hosp....................................... 7.625 11/01/13 152,877
1,850 South Dakota St Hlth & Edl Fac Auth Rev Sioux
Vly Hosp (Prerefunded @ 11/01/98).............. 7.625 11/01/13 2,019,627
--------------
3,197,624
--------------
TEXAS 6.8%
11,000 Alliance Arpt Auth Inc TX Spl Fac Rev Fed
Express
Corp Proj...................................... 6.375 04/01/21 10,851,830
1,000 Austin, TX Hsg Fin Corp Multi-Family Hsg Rev
Stassney Woods Apartment Rfdg (c).............. 6.750 04/01/19 1,023,520
1,000 Austin, TX Util Sys Rev Ser A (Prerefunded @
11/15/98)...................................... 7.800 11/15/12 1,097,710
2,380 Austin, TX Util Sys Rev Ser B.................. 7.800 11/15/12 2,588,750
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint
Luke's Lutheran Hosp........................... 7.000 05/01/21 566,910
1,500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint
Luke's Lutheran Hosp (Prerefunded @
05/01/03)...................................... 7.900 05/01/18 1,727,430
410 Bexar Cnty, TX Hsg Fin Corp Rev Ser A
(GNMA Collateralized).......................... 8.200 04/01/22 431,890
410 Bexar Cnty, TX Hsg Fin Corp Rev Ser B
(GNMA Collateralized).......................... 9.250 04/01/16 427,675
625 Clear Creek, TX Indpt Sch Dist (Prefunded @
02/01/01) (c).................................. 6.250 02/01/11 664,163
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev American Airls Inc......................... 7.500 11/01/25 994,746
115 El Paso, TX Ppty Fin Auth Inc Single Family Mtg
Rev Ser A (GNMA Collateralized)................ 8.700 12/01/18 122,428
500 Eldridge Road Muni Util Dist TX Rfdg........... 6.125 03/01/11 469,355
500 Fort Bend Cnty, TX Levee Impt Dist No 011
(Prerefunded @ 03/01/99) (c)................... 8.700 03/01/09 549,605
440 Fort Bend Cnty, TX Levee Impt Dist No 011
(Prerefunded @ 03/01/99)....................... 8.700 03/01/10 483,652
</TABLE>
See Notes to Financial Statements
23
<PAGE> 125
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 570 Fort Worth, TX Hsg Fin Corp Home Mtg Rev Ser A
Rfdg........................................... 8.500% 10/01/11 $ 615,999
2,500 Garland, TX Econ Dev Auth Indl Dev Rev Yellow
Freight Sys Inc Proj........................... 8.000 12/01/16 2,599,650
1,000 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev..... 7.125 06/01/15 1,075,920
595 Harris Cnty, TX Hsg Fin Corp Single Family Hsg
Rev............................................ 10.125 07/15/03 596,517
500 Harris Cnty, TX Muni Util Dist No 157 Rfdg..... 7.300 03/01/14 509,015
740 Houston, TX Hsg Fin Corp Single Family Mtg Rev
Ser A Rfdg (FSA Insd).......................... 5.950 12/01/10 744,026
1,000 Mills Road Muni Util Dist TX Util Bonds Rfdg... 6.500 09/01/14 1,001,220
500 Mission Bend Muni Util Dist No 2 TX............ 10.000 09/01/98 554,670
375 Mission Bend Muni Util Dist No 2 TX............ 10.000 09/01/00 419,674
655 Montgomery Cnty, TX Util Dist No 4 (Prerefunded
@ 09/01/98) (c)................................ 8.900 09/01/02 716,400
3,500 North Cent, TX Hlth Fac Dev Corp Rev Ser C
Presbyterian Hlthcare Sys (Inverse Fltg) (MBIA
Insd) (c)...................................... 9.445 06/22/21 3,784,375
500 North Mission Glen Muni Util Dist TX Ser
1993........................................... 6.500 09/01/14 483,915
750 Northwest Harris Cnty Muni Util Dist No 23
TX............................................. 8.100 10/01/15 807,038
1,500 Richardson, TX Hosp Auth Hosp Rev Impt
Baylor/Richardson Med Cent Rfdg................ 6.750 12/01/23 1,477,800
1,750 Rusk Cnty, TX Hlth Fac Corp Hosp Rev Henderson
Mem Hosp Proj.................................. 7.750 04/01/13 1,789,795
1,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys
Rev............................................ 6.750 10/01/14 925,640
1,000 Sam Rayburn, TX Muni Pwr Agy Pwr Supply Sys Rev
Ser A Rfdg..................................... 6.250 10/01/17 867,750
500 Texas Genl Svcs Comm Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/19 503,975
500 Texas Genl Svcs Comm Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/24 502,815
965 Texas Genl Svcs Comm Partn Lease Purchase
Cert........................................... 7.500 02/15/13 964,784
8,565 Texas Muni Pwr Agy Rev Rfdg.................... 5.500 09/01/13 8,282,612
5,250 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev
Coll Ser C Rfdg (Inverse Fltg) (GNMA
Collateralized)................................ 9.815 07/02/24 5,676,562
4,025 Texas St Higher Edl Coordinating Brd College
Student Ln (e)................................. 0/7.850 10/01/25 3,099,652
1,000 Texas St Superconducting Ser C................. 5.500 04/01/20 955,890
1,355 Texas St Veterans Hsg Assistance (MBIA Insd)... 6.800 12/01/23 1,409,349
220 Travis Cnty, TX Hsg Fin Corp Single Family Mtg
Rev (GNMA Collateralized)...................... 8.200 04/01/22 228,925
1,000 Tyler, TX Hlth Fac Dev Corp Hosp Rev........... 6.750 11/01/25 996,080
1,000 Weslaco, TX Hlth Fac Dev Corp Hosp Rev Knapp
Med Cent Rfdg (Connie Lee Insd)................ 5.250 06/01/16 926,020
</TABLE>
See Notes to Financial Statements
24
<PAGE> 126
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics....... 8.200% 03/15/21 $ 2,509,920
500 Willow Fork Drainage Dist TX................... 7.000 03/01/12 528,485
500 Willow Fork Drainage Dist TX................... 7.000 03/01/13 527,005
1,000 Winters, TX Wtrwrks & Swr Sys Rev (Prerefunded
@ 08/01/03).................................... 8.500 08/01/17 1,209,070
--------------
69,290,212
--------------
UTAH 2.9%
3,160 Bountiful, UT Hosp Rev South Davis Cmnty Hosp
Proj........................................... 9.500 12/15/18 3,468,100
1,340 Hilldale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/15 1,306,554
1,000 Hilldale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 8.000 09/01/20 988,340
1,000 Hilldale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/25 965,470
1,850 Intermountain Pwr Agy UT Pwr Supply Rev........ 5.000 07/01/16 1,615,661
1,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser A
(Prerefunded @ 07/01/99)....................... 6.000 07/01/23 1,040,760
3,650 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg........................................... 7.750 07/01/20 3,908,894
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Embedded Swap)................................ 7.500 02/15/12 11,062,480
1,000 Utah St Bldg Ownership Auth Lease Rev Dept
Employment Security Proj (Prerefunded @
08/15/98) (c).................................. 7.800 08/15/10 1,072,990
1,300 Utah St Bldg Ownership Auth Lease Rev Dept
Employment Security Proj (Prerefunded @
08/15/98) (c).................................. 7.800 08/15/11 1,394,887
1,210 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1
(FHA Gtd) (c).................................. 7.100 07/01/14 1,248,853
1,625 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A2
(FHA Gtd)...................................... 7.200 01/01/27 1,686,815
--------------
29,759,804
--------------
VIRGINIA 2.5%
2,000 Fairfax Cnty, VA Park Auth Park Fac Rev........ 6.625 07/15/14 2,078,440
3,500 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Inverse Fltg) (FGIC Insd)..................... 6.600 08/15/23 3,652,810
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd) (c)..... 6.800 03/01/14 2,253,534
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) (c)..... 6.900 03/01/19 1,087,620
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem
Hosp Carilion Hlth Sys Ser B Rfdg (MBIA
Insd).......................................... 4.700 07/01/20 4,837,350
1,250 Southeastern Pub Svc Auth VA Rev Sr Regl Solid
Waste Sys...................................... 6.000 07/01/17 1,157,263
5,000 Upper Occoquan Sewage Auth VA Reg Sew Rev Rfdg
(FGIC Insd).................................... 5.000 07/01/21 4,424,350
1,250 Virginia Port Auth Comwlth Port Fund Rev....... 8.200 07/01/08 1,346,800
1,600 Virginia St Hsg Dev Auth Comwlth Mount Ser D
(Var Rate Cpn)................................. 6.100 01/01/14 1,591,488
1,695 Virginia St Hsg Dev Auth Comwlth Mount Ser D
(Var Rate Cpn)................................. 6.100 01/01/15 1,685,695
</TABLE>
See Notes to Financial Statements
25
<PAGE> 127
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA (CONTINUED)
$ 1,740 Virginia St Hsg Dev Auth Comwlth Mount Ser D
(Var Rate Cpn)................................. 6.100% 07/01/15 $ 1,730,308
--------------
25,845,658
--------------
WASHINGTON 0.8%
1,000 Port Walla Walla, WA Pub Corp Solid Waste
Recycling Rev Ponderosa Fibres Proj............ 9.125 01/01/26 953,610
1,250 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev (FGIC Insd) (c)....................... 7.125 07/01/16 1,445,400
2,500 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev....................................... 7.000 07/01/12 2,647,050
2,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev (Prerefunded @ 01/01/01) (c).......... 7.625 07/01/10 2,261,960
1,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev (Prerefunded @ 07/01/00) (c).......... 7.375 07/01/12 1,109,610
--------------
8,417,630
--------------
WEST VIRGINIA 0.7%
6,750 South Charleston, WV Indl Dev Rev Union Carbide
Chem & Plastics Ser A.......................... 8.000 08/01/20 7,224,525
--------------
WISCONSIN 1.8%
750 Jefferson, WI Swr Sys Wtrwrks & Elec Sys Mtg
Rev (Prerefunded @ 07/01/01)................... 7.400 07/01/16 837,060
2,840 Wisconsin Hsg & Econ Dev Auth Home Ownership
Rev Rfdg (Inverse Fltg)........................ 10.108 10/25/22 2,978,450
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Aurora Med
Group Inc Ser P (FSA Insd)..................... 5.600 11/15/16 4,715,800
600 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.200 11/01/05 589,158
1,800 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.875 11/01/22 1,765,458
1,000 Wisconsin St Hlth & Edl Fac Auth Rev United
Lutheran Proj Aging Inc........................ 8.500 03/01/19 1,050,740
2,000 Wisconsin St Hlth & Edl Fac Auth Rev Wheaton
Franciscan (Prerefunded @ 08/15/98)............ 8.200 08/15/18 2,198,740
4,500 Wisconsin St Hlth & Edl Fac Auth Waukesha Mem
Hosp Ser A (AMBAC Insd)........................ 5.250 08/15/19 4,067,460
--------------
18,202,866
--------------
U. S. VIRGIN ISLANDS 0.1%
500 University of Virgin Islands Ser A............. 7.500 10/01/09 541,570
500 University of Virgin Islands Ser A............. 7.650 10/01/14 542,960
--------------
1,084,530
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 128
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <C>
TOTAL LONG-TERM INVESTMENTS 98.7%
(Cost $946,112,518) (a).................................................... $1,001,418,103
SHORT-TERM INVESTMENTS AT AMORTIZED COST 3.7%............................... 37,600,000
LIABILITIES IN EXCESS OF OTHER ASSETS (2.4%)................................ (24,068,243)
--------------
NET ASSETS 100%............................................................. $1,014,949,860
==============
*Zero coupon bond
</TABLE>
(a) At June 30, 1996, for federal income tax purposes, cost is $946,758,580; the
aggregate gross unrealized appreciation is $63,484,788 and the aggregate
gross unrealized depreciation is $10,018,308, resulting in net unrealized
appreciation including open futures transactions of $53,466,480.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
(d) Non-Income producing security.
(e) Currently is a zero coupon bond which will convert to a coupon paying bond
at a predetermined date.
See Notes to Financial Statements
27
<PAGE> 129
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $946,112,518) (Note 1)............. $1,001,418,103
Short-Term Investments (Note 1)....................................... 37,600,000
Cash.................................................................. 88,476
Receivables:
Interest............................................................ 18,208,775
Securities Sold..................................................... 7,985,600
Fund Shares Sold.................................................... 5,715,402
Other................................................................. 10,648
--------------
Total Assets.................................................... 1,071,027,004
--------------
LIABILITIES:
Payables:
Securities Purchased................................................ 50,395,158
Income Distributions................................................ 2,266,143
Fund Shares Repurchased............................................. 1,231,086
Distributor and Affiliates (Notes 2 and 6).......................... 732,322
Variation Margin on Futures (Note 5)................................ 665,779
Investment Advisory Fee (Note 2).................................... 386,565
Accrued Expenses...................................................... 314,792
Deferred Compensation and Retirement Plans (Note 2)................... 85,299
--------------
Total Liabilities............................................... 56,077,144
--------------
NET ASSETS............................................................ $1,014,949,860
==============
NET ASSETS CONSIST OF:
Capital (Note 3)...................................................... $1,000,718,660
Net Unrealized Appreciation on Securities............................. 54,112,542
Accumulated Distributions in Excess of Net Investment Income (Note
1).................................................................. (413,198)
Accumulated Net Realized Loss on Securities........................... (39,468,144)
--------------
NET ASSETS............................................................ $1,014,949,860
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $797,875,746 and 53,222,966 shares of capital stock
issued and outstanding) (Note 3)................................ $ 14.99
Maximum sales charge (4.75%* of offering price)................... .75
--------------
Maximum offering price to public.................................. $ 15.74
==============
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $205,420,999
and 13,702,658 shares of capital stock issued and outstanding)
(Note 3)........................................................ $ 14.99
==============
Class C Shares:
Net asset value and offering price per share (Based on net assets
of $11,653,115
and 777,915 shares of capital stock issued and outstanding)
(Note 3)........................................................ $ 14.98
==============
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
28
<PAGE> 130
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest............................................................... $ 34,523,616
-------------
EXPENSES:
Investment Advisory Fee (Note 2)....................................... 2,412,845
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C
of $997,055, $1,038,859 and $58,539, respectively) (Note 6).......... 2,094,453
Shareholder Services (Note 2).......................................... 608,422
Legal (Note 2)......................................................... 41,860
Trustees Fees and Expenses (Note 2).................................... 17,303
Other.................................................................. 303,624
-------------
Total Expenses..................................................... 5,478,507
Less Expenses Reimbursed........................................... 4,987
-------------
Net Expenses....................................................... 5,473,520
-------------
NET INVESTMENT INCOME.................................................. $ 29,050,096
=============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments (Including reorganization and restructuring costs of
$244,107).......................................................... $ 1,478,111
Options.............................................................. (1,585,184)
Futures.............................................................. 4,092,720
-------------
Net Realized Gain on Securities........................................ 3,985,647
-------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 95,777,573
-------------
End of the Period:
Investments........................................................ 55,305,585
Futures............................................................ (1,193,043)
-------------
54,112,542
-------------
Net Unrealized Depreciation on Securities During the Period............ (41,665,031)
-------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES......................... $ (37,679,384)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS............................. $ (8,629,288)
=============
</TABLE>
See Notes to Financial Statements
29
<PAGE> 131
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 29,050,096 $ 43,789.819
Net Realized Gain/Loss on Securities.................. 3,985,647 (13,008,288)
Net Unrealized Appreciation/Depreciation on
Securities During the Period........................ (41,665,031) 108,912,791
------------- --------------
Change in Net Assets from Operations.................. (8,629,288) 139,694,322
------------- --------------
Distributions from Net Investment Income.............. (28,909,855) (43,561,521)
Distributions in Excess of Net Investment Income (Note
1).................................................. -0- (826,976)
------------- --------------
Distributions from and in Excess of Net Investment
Income*............................................. (28,909,855) (44,388,497)
------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (37,539,143) 95,305,825
------------- --------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 202,789,493 406,337,419
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 15,160,163 23,081,168
Cost of Shares Repurchased............................ (232,941,577) (116,597,602)
------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (14,991,921) 312,820,985
------------- --------------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (52,531,064) 408,126,810
NET ASSETS:
Beginning of the Period............................... 1,067,480,924 659,354,114
------------- --------------
End of the Period (Including undistributed net
investment income of $(413,198) and $(553,439),
respectively)....................................... $1,014,949,860 $1,067,480,924
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
-------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares.................... $(23,321,744) $(34,867,726)
Class B Shares.................... (5,289,452) (9,177,676)
Class C Shares.................... (298,659) (313,688)
Class D Shares.................... -- (29,407)
------------ ------------
$(28,909,855) $(44,388,497)
============ ============
</TABLE>
See Notes to Financial Statements
30
<PAGE> 132
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31
June 30, ----------------------------------------
Class A Shares 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period................................ $15.549 $14.261 $16.164 $15.310 $15.071
------- ------- ------- ------- -------
Net Investment Income................. .447 .874 .886 .964 1.041
Net Realized and Unrealized Gain/Loss
on Securities....................... (.564) 1.296 (1.907) .862 .374
------- ------- ------- ------- -------
Total from Investment Operations........ (.117) 2.170 (1.021) 1.826 1.415
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income (Note 1)...... .441 .882 .882 .972 1.044
Distributions from and in Excess of
Net Realized Gain on Securities
(Note 1)............................ -0- -0- -0- -0- .132
------- ------- ------- ------- -------
Total Distributions..................... .441 .882 .882 .972 1.176
------- ------- ------- ------- -------
Net Asset Value, End of the Period...... $14.991 $15.549 $14.261 $16.164 $15.310
======= ======= ======= ======= =======
Total Return* (a)....................... (.76%)** 15.61% (6.37%) 12.20% 9.69%
Net Assets at End of the Period (In
millions)............................. $797.9 $839.7 $495.8 $597.6 $463.6
Ratio of Expenses to Average Net
Assets*............................... .91% .99% .99% .87% .86%
Ratio of Net Investment Income to
Average Net Assets*................... 5.87% 5.86% 5.93% 6.08% 6.76%
Portfolio Turnover...................... 28%** 61% 75% 82% 92%
*If certain expenses had not been
assumed by VKAC, total return would
have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets................................ .91% .99% N/A .98% 1.00%
Ratio of Net Investment Income to
Average Net Assets.................... 5.87% 5.86% N/A 5.97% 6.62%
</TABLE>
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
31
<PAGE> 133
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months August 24, 1992
Ended Year Ended December 31 (Commencement of
June 30, --------------------------- Distribution) to
Class B Shares 1996 1995 1994 1993 December 31, 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $15.549 $14.261 $16.139 $15.308 $15.481
------- ------- ------- ------- -------
Net Investment Income.............. .390 .762 .780 .852 .320
Net Realized and Unrealized
Gain/Loss on Securities.......... (.564) 1.294 (1.890) .845 (.033)
------- ------- ------- ------- -------
Total from Investment Operations..... (.174) 2.056 (1.110) 1.697 .287
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income (Note 1)... .384 .768 .768 .866 .328
Distributions from and in Excess of
Net Realized Gain on Securities
(Note 1)......................... -0- -0- -0- -0- .132
------- ------- ------- ------- -------
Total Distributions.................. .384 .768 .768 .866 .460
------- ------- ------- ------- -------
Net Asset Value, End of the Period... $14.991 $15.549 $14.261 $16.139 $15.308
======= ======= ======= ======= =======
Total Return* (a).................... (1.13%)** 14.74% (6.96%) 11.33% 1.90%**
Net Assets at End of the Period (In
millions).......................... $205.4 $216.6 $158.7 $168.2 $48.4
Ratio of Expenses to Average Net
Assets*............................ 1.67% 1.73% 1.70% 1.65% 1.66%
Ratio of Net Investment Income to
Average Net Assets*................ 5.12% 5.09% 5.22% 5.19% 5.23%
Portfolio Turnover................... 28%** 61% 75% 82% 92%
*If certain expenses had not been
assumed by VKAC, total return would
have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 1.67% 1.73% N/A 1.73% 2.42%
Ratio of Net Investment Income to
Average Net Assets................. 5.12% 5.09% N/A 5.11% 4.48%
</TABLE>
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
32
<PAGE> 134
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Six Months (Commencement of
Ended Year Ended Year Ended Distribution) to
Class C Shares June 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Net Asset Value, Beginning
of the Period........... $15.545 $14.262 $16.141 $15.990
------- ------ ------ ------
Net Investment Income..... .389 .771 .783 .300
Net Realized and
Unrealized
Gain/Loss on
Securities.............. (.570) 1.280 (1.894) .171
------- ------ ------ ------
Total from Investment
Operations.............. (.181) 2.051 (1.111) .471
Less Distributions from
and in
Excess of Net Investment
Income (Note 1)......... .384 .768 .768 .320
------- ------ ------ ------
Net Asset Value, End of
the Period.............. $14.980 $15.545 $14.262 $16.141
======= ======= ======= =======
Total Return (a).......... (1.20%)* 14.74% (6.97%) 2.96%*
Net Assets at End of the
Period
(In millions)........... $11.7 $11.2 $3.9 $4.1
Ratio of Expenses to
Average
Net Assets**............ 1.67% 1.72% 1.74% 1.85%
Ratio of Net Investment
Income to
Average Net Assets**.... 5.11% 5.24% 5.19% 3.95%
Portfolio Turnover........ 28%* 61% 75% 82%
</TABLE>
*Non-Annualized
**The Ratios of Expenses and Net Investment Income to Average Net Assets were
not affected by the assumption of expenses by VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
33
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Municipal Income Fund (the "Fund") is organized as a
series of the Van Kampen American Capital 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. On July 6, 1995, all Class D shareholders redeemed their shares
and the class was eliminated. The Fund will no longer offer Class D shares.
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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
34
<PAGE> 136
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $43,018,622. Of this amount, $2,340,989,
$30,738, $15,509, $12,455,739, $7,698,483 and $20,477,164 will expire on
December 31, 1996, 1998, 2000, 2001, 2002 and 2003, respectively. Net realized
gains or losses may differ for financial and tax reporting purposes primarily as
a result of the deferral of post October 31 losses and the capitalization of
reorganization and restructuring costs for tax purposes.
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 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 distribution in excess of net investment income for
certain periods.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million........................................ .50 of 1%
Over $500 million......................................... .45 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
35
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $40,900 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $476,200,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 146 and 137 shares of Classes B and C,
respectively.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
36
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $780,979,340, $208,013,022 and
$11,726,298 for Classes A, B and C, respectively. For the six months ended June
30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 12,479,231 $ 189,120,977
Class B.................................. 693,763 10,529,169
Class C.................................. 206,798 3,139,347
----------- -------------
Total Sales................................ 13,379,792 $ 202,789,493
=========== =============
Dividend Reinvestment:
Class A.................................. 798,489 $ 12,098,899
Class B.................................. 190,994 2,893,824
Class C.................................. 11,068 167,440
----------- -------------
Total Dividend Reinvestment................ 1,000,551 $ 15,160,163
=========== =============
Repurchases:
Class A.................................. (14,057,886) $(213,630,344)
Class B.................................. (1,112,062) (16,870,329)
Class C.................................. (161,138) (2,440,904)
----------- -------------
Total Repurchases.......................... (15,331,086) $(232,941,577)
=========== =============
</TABLE>
37
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $793,389,808, $211,460,358 and
$10,860,415 for Classes A, B and C, respectively. For the year ended December
31, 1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 24,431,223 $ 346,409,490
Class B................................... 3,801,812 52,179,384
Class C................................... 533,838 7,748,545
Class D................................... -0- -0-
---------- -------------
Total Sales................................. 28,766,873 $ 406,337,419
========== =============
Dividend Reinvestment:
Class A................................... 1,177,039 $ 17,764,127
Class B................................... 388,749 5,104,906
Class C................................... 12,019 181,673
Class D................................... 2,041 30,462
---------- -------------
Total Dividend Reinvestment................. 1,579,848 $ 23,081,168
========== =============
Repurchases:
Class A................................... (6,373,222) $ (93,894,378)
Class B................................... (1,339,250) (20,151,942)
Class C................................... (94,687) (1,432,423)
Class D................................... (70,940) (1,118,859)
---------- -------------
Total Repurchases........................... (7,878,099) $(116,597,602)
========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
YEAR OF REDEMPTION CLASS B CHARGE 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>
38
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$69,900 and CDSC on redeemed shares of approximately $274,700. Sales charges do
not represent expenses of the Fund.
On September 22, 1995, the Fund acquired all of the assets and liabilities
of the Van Kampen American Capital Municipal Bond Fund (the "AC Fund"), through
a tax free reorganization approved by AC Fund shareholders on September 21,
1995. The Fund issued 20,054,672, 2,774,312 and 471,489 shares of Classes A, B
and C valued at $301,019,346, $41,842,606 and $7,076,761, respectively, in
exchange for AC Fund's net assets. Shares issued in connection with this
reorganization are included in common share sales for the year ended December
31, 1995. Combined net assets on the date of acquisition were $1,027,309,801.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and reorganization and restructuring costs,
were $287,388,743 and $309,943,969, 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put)an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
39
<PAGE> 141
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six-months ended June 30, 1996, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995................ -0- $ -0-
Options Written and Purchased (Net)............. 9,620 (2,316,570)
Options Terminated in Closing Transactions
(Net)......................................... (4,435) 345,465
Options Expired (Net)........................... (5,035) 1,859,854
Options Exercised (Net)......................... (150) 111,251
------ -----------
Outstanding at June 30, 1996.................... -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, 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 cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts for the six months ended June 30, 1996,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995............................. 1,100
Futures Opened............................................... 20,314
Futures Closed............................................... (19,364)
--------
Outstanding at June 30, 1996................................. 2,050
========
</TABLE>
40
<PAGE> 142
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The futures contracts outstanding at June 30, 1996, and the descriptions and
unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures
Sept. 1996--Sells to Open.................... 700 $(1,358,461)
U.S. Treasury Bond Futures
Dec. 1996--Sells to Open..................... 500 (1,377,473)
Ten-year U.S. Treasury Note Futures
Dec. 1996--Buys to Open...................... 850 1,542,891
----- -----------
2,050 $(1,193,043)
===== ===========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A and 1.00% each for
Class B and Class C shares are accrued daily. Included in these fees for the six
months ended June 30, 1996, are payments to VKAC of approximately $802,500.
41
<PAGE> 143
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
42
<PAGE> 144
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, 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.
43
<PAGE> 145
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
44
<PAGE> 146
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>
LTMF SAR 8/96
<PAGE> 147
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley
Group Inc. While this announcement
may appear commonplace in an
ever-changing financial industry, we [PHOTO]
believe it represents an exciting
opportunity for shareholders of our
investment products. DENNIS J. MCDONNELL AND DON G. POWELL
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 148
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. Specifically,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing political
momentum for tax reform, which could have eroded the value of the market's
tax-exempt status. However, the momentum slowed substantially and now
appears to be on the back burner until after the 1996 presidential election.
This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 149
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL
INTERMEDIATE TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... (0.03%) (0.38%) (0.38%)
Six-month total return(2)................ (3.23%) (3.31%) (1.35%)
One-year total return(2)................. 2.24% 1.99% 4.10%
Life-of-Fund average annual total
return(2).............................. 4.97% 5.07% 3.45%
Commencement date........................ 05/28/93 05/28/93 10/19/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.58% 4.02% 4.02%
Taxable equivalent distribution
rate(4)................................ 7.16% 6.28% 6.28%
SEC Yield(5)............................. 4.66% 4.06% 4.06%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (3.25% for A shares) or contingent deferred
sales charge for early withdrawal (3% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996. Had certain
expenses of the Fund not been assumed by VKAC, total returns would have been
lower and the SEC Yield would have been 3.99%, 3.39% and 3.39% for Classes A, B
and C, respectively.
A portion of the interest income may be taxable for investors subject to the
federal alternative minimum tax (AMT).
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 150
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL
INTERMEDIATE TERM MUNICIPAL INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois............... 12.7%
California............. 11.8%
New York............... 9.1%
Pennsylvania........... 8.5%
Colorado............... 6.9%
Massachusetts.......... 6.9%
Utah................... 6.2%
Missouri............... 4.9%
Georgia................ 4.8%
Arizona................ 4.1%
</TABLE>
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C> <C> <C>
AAA....... 46.4%
AA........ 8.3%
A......... 8.6%
BBB....... 32.3%
B......... 3.6%
Non-Rated... 0.8%
[PIE CHART]
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C> <C> <C>
AAA....... 46.0%
AA........ 8.2%
A......... 17.9%
BBB....... 26.9%
B......... 1.0%
[PIE CHART]
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care........... 19.9%
General Purpose....... 18.9%
Multi-Family
Housing............. 14.5%
Industrial Revenue.... 8.6%
Single Family
Housing............. 8.5%
<CAPTION>
AS OF DECEMBER 31,
1995
<S> <C>
Health Care........... 19.8%
Airport............... 14.1%
General Purpose....... 13.2%
Multi-Family
Housing............. 13.0%
Single Family
Housing............. 9.9%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 6.49 years 6.46 years
</TABLE>
4
<PAGE> 151
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Intermediate Term Municipal Income Fund about the key events and economic forces
that shaped the markets during the first half of the Fund's fiscal year. The
team is led by David C. Johnson, portfolio manager, and Peter W. Hegel,
executive vice president for fixed-income investments. The following excerpts
reflect their views on the Fund's performance during the six-month period ended
June 30, 1996.
Q THE MUNICIPAL BOND MARKET EXPERIENCED SOME FLUCTUATIONS DURING THE FIRST
SIX MONTHS OF 1996. COULD YOU EXPLAIN WHAT HAPPENED IN THE MARKET DURING
THIS PERIOD AND WHAT FACTORS PLAYED THE GREATEST ROLE?
A We did see some significant price fluctuations in the municipal bond
market during the first half of the year. January was the only period that
enjoyed the same positive investment environment that dominated the bond
market through most of 1995. In contrast, February brought an abrupt end to the
increase in bond prices, and this environment continued throughout the rest of
the reporting period. Instead of anticipating further interest rate reductions,
the market grew wary that interest rates might be increased (tightened) by the
Fed. This concern was triggered by two main factors:
- - The federal government was shut down twice, which indicated that balanced
budget legislation was not imminent.
- - Several economic indicators pointed to accelerating economic growth.
Consecutive monthly employment reports showed significant increases in
employment.
These factors led to fears that inflation, which had been holding steady
around 3 percent, might increase. Fears heightened when agricultural commodity
and oil prices rose to their highest levels in two years. As a result, the Fed
shifted policy from an accommodative mode (lowering interest rates) in January
to a stable, or neutral, mode. Thereafter, bond prices generally began to
decrease.
Q WERE THERE OTHER FACTORS THAT INFLUENCED THE MUNICIPAL BOND MARKET OVER
THE LAST SIX MONTHS?
A The supply and demand relationship continued to be a positive influence on
the municipal bond market over the reporting period--supply remained low
while demand remained fairly strong. This helped support bond prices and
partly offset the negative effect that rising interest rates had on bond prices.
Another influence was the role that potential major tax reform played on
municipal bonds. The market's initial reaction to this issue was negative,
because major tax reform may remove the tax advantage municipal bonds now offer.
We believe the market has now discounted the potential impact of tax reform, and
we do not expect any type of reform to be implemented until 1997, at the
earliest. However, this issue may continue to receive media coverage throughout
the remainder of 1996, primarily near the presidential election in November, and
we will continue to monitor it closely for any developments.
5
<PAGE> 152
Q HOW WAS THE FUND STRUCTURED OVER THE LAST SIX MONTHS?
A The Fund currently holds 4.4 percent in securities rated below
investment-grade. Securities rated below investment-grade quality
typically offer higher yields than investment-grade quality to compensate
for the additional credit risk. Our challenge has been to find issues offering
the greatest relative value in this low-supply environment.
The Fund was structured defensively with a relatively short duration of 6.5
years, which remained consistent during the six-month period. Duration is a
measurement of a portfolio's sensitivity to interest rate changes--the shorter
the duration, the less sensitive the portfolio is expected to be to interest
rate movements. The Fund's short duration is consistent with major municipal
bond indices and allows us to achieve a balance between maintaining an
attractive dividend and seeking to protect the portfolio against market
fluctuations.
We continue to believe the intermediate sector of the municipal market
(10-year securities) remains particularly attractive in relation to Treasury
yields. The intermediate sector has traditionally offered competitive yields
when compared to longer-term issues, though with less price volatility than is
usually associated with these types of securities. Please refer to page four for
Fund portfolio highlights.
Q WHAT WERE THE MOST ATTRACTIVE SECTORS FOR THE FUND?
A We continued to find value in a wide array of sectors and individual
issues across many categories for both investment and non-investment grade
acquisitions. One sector that remains attractive is healthcare and its
related areas (currently at 19.9 percent of the Fund's holdings). Because we
have dedicated analysts who specialize in thoroughly researching each sector, we
continue to find issues offering the greatest relative value.
Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1996?
A During the period's volatile market environment, the Fund returned -0.03
percent(1) (Class A shares at net asset value) for the six months ended
June 30, 1996. By comparison, the Lehman Brothers Municipal Bond Index was
less favorable, with a total return of -0.45 percent over the same period.
Longer term, the Fund generated a one-year total return of 5.64 percent(1)
(Class A shares at net asset value). The Lehman Index is a broad-based,
unmanaged index of municipal bonds and does not reflect any commissions or fees
that would be paid by an investor purchasing the securities it represents.
Please refer to the chart on page three for additional Fund performance results.
At its current annualized dividend level of $0.474 per share, the Fund
generated a tax-free distribution rate of 4.58 percent(3) (Class A shares) as of
June 30, 1996. At this distribution rate, the Fund provides shareholders in the
36 percent federal income tax bracket with a yield equivalent to a taxable
investment earning 7.16 percent(4).
6
<PAGE> 153
Q WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET IN THE UPCOMING MONTHS,
AND WHAT FACTORS COULD INFLUENCE YOUR MANAGEMENT OF THE FUND?
A The municipal market should remain stable over the next few months,
especially if the current market fundamentals--including low inflation and
a positive supply and demand ratio--remain in place. We do not anticipate
any significant changes in the management of the Fund. However, if the economy
continues to show signs of strong growth, we could see some changes in market
fundamentals:
- - INFLATION has been holding at a low 2 to 3 percent range for some time now,
but going forward, there is some concern that inflation could slowly creep
upward, which could have a negative effect on the market.
- - INTEREST RATES: We anticipate the Federal Reserve will remain in a neutral
policy mode, but it may become necessary to tighten interest rates if the
economy continues to strengthen.
- - The positive ratio between LOWER SUPPLY AND HIGHER DEMAND should continue in
the upcoming months, which is a stabilizing influence on municipal bond
values. If there is a rally in bond prices, we could see an increase in
refundings, which could bring more supply into the market.
Peter W. Hegel
Peter W. Hegel
Executive Vice President
Fixed Income Investments
David C. Johnson
David C. Johnson
Portfolio Manager
Please see footnotes on page three
7
<PAGE> 154
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALASKA 0.7%
$ 250 Seward, AK Rev AK Sealife Cent Proj............. 7.100% 10/01/05 $ 252,050
-----------
ARIZONA 4.0%
1,250 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)..... 7.250 07/15/10 1,364,375
-----------
CALIFORNIA 11.4%
1,000 California St Var Rate Cpn (AMBAC Insd)......... 6.400 09/01/08 1,100,030
500 Los Angeles Cnty, CA Ctfs Partn (Embedded
Swap) (d)....................................... 7.660 11/01/01 514,920
540 Montebello, CA Unified Sch Dist Ctfs Partn Cap
Impts Proj...................................... 5.900 06/01/04 534,595
1,050 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)........................................... 6.000 07/01/08 1,087,285
655 Pleasanton, CA Jt Pwrs Fin Auth Rev Ser A....... 6.000 09/02/05 682,366
-----------
3,919,196
-----------
COLORADO 6.7%
295 Colorado Hsg Fin Auth Access Pgm Single Family
Pgm Ser E....................................... 8.125 12/01/24 327,925
1,000 Denver, CO City & Cnty Arpt Rev Ser A........... 7.400 11/15/04 1,100,050
500 Montrose Cnty, CO Ctfs Partn.................... 6.000 06/15/01 493,885
400 Montrose Cnty, CO Ctfs Partn.................... 6.100 06/15/02 393,144
-----------
2,315,004
-----------
DISTRICT OF COLUMBIA 2.8%
1,000 District of Columbia Redev Land Agy Dist of
Columbia Sports Arena Spl Tax Rev............... 5.625 11/01/10 973,080
-----------
FLORIDA 3.5%
1,150 Florida Hsg Fin Agy Maitland Club Apts Ser B 1
(AMBAC Insd).................................... 6.750 08/01/14 1,211,272
-----------
GEORGIA 4.7%
1,480 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA
Collateralized) (c)............................. 6.625 01/01/25 1,617,137
-----------
ILLINOIS 12.4%
250 Bellevue, IL Indl Dev First Mtg Rev Kmart Corp
Proj Rfdg....................................... 6.250 04/01/09 216,545
220 Danville, IL Single Family Mtg Rev Rfdg......... 7.300 11/01/10 229,339
250 Hoffman Estates, IL Multi-Family Rev Hsg Pk Pl
Apts Proj Rfdg (FNMA Collateralized)............ 5.750 06/01/21 249,800
1,335 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Twrs A............................. 6.500 09/01/09 1,361,620
750 Illinois Hlth Fac Auth Rev Holy Cross Hosp Proj
Ser 94-A........................................ 6.250 03/01/04 758,108
400 Illinois Hlth Fac Auth Rev Swedish Covenant Ser
A Rfdg & Impt................................... 5.800 08/01/03 410,012
340 Macon County, IL Rev Cap Apprec Millikin Univ
(AMBAC Insd).................................... * 10/01/06 193,905
370 Macon County, IL Rev Cap Apprec Millikin Univ
(AMBAC Insd).................................... * 10/01/07 197,595
410 Macon County, IL Rev Cap Apprec Millikin Univ
(AMBAC Insd).................................... * 10/01/08 204,639
455 Macon County, IL Rev Cap Apprec Millikin Univ
(AMBAC Insd).................................... * 10/01/09 211,834
500 Macon County, IL Rev Cap Apprec Millikin Univ
(AMBAC Insd).................................... * 10/01/10 216,720
-----------
4,250,117
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 155
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KANSAS 0.5%
$ 170 Labette Cnty, KS Single Family Mtg Rev Ser A
Rfdg............................................ 8.400% 12/01/11 $ 180,622
-----------
KENTUCKY 1.1%
375 Jefferson Cnty, KY Multi-Family Rev Hsg Whipps
Mill Proj Ser A Rfdg............................ 5.875 06/01/23 376,965
-----------
MASSACHUSETTS 6.6%
470 Boston, MA Wtr & Swr Comm Rev Ser A............. 9.250 01/01/11 614,539
500 Massachusetts St Hlth & Edl North Adams Regional
Hosp Ser C (b).................................. 6.250 07/01/04 497,515
1,000 South Essex, MA Swr Dist Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)............ 7.500 06/01/05 1,175,040
-----------
2,287,094
-----------
MISSOURI 4.7%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)........................................... 7.000 09/01/12 1,630,725
-----------
NEW HAMPSHIRE 0.6%
200 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Nashua Mem Hosp............................ 5.500 10/01/02 202,408
-----------
NEW JERSEY 3.3%
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)................... 7.000 07/01/06 1,130,310
-----------
NEW YORK 8.9%
350 Erie Cnty, NY Indl Dev Agy Civic Fac Rev Mercy
Hosp Buffalo Proj Ser A......................... 5.900 06/01/03 353,941
500 New York City Ser A............................. 7.000 08/01/07 524,495
1,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd).............................. 6.200 08/15/05 1,076,780
1,000 Niagara Falls, NY Pub Impt (MBIA Insd).......... 6.900 03/01/20 1,089,580
-----------
3,044,796
-----------
OHIO 3.0%
1,000 Ohio St Air Quality Dev Auth Rev Owens Corning
Fiberglas Proj Rfdg............................. 6.250 06/01/04 1,013,640
-----------
OKLAHOMA 1.9%
660 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg............................... 5.750 10/01/03 662,264
-----------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 156
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA 8.3%
$1,000 Cumberland Cnty, PA Muni Auth Rev First Mtg
Carlisle Hosp & Hlth............................ 5.500% 11/15/98 $ 998,610
225 Erie, PA Higher Edl Bldg Auth College Rev
Mercyhurst College Proj A Rfdg.................. 5.300 03/15/03 224,102
1,000 Pennsylvania Intergovt Coop Auth Spl Tax Rev
Philadelphia Funding Pgm (Prerefunded @
06/15/05) (FGIC Insd)........................... 6.750 06/15/21 1,120,940
500 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Friends Hosp................................ 5.950 05/01/04 505,600
-----------
2,849,252
-----------
TEXAS 1.4%
500 Brazos Cnty, TX Hlth Fac Dev Corp Franciscan
Svcs Corp Rev Saint Joseph Rfdg................. 5.600 01/01/03 495,970
-----------
UTAH 6.0%
2,000 Utah St Hsg Fin Agy Single Family Mtg Mezz Ser
A-1 (FHA Gtd)................................... 7.150 07/01/12 2,068,620
-----------
GUAM 4.5%
1,550 Guam Govt Ser A................................. 5.500 09/01/01 1,536,825
-----------
TOTAL LONG-TERM INVESTMENTS 97.0%
(Cost $32,148,380) (a)..................................................... 33,381,722
SHORT-TERM INVESTMENTS AT AMORTIZED COST 3.8%............................... 1,300,000
LIABILITIES IN EXCESS OF OTHER ASSETS (0.8%)................................ (259,400)
-----------
NET ASSETS 100%............................................................. $34,422,313
===========
*Zero coupon bond
</TABLE>
(a) At June 30, 1996, cost for federal income tax purposes is $32,148,380; the
aggregate gross unrealized appreciation is $1,342,188 and the aggregate
gross unrealized depreciation is $108,846, resulting in net unrealized
appreciation of $1,233,342.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(d) 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. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these securities may be more
volatile than the price of a comparable fixed rate security. These are
typically used by the Fund to enhance the yield of the portfolio.
See Notes to Financial Statements
10
<PAGE> 157
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $32,148,380) (Note 1)................. $33,381,722
Short-Term Investments (Note 1).......................................... 1,300,000
Cash..................................................................... 60,985
Receivables:
Interest............................................................... 596,138
Securities Sold........................................................ 345,034
Fund Shares Sold....................................................... 12,713
Unamortized Organizational Expenses (Note 1)............................. 22,868
Other.................................................................... 947
-----------
Total Assets....................................................... 35,720,407
-----------
LIABILITIES:
Payables:
Securities Purchased................................................... 1,021,619
Income Distributions................................................... 43,811
Distributor and Affiliates (Notes 2 and 5)............................. 20,508
Fund Shares Repurchased................................................ 16,094
Accrued Expenses......................................................... 144,543
Deferred Compensation and Retirement Plans (Note 2)...................... 51,519
-----------
Total Liabilities.................................................. 1,298,094
-----------
NET ASSETS............................................................... $34,422,313
===========
NET ASSETS CONSIST OF:
Capital (Note 3)......................................................... $33,959,999
Net Unrealized Appreciation on Securities................................ 1,233,342
Accumulated Undistributed Net Investment Income.......................... 162,833
Accumulated Net Realized Loss on Securities.............................. (933,861)
-----------
NET ASSETS............................................................... $34,422,313
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $13,875,865 and 1,385,133 shares of capital stock issued and
outstanding) (Note 3)................................................ $ 10.02
Maximum sales charge (3.25%* of offering price)...................... .34
-----------
Maximum offering price to public..................................... $ 10.36
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$16,803,738 and 1,677,897 shares of capital stock issued and
outstanding) (Note 3)................................................ $ 10.01
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$3,742,710 and 373,795 shares of capital stock issued and
outstanding) (Note 3)................................................ $ 10.01
===========
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
11
<PAGE> 158
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................. $ 1,067,017
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$18,202, $84,420 and $20,365, respectively) (Note 5)................... 122,987
Investment Advisory Fee (Note 2)......................................... 88,796
Shareholder Services (Note 2)............................................ 35,614
Registration............................................................. 31,467
Custody.................................................................. 26,639
Printing................................................................. 21,840
Trustees Fees and Expenses (Note 2)...................................... 17,081
Legal (Note 2)........................................................... 7,280
Amortization of Organizational Expenses (Note 1)......................... 5,981
Other.................................................................... 29,008
-----------
Total Expenses....................................................... 386,693
Less Fees Waived and Expenses Reimbursed ($88,796 and $34,832,
respectively)...................................................... 123,628
-----------
Net Expenses......................................................... $ 263,065
-----------
NET INVESTMENT INCOME.................................................... $ 803,952
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments......................................... $ 99,269
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.............................................. 2,236,676
End of the Period:
Investments........................................................ 1,233,342
-----------
Net Unrealized Depreciation on Securities During the Period.............. (1,003,334)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES........................... $ (904,065)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS............................... $ (100,113)
===========
</TABLE>
See Notes to Financial Statements
12
<PAGE> 159
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 803,952 $ 1,759,783
Net Realized Gain on Securities....................... 99,269 585,792
Net Unrealized Appreciation/Depreciation on Securities
During the Period................................... (1,003,334) 2,966,825
----------- -----------
Change in Net Assets from Operations.................. (100,113) 5,312,400
----------- -----------
Distributions from Net Investment Income:
Class A Shares...................................... (344,047) (757,945)
Class B Shares...................................... (337,424) (704,432)
Class C Shares...................................... (81,676) (185,738)
----------- -----------
Total Distributions............................... (763,147) (1,648,115)
---------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (863,260) 3,664,285
----------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 1,971,857 4,993,059
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 493,304 1,091,043
Cost of Shares Repurchased............................ (5,265,883) (9,751,835)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (2,800,722) (3,667,733)
----------- -----------
TOTAL DECREASE IN NET ASSETS.......................... (3,663,982) (3,448)
NET ASSETS:
Beginning of the Period............................... 38,086,295 38,089,743
----------- -----------
End of the Period (Including undistributed net
investment income of $162,833 and $122,028,
respectively)....................................... $34,422,313 $38,086,295
=========== ===========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 160
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 28, 1993
Six Months (Commencement
Ended Year Ended Year Ended of Investment
June 30, December 31, December 31, Operations) to
Class A Shares 1996 1995 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................ $10.264 $ 9.330 $10.145 $ 9.700
------- ------- ------- -------
Net Investment Income............. .253 .508 .489 .278
Net Realized and Unrealized
Gain/Loss on Securities......... (.262) .900 (.815) .462
------- ------- ------- -------
Total from Investment Operations.... (.009) 1.408 (.326) .740
------- ------- ------- -------
Less:
Distributions from Net Investment
Income.......................... .237 .474 .489 .273
Distributions from Net Realized
Gain on Securities.............. -0- -0- -0- .022
------- ------- ------- -------
Total Distributions................. .237 .474 .489 .295
------- ------- ------- -------
Net Asset Value, End of the
Period............................ $10.018 $10.264 $ 9.330 $10.145
======= ======= ======= =======
Total Return* (a)................... (.03%)** 15.31% (3.32%) 7.75%**
Net Assets at End of the Period (In
millions)......................... $13.9 $15.6 $15.7 $14.0
Ratio of Expenses to Average Net
Assets*........................... 1.04% 1.00% .67% .14%
Ratio of Net Investment Income to
Average Net Assets*............... 4.97% 5.10% 5.07% 4.78%
Portfolio Turnover.................. 16%** 75% 274% 86%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 1.73% 1.61% 1.75% 2.21%
Ratio of Net Investment Income to
Average Net Assets................ 4.28% 4.49% 3.99% 2.70%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
14
<PAGE> 161
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 28, 1993
Six Months (Commencement
Ended Year Ended Year Ended of Investment
June 30, December 31, December 31, Operations) to
Class B Shares 1996 1995 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................ $10.263 $ 9.319 $10.137 $ 9.700
------- ------- ------- -------
Net Investment Income............... .213 .430 .417 .233
Net Realized and Unrealized
Gain/Loss on Securities........... (.261) .916 (.818) .460
------- ------- ------- -------
Total from Investment Operations.... (.048) 1.346 (.401) .693
------- ------- ------- -------
Less:
Distributions from Net Investment
Income.......................... .201 .402 .417 .234
Distributions from Net Realized
Gain on Securities.............. -0- -0- -0- .022
------- ------- ------- -------
Total Distributions................. .201 .402 .417 .256
------- ------- ------- -------
Net Asset Value, End of the
Period............................ $10.014 $10.263 $ 9.319 $10.137
======= ======= ======= =======
Total Return* (a)................... (.38%)** 14.62% (4.04%) 7.23%**
Net Assets at End of the Period (In
millions)......................... $16.8 $17.5 $17.7 $13.9
Ratio of Expenses to Average Net
Assets*........................... 1.79% 1.75% 1.43% .92%
Ratio of Net Investment Income to
Average Net Assets*............... 4.21% 4.33% 4.30% 3.95%
Portfolio Turnover.................. 16%** 75% 274% 86%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 2.49% 2.36% 2.50% 2.98%
Ratio of Net Investment Income to
Average Net Assets................ 3.52% 3.72% 3.24% 1.89%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
15
<PAGE> 162
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months October 19, 1993
Ended Year Ended Year Ended (Commencement of
June 30, December 31, December 31, Distribution) to
Class C Shares 1996 1995 1994 December 31, 1993
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................ $10.260 $ 9.314 $10.134 $10.250
------- ------- ------- -------
Net Investment Income............... .223 .430 .419 .091
Net Realized and Unrealized
Gain/Loss on Securities........... (.269) .918 (.822) (.098)
------- ------- ------- -------
Total from Investment Operations.... (.046) 1.348 (.403) (.007)
------- ------- ------- -------
Less:
Distributions from Net Investment
Income.......................... .201 .402 .417 .087
Distributions from Net Realized
Gain on Securities.............. -0- -0- -0- .022
------- ------- ------- -------
Total Distributions................. .201 .402 .417 .109
------- ------- ------- -------
Net Asset Value, End of the
Period............................ $10.013 $10.260 $ 9.314 $10.134
======= ======= ======= =======
Total Return* (a)................... (.38%)** 14.74% (4.04%) (.10%)**
Net Assets at End of the Period (In
millions)......................... $3.7 $4.9 $4.7 $.3
Ratio of Expenses to Average Net
Assets*........................... 1.79% 1.74% 1.43% .97%
Ratio of Net Investment Income to
Average Net Assets*............... 4.23% 4.36% 4.34% 4.05%
Portfolio Turnover.................. 16%** 75% 274% 86%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 2.48% 2.34% 2.46% 2.97%
Ratio of Net Investment Income to
Average Net Assets................ 3.53% 3.75% 3.31% 2.06%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
16
<PAGE> 163
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Intermediate Term Municipal Income Fund (the "Fund")
is organized as a series of Van Kampen American Capital 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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
17
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $60,000. These costs
are being amortized on a straight line basis over the 60 month period ending May
27, 1998. Van Kampen American Capital Investment Advisory Corp. (the "Adviser")
has agreed that in the event any of the initial shares of the Fund originally
purchased by VKAC are redeemed during the amortization period, the Fund will be
reimbursed for any unamortized organizational expenses in the same proportion as
the number of shares redeemed bears to the number of initial shares held at the
time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income 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 December 31, 1995, the Fund had an accumulated capital loss carryforward of
$1,033,130, of which $849,643 and $183,487 will expire on December 31, 2002 and
2003, respectively. Net realized gains or losses may differ for financial and
tax reporting purposes primarily as a result of post October 31 losses which are
not recognized for tax purposes until the first day of the following fiscal
year.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%
Over $500 million....................................... .450 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
18
<PAGE> 165
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $8,700 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $17,900,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 1,000, 100 and 100 shares of beneficial
interest of Classes A, B and C, respectively.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
19
<PAGE> 166
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $13,694,311, $16,723,296 and
$3,542,392 for Classes A, B and C, respectively. For the six months ended June
30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------
Sales:
Class A...................................... 63,582 $ 644,535
Class B...................................... 95,885 961,690
Class C...................................... 36,304 365,632
-------- -----------
Total Sales.................................... 195,771 $ 1,971,857
======== ===========
Dividend Reinvestment:
Class A...................................... 21,524 $ 217,497
Class B...................................... 19,987 201,843
Class C...................................... 7,317 73,964
-------- -----------
Total Dividend Reinvestment.................... 48,828 $ 493,304
======== ===========
Repurchases:
Class A...................................... (221,040) $(2,241,481)
Class B...................................... (146,102) (1,475,285)
Class C...................................... (151,621) (1,549,117)
-------- -----------
Total Repurchases.............................. (518,763) $(5,265,883)
======== ===========
</TABLE>
20
<PAGE> 167
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $15,073,760, $17,035,048 and
$4,651,913 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
- -------------------------------------------------------------------------
Sales:
Class A...................................... 132,361 $ 1,315,355
Class B...................................... 172,036 1,724,905
Class C...................................... 197,244 1,952,799
-------- -----------
Total Sales.................................... 501,641 $ 4,993,059
======== ===========
Dividend Reinvestment:
Class A...................................... 51,462 $ 512,479
Class B...................................... 41,187 409,706
Class C...................................... 16,979 168,858
-------- -----------
Total Dividend Reinvestment.................... 109,628 $ 1,091,043
======== ===========
Repurchases:
Class A...................................... (346,026) $(3,440,596)
Class B...................................... (400,845) (3,959,338)
Class C...................................... (238,970) (2,351,901)
-------- -----------
Total Repurchases.............................. (985,841) $(9,751,835)
======== ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC for Class B and
Class C shares will be imposed on most redemptions made within four years of the
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule. The Class B and Class C shares bear the expense of their
respective deferred sales arrangements, including higher distribution and
service fees and incremental transfer agency costs.
<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>
21
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$1,000 and CDSC on redeemed shares of approximately $14,200. 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 $5,527,928 and $7,346,595, respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $63,300.
22
<PAGE> 169
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
23
<PAGE> 170
VAN KAMPEN AMERICAN CAPITAL INTERMEDIATE TERM MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, 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.
24
<PAGE> 171
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 15
</TABLE>
FLI SAR 8/96
<PAGE> 172
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC [PHOTO]
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to DENNIS J. MCDONNELL AND DON G. POWELL
be acquired by the Morgan Stanley
Group Inc. While this announcement
may appear commonplace in an
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 173
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. Specifically,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing political
momentum for tax reform, which could have eroded the value of the market's
tax-exempt status. However, the momentum slowed substantially and now
appears to be on the back burner until after the 1996 presidential election.
This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 174
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on
NAV(1)................................ (1.54%) (1.92%) (1.91%)
Six-month total return(2)............... (6.23%) (5.75%) (2.87%)
One-year total return(2)................ 0.95% 1.17% 4.31%
Life-of-Fund average annual total
return(2)............................. 3.83% 3.85% 5.76%
Commencement date....................... 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................... 5.06% 4.53% 4.52%
Taxable equivalent distribution
rate(4)............................... 7.91% 7.08% 7.06%
SEC Yield(5)............................ 5.19% 4.69% 4.69%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
3.91%, 3.41% and 3.41% for Classes A, B and C, respectively, and total returns
would have been lower.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 175
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL
FLORIDA INSURED TAX FREE INCOME FUND
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C> <C>
AAA................... 87.5%
AA.................... 3.6%
A..................... 3.0%
BBB................... 5.9%
[PIE CHART]
AS OF DECEMBER 31, 1995
AAA................... 80.3%
AA.................... 8.2%
A..................... 6.4%
BBB................... 5.1%
[PIE CHART]
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Public Education ..... 25.1%
Health Care .......... 19.3%
Water and Sewer ...... 17.1%
Retail
Elec/Gas/Telephone ... 8.8%
Single Family
Housing ............ 8.5%
<CAPTION>
AS OF DECEMBER 31,
1995
<S> <C>
Water and Sewer ...... 20.9%
Public Education ..... 18.2%
Health Care .......... 15.7%
General Purpose ...... 10.5%
Transportation ....... 9.0%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 9.41 years 7.50 years
</TABLE>
4
<PAGE> 176
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Florida Insured Tax Free Income Fund about the key events and economic forces
that shaped the markets during the first half of the Fund's fiscal year. The
team includes Joseph A. Piraro, portfolio manager, and Peter W. Hegel, executive
vice president for fixed-income investments. The following excerpts reflect
their views on the Fund's performance during the six-month period ended June 30,
1996.
Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?
A Earlier in the year, indicators pointing to a stronger, expanding economy
sparked concern over inflation and expectations that the Federal Reserve
Board would increase short-term interest rates in order to keep the
economy from overheating. The prospect of higher rates was a concern to the
market, which responded by trading toward lower prices and higher yields.
On the other hand, municipal market concerns that major tax reform proposals
may gain acceptance--and potentially erode the tax-exempt status associated with
municipals--eased in the first half of 1996. So, even though bond prices
generally declined, they did so to a lesser extent in the municipal market.
The supply and demand relationship continued to be a positive influence on
the municipal bond market over the reporting period--supply remained low while
demand remained fairly strong. This helped support bond prices and partly offset
the negative effect that rising interest rates had on bond prices.
Q HOW WAS THE FUND'S PORTFOLIO STRUCTURED IN LIGHT OF
THESE CONDITIONS?
A The Fund was structured with a duration of 9.4 years at the end of the
period, which is slightly higher than the benchmark that we try to target
over time. Duration is a measure of a portfolio's sensitivity to changes
in interest rates. The shorter the duration, the less sensitive the portfolio is
expected to be to interest rates. The Fund's average weighted maturity remained
in the 20- to 22-year range, which we feel offered the best balance between
income and total return performance.
The majority of the Fund's holdings are invested in AAA-rated securities
(87.5 percent), and the Florida municipal market continues to offer value in a
variety of sectors. Currently, the Fund has its highest concentration in public
education at 25.1 percent and healthcare at 19.3 percent. Please refer to page
four for Fund portfolio highlights.
5
<PAGE> 177
Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1996?
A For the six-month period ended June 30, 1996, the Fund's total return was
-1.54 percent(1) (Class A shares at net asset value). By comparison, the
market in general, as represented by the Lehman Brothers Municipal Bond
Index, returned -0.45 percent for the same period. Longer term, the Fund
generated a one-year total return of 5.95 percent(1) (Class A shares at net
asset value) through June 30, 1996. The Lehman Index is a broad-based, unmanaged
index of municipal bonds and does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents. Please refer to
the chart on page three for additional Fund performance results.
At its current annualized dividend of $0.774 per share, the Fund generated a
tax-free distribution rate of 5.06 percent(3) (Class A shares) as of June 30,
1996. At this distribution rate, the Fund provides shareholders in the 36
percent federal income tax bracket with a yield equivalent to a taxable
investment earning 7.91 percent(4).
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A The Florida economy is generally sound, and we do not anticipate any
significant changes in the management of the Fund. However, if the
national economy continues to show signs of strong growth, we could see
some changes in market fundamentals:
- - INFLATION has been holding at a low 2 to 3 percent range for some time now,
but going forward, there is some concern that inflation could slowly creep
upward, which could have a negative effect on the market.
- - INTEREST RATES: We anticipate the Federal Reserve will remain in a neutral
policy mode, but it may become necessary to tighten interest rates if the
economy continues to strengthen.
- - The positive ratio between LOWER SUPPLY AND HIGHER DEMAND should continue in
the upcoming months, which is a stabilizing influence on municipal bond
values. If there is a rally in bond prices, we could see an increase in
refundings, which could bring more supply into the market.
[SIG]
Peter W. Hegel
Executive Vice President
Fixed Income Investments
[SIG]
Joseph A. Piraro
Portfolio Manager
Please see footnotes on page three
6
<PAGE> 178
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
FLORIDA 86.1%
$1,500 Altamonte Springs, FL Hlth Fac Auth Hosp Rev
Adventist Hlth Sunbelt Ser B (AMBAC Insd)........ 5.375% 11/15/23 $ 1,396,455
470 Brevard Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.650 09/01/21 478,568
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd)....... 5.750 12/01/13 653,491
1,000 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC
Insd)............................................ 5.400 07/01/12 982,660
1,000 Brevard Cnty, FL Sch Brd Ctfs Ser B (AMBAC
Insd)............................................ 5.500 07/01/21 957,470
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd)................................ 6.500 08/15/12 527,525
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.750 05/01/08 998,718
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 6.000 05/01/14 509,060
1,500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd)............................................ 5.500 05/01/25 1,432,155
1,000 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd)...... 5.500 10/01/25 953,160
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC
Insd)............................................ 5.750 11/15/10 910,971
600 Escambia Cnty, FL Pollutn Ctl Rev Champion Intl
Corp Proj........................................ 6.900 08/01/22 624,810
1,000 Florida St Brd Edl Cap Outlay Pub Edl Ser C (MBIA
Insd)............................................ 5.600 06/01/25 971,380
500 Hillsborough Cnty, FL Hosp Auth Hosp Rev Tampa
Genl Hosp Proj Rfdg (FSA Insd)................... 6.375 10/01/13 521,430
750 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Rfdg (MBIA Insd).......... 6.250 12/01/34 771,060
1,000 Jacksonville, FL Elec Auth Rev Saint John's
Pwr-2 Ser 7 Rfdg (MBIA Insd)..................... 5.500 10/01/14 974,620
700 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (MBIA Insd) (c)......... 7.300 06/01/19 758,478
1,000 Jacksonville, FL Wtr & Swr Rev United Wtr Proj
(AMBAC Insd)..................................... 6.350 08/01/25 1,029,210
1,000 Manatee Cnty, FL Hsg Fin Auth Mtg Rev (GNMA
Collateralized).................................. 6.875 11/01/26 1,075,870
1,000 Manatee Cnty, FL Pub Utils Rev Ser A1 Rfdg (MBIA
Insd)............................................ 5.000 10/01/13 915,950
890 Martin Cnty, FL Cons Util Sys Rev Rfdg & Impt
(FGIC Insd)...................................... 5.750 10/01/08 917,385
750 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg.............. 7.875 12/15/25 840,000
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd) (b)...... 6.250 10/01/18 546,831
500 Miramar, FL Wastewtr Impt Assmt Rev (FGIC
Insd)............................................ 6.750 10/01/25 538,825
250 Orange Cnty, FL Hlth Fac Auth Rev Pooled Hosp Ln
Ser B Rfdg (BIGI Insd)........................... 7.875 12/01/25 261,938
</TABLE>
See Notes to Financial Statements
7
<PAGE> 179
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$1,000 Orange Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.550% 10/01/21 $ 1,021,550
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B (AMBAC
Insd)............................................ 6.500 10/01/19 944,685
1,000 Osceola Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd)............................................ 5.500 06/01/19 959,120
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)..................................... 6.375 08/01/15 780,893
500 Saint Petersburg, FL Prof Sports Fac Sales Tax
Rev (MBIA Insd).................................. 5.625 10/01/20 488,315
750 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)............................ 6.500 10/01/14 838,237
1,000 Tampa, FL Rev Allegany Hlth Sys Saint Mary's
(MBIA Insd)...................................... 5.125 12/01/23 897,130
500 Volusia Cnty, FL Edl Fac Auth Edl Fac Embry
Riddle Aero Ser A................................ 6.125 10/15/16 493,660
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac Mem
Hlth Rfdg & Impt (AMBAC Insd).................... 5.750 11/15/13 500,930
1,000 Volusia Cnty, FL Hlth Fac Auth Rev John Knox Hlth
Care Rfdg (Asset Gty Insd)....................... 6.000 06/01/17 992,880
------------
28,465,420
------------
PUERTO RICO 5.5%
670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................. 6.625 07/01/12 710,609
500 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser X
Rfdg............................................. 5.500 07/01/19 469,910
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd)............................ 5.750 07/01/15 648,875
------------
1,829,394
------------
TOTAL LONG-TERM INVESTMENTS 91.6%
(Cost $29,586,402) (a)....................................................... 30,294,814
------------
SHORT-TERM INVESTMENTS AT AMORTIZED COST 8.6%
Palm Beach Cnty, FL Wtr & Swr Rev Var Rate ($1,145,000 par, coupon 3.85%,
maturing 07/01/96)............................................................. 1,145,000
Pinellas Cnty, FL Hlth Fac Dates Pooled Hosp Ln Pgm Rfdg ($1,700,000 par,
coupon 3.80%, maturing 07/01/96)............................................. 1,700,000
------------
TOTAL SHORT-TERM INVESTMENTS AT AMORTIZED COST................................. 2,845,000
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2%).................................. (71,671)
------------
NET ASSETS 100%............................................................... $33,068,143
============
</TABLE>
(a) At June 30, 1996, cost for federal income tax purposes is $29,586,402; the
aggregate gross unrealized appreciation is $980,316 and the aggregate gross
unrealized depreciation is $271,904, resulting in net unrealized
appreciation of $708,412.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
See Notes to Financial Statements
8
<PAGE> 180
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $29,586,402) (Note 1)................. $30,294,814
Short-Term Investments (Note 1).......................................... 2,845,000
Cash..................................................................... 109,894
Receivables:
Interest............................................................... 419,084
Fund Shares Sold....................................................... 110,261
Unamortized Organizational Expenses (Note 1)............................. 73,799
-----------
Total Assets....................................................... 33,852,852
-----------
LIABILITIES:
Payables:
Securities Purchased................................................... 563,332
Income Distributions................................................... 79,566
Distributor and Affiliates (Notes 2 and 6)............................. 61,276
Organizational Expenses (Note 1)....................................... 50,430
Fund Shares Repurchased................................................ 42
Deferred Compensation and Retirement Plans (Note 2)...................... 26,057
Accrued Expenses......................................................... 4,006
-----------
Total Liabilities.................................................. 784,709
-----------
NET ASSETS............................................................... $33,068,143
==========
NET ASSETS CONSIST OF:
Capital (Note 3)......................................................... $32,700,757
Net Unrealized Appreciation on Securities................................ 708,412
Accumulated Undistributed Net Investment Income.......................... 19,381
Accumulated Net Realized Loss on Securities.............................. (360,407)
-----------
NET ASSETS............................................................... $33,068,143
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $16,056,001 and 1,101,045 shares of capital stock issued and
outstanding) (Note 3).............................................. $ 14.58
Maximum sales charge (4.75%* of offering price)...................... .73
-----------
Maximum offering price to public..................................... $ 15.31
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$16,727,798 and 1,147,204 shares of capital stock issued and
outstanding) (Note 3).............................................. $ 14.58
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$284,344 and 19,487 shares of capital stock issued and outstanding)
(Note 3).......................................................... $ 14.59
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
9
<PAGE> 181
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................ $ 920,514
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C
of $19,851, $83,631 and $1,917, respectively) (Note 6)................ 105,399
Investment Advisory Fee (Note 2)........................................ 82,260
Custody (Note 1)........................................................ 30,540
Printing................................................................ 23,387
Trustees Fees and Expenses (Note 2)..................................... 15,869
Amortization of Organizational Expenses (Note 1)........................ 11,961
Shareholder Services (Note 2)........................................... 6,954
Legal (Note 2).......................................................... 4,550
Other................................................................... 24,883
------------
Total Expenses...................................................... 305,803
Less: Fees Deferred and Expenses Reimbursed ($82,260 and $135,796,
respectively)..................................................... 218,056
Earnings Credits on Cash Balances (Note 1)....................... 1,256
------------
Net Expenses........................................................ 86,491
------------
NET INVESTMENT INCOME................................................... $ 834,023
============
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments........................................................... $ 13,165
Options............................................................... (72,785)
Futures............................................................... (40,831)
------------
Net Realized Loss on Securities......................................... (100,451)
------------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period............................................... 2,006,673
End of the Period:
Investments......................................................... 708,412
------------
Net Unrealized Depreciation on Securities During the Period............. (1,298,261)
------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.......................... $ (1,398,712)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.............................. $ (564,689)
============
</TABLE>
See Notes to Financial Statements
10
<PAGE> 182
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 834,023 $ 1,201,714
Net Realized Loss on Securities....................... (100,451) (144,567)
Net Unrealized Appreciation/Depreciation on Securities
During the Period................................... (1,298,261) 2,450,275
---------- ----------
Change in Net Assets from Operations.................. (564,689) 3,507,422
---------- ----------
Distributions from Net Investment Income.............. (802,665) (1,204,444)
Distribution in Excess of Net Investment Income (Note
1).................................................. -0- (11,977)
---------- ----------
Distributions from and in Excess of Net Investment
Income*............................................. (802,665) (1,216,421)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (1,367,354) 2,291,001
---------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 5,409,904 17,861,887
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 326,183 447,813
Cost of Shares Repurchased............................ (4,911,330) (6,892,964)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 824,757 11,416,736
---------- ----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (542,597) 13,707,737
NET ASSETS:
Beginning of the Period............................... 33,610,740 19,903,003
---------- ----------
End of the Period (including undistributed net
investment income of $19,381 and $(11,977),
respectively)....................................... $33,068,143 $33,610,740
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
--------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $(418,806) $ (578,890)
Class B Shares...................... (375,239) (634,695)
Class C Shares...................... (8,620) (2,836)
---------- ------------
$(802,665) $(1,216,421)
========== ============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 183
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Six Months Ended Year Ended Operations) to
Class A Shares June 30, 1996 December 31, 1995 December 31, 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.203 $13.796 $14.300
------- ------- -------
Net Investment Income............ .399 .789 .291
Net Realized and Unrealized
Gain/Loss on Securities........ (.632) 1.416 (.507)
------- ------- -------
Total from Investment Operations... (.233) 2.205 .216
Less Distributions from and in
Excess of Net Investment Income
(Note 1)......................... .387 .798 .288
------- ------- -------
Net Asset Value, End of the
Period........................... $14.583 $15.203 $13.796
======= ======= =======
Total Return* (a).................. (1.54%)** 16.29% (1.47%)**
Net Assets at End of the Period (In
thousands)....................... $16.1 $16.2 $9.0
Ratio of Expenses to Average Net
Assets* (b)...................... .14% .44% .49%
Ratio of Net Investment Income to
Average Net Assets*.............. 5.46% 5.33% 5.13%
Portfolio Turnover................. 32%** 41% 19%**
* If certain expenses had not been
assumed by VKAC, total return
would have been lower and the
ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets (b)....................... 1.47% 1.70% 1.99%
Ratio of Net Investment Income to
Average Net Assets............... 4.13% 4.07% 3.64%
</TABLE>
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances. (Note 1)
See Notes to Financial Statements
12
<PAGE> 184
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Six Months Ended Year Ended Operations) to
Class B Shares June 30, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.201 $13.792 $14.300
------- ------- -------
Net Investment Income............ .346 .685 .251
Net Realized and Unrealized
Gain/Loss on Securities........ (.636) 1.415 (.509)
------- ------- -------
Total from Investment Operations... (.290) 2.100 (.258)
Less Distributions from and in
Excess of Net Investment Income
(Note 1)......................... .330 .691 .250
------- ------- -------
Net Asset Value, End of the
Period........................... $14.581 $15.201 $13.792
======= ======= =======
Total Return* (a).................. (1.92%)** 15.53% (1.81%)**
Net Assets at End of the Period (In
millions)........................ $16.7 $16.9 $10.9
Ratio of Expenses to Average Net
Assets* (b)...................... .90% 1.12% 1.26%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.71% 4.66% 4.31%
Portfolio Turnover................. 32%** 41% 19%**
* If certain expenses had not been
assumed by VKAC, total return
would have been lower and the
ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets (b)....................... 2.22% 2.38% 2.75%
Ratio of Net Investment Income to
Average Net Assets............... 3.38% 3.40% 2.81%
</TABLE>
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts with do not reflect
credits earned on overnight cash balances. (Note 1)
See Notes to Financial Statements
13
<PAGE> 185
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Six Months Ended Year Ended Operations) to
Class C Shares June 30, 1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.213 $13.786 $14.300
------- ------- -------
Net Investment Income............ .349 .690 .249
Net Realized and Unrealized
Gain/Loss on Securities........ (.641) 1.428 (.513)
------- ------- -------
Total from Investment Operations... (.292) 2.118 .264
Less Distributions from and in
Excess of Net Investment Income
(Note 1)......................... .330 .691 .250
------- ------- ------
Net Asset Value, End of the
Period........................... $14.591 $15.213 $13.786
======= ======= =======
Total Return* (a).................. (1.91%)** 15.61% (1.81%)**
Net Assets at End of the Period (In
thousands)....................... $284.3 $461.8 $11.4
Ratio of Expenses to Average Net
Assets* (b)...................... .92% 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.70% 4.51% 4.28%
Portfolio Turnover................. 32%** 41%** 19%**
* If certain expenses had not been
assumed by VKAC, total return
would have been lower and the
ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets (b)....................... 2.24% 2.39% 2.74%
Ratio of Net Investment Income to
Average Net Assets............... 3.38% 3.25% 2.87%
</TABLE>
**Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended December 31, 1995, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances. (Note 1)
See Notes to Financial Statements
14
<PAGE> 186
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Florida Insured Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital Tax Free Trust, a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to provide investors a high level of
current income exempt from federal income and Florida state intangibles taxes,
consistent with preservation of capital. Under normal market conditions, the
Fund will invest at least 80% of its assets in insured Florida municipal
securities. The Fund commenced investment operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--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.
15
<PAGE> 187
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Fund will reimburse Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $120,000. These costs
are being amortized on a straight line basis over the 60 month period ending
July 28, 1999. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $259,956, of which $41,580 and $218,376 will
expire on December 31, 2002 and 2003, respectively. Net realized gains or losses
may differ for financial and tax reporting purposes primarily as a result of
post October 31 losses which are not recognized for tax purposes until the first
day of the following fiscal year.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and federal income tax
purposes, 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 distribution in excess of
net investment income for certain periods.
G. EXPENSE REDUCTIONS--During the six months ended June 30, 1996, the Fund's
custody fee was reduced by approximately $1,300 as a result of credits earned on
overnight cash balances.
16
<PAGE> 188
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%
Over $500 million....................................... .450 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1996, the Fund incurred expenses of
approximately $7,800 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund. All of these expenses were assumed by
VKAC.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund incurred expenses of approximately $4,100, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit, all of which was assumed by VKAC.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 100 shares each of Classes A, B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
17
<PAGE> 189
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $15,886,284, $16,522,077 and $292,396
for Classes A, B and C, respectively. For the six months ended June 30, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 176,546 $ 2,621,204
Class B....................................... 183,904 2,708,600
Class C....................................... 5,409 80,100
-------- -----------
Total Sales..................................... 365,859 $ 5,409,904
======== ===========
Dividend Reinvestment:
Class A....................................... 11,381 $ 167,931
Class B....................................... 10,264 151,410
Class C....................................... 461 6,842
-------- -----------
Total Dividend Reinvestment..................... 22,106 $ 326,183
======== ===========
Repurchases:
Class A....................................... (152,807) $(2,281,106)
Class B....................................... (161,547) (2,380,976)
Class C....................................... (16,742) (249,248)
-------- -----------
Total Repurchases............................... (331,096) $(4,911,330)
======== ===========
</TABLE>
18
<PAGE> 190
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $15,378,255, $16,043,043 and
454,702 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 638,004 $ 9,423,423
Class B............................... 543,226 7,996,321
Class C............................... 29,482 442,143
--------- -----------
Total Sales............................. 1,210,712 $17,861,887
========= ===========
Dividend Reinvestment:
Class A............................... 13,418 $ 197,470
Class B............................... 16,884 248,162
Class C............................... 147 2,181
--------- -----------
Total Dividend Reinvestment............. 30,449 $ 447,813
========= ===========
Repurchases:
Class A............................... (240,707) $(3,477,451)
Class B............................... (232,380) (3,414,090)
Class C............................... (96) (1,423)
--------- -----------
Total Repurchases....................... (473,183) $(6,892,964)
========= ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear
19
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
the expense of their respective deferred sales arrangements, including higher
distribution and service fees and incremental transfer agency costs.
<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 June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$8,400 and CDSC on redeemed shares of approximately $59,500. 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, for the six months ended June 30, 1996, were
$12,068,835 and $9,981,486, 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 portfolios 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 on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
20
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (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 June 30, 1996, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995.................. -0- $ -0-
Options Written and Purchased (Net)............... 250 (90,300)
Options Terminated in Closing Transactions
(Net)........................................... (250) 90,300
--- --------
Outstanding at June 30, 1996...................... -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 closed the contract prior to the delivery date.
Upon entering into futures 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 the broker based upon changes in the value
of the contract (the variation margin). The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995........................... -0-
Futures Opened............................................. 400
Futures Closed............................................. (400)
---
Outstanding at June 30, 1996............................... -0-
===
</TABLE>
21
<PAGE> 193
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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 shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $62,700.
22
<PAGE> 194
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
23
<PAGE> 195
VAN KAMPEN AMERICAN CAPITAL FLORIDA INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the
Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital
Distributors, Inc., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital
Distributors, 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.
24
<PAGE> 196
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 15
</TABLE>
NJTF SAR 8/96
<PAGE> 197
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley [PHOTO]
Group Inc. While this announcement
may appear commonplace in an
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global DENNIS J. MCDONNELL AND DON G. POWELL
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. Specifically,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
Continued on page two
1
<PAGE> 198
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have faded.
In early 1996, the municipal market was wary of the growing political
momentum for tax reform, which could have eroded the value of the market's
tax-exempt status. However, the momentum slowed substantially and now appears
to be on the back burner until after the 1996 presidential election. This has
added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine their
allocation of assets. In general, this translates into an increased emphasis
on fixed-income, which should lend support to the municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
FUND UPDATE
The Trustees of your Fund have recently approved its reorganization into the
Van Kampen American Capital Municipal Income Fund. The reorganization is subject
to shareholder approval. If approved, New Jersey Tax Free Income Fund
shareholders will receive shares of the Municipal Income Fund in exchange for
their current shares. Similar to the New Jersey Tax Free Income Fund, the
Municipal Income Fund seeks to provide a high level of current income exempt
from federal income tax, consistent with preservation capital. Moreover, because
the Municipal Income Fund invests in municipal bonds from across the country and
in various levels of credit ratings, it offers investors a higher level of
diversification and income potential than a single-state fund.
You will receive a proxy statement and voting card in the near future. The
proxy is designed to provide you with information about the proposed
reorganization and to request your participation in the proxy process. We
appreciate your continued confidence in your investment with Van Kampen American
Capital.
Sincerely,
/s/ Don G. Powell
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
/s/ Dennis J. McDonnell
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 199
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND
TOTAL RETURNS
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Six-month total return based on NAV(1)... (0.81%) (1.18%) (1.18%)
Six-month total return(2)................ (5.54%) (5.05%) (2.14%)
One-year total return(2)................. 1.63% 1.97% 4.89%
Life-of-Fund average annual total
return(2).............................. 3.55% 3.53% 5.44%
Commencement date........................ 07/29/94 07/29/94 07/29/94
</TABLE>
DISTRIBUTION RATES AND YIELD
<TABLE>
<S> <C> <C> <C>
Distribution rate(3)..................... 5.09% 4.60% 4.60%
Taxable equivalent distribution
rate(4)................................ 8.50% 7.68% 7.68%
SEC Yield(5)............................. 5.41% 4.92% 4.92%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)The taxable-equivalent distribution rate is calculated assuming a 40.1%
combined effective federal and state tax bracket, which takes into consideration
the deductibility of individual state taxes paid.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996. Had certain
expenses of the Fund not been assumed by VKAC, total return would have been
lower and the SEC Yield would have been 3.64%, 3.15% and 3.15% for Classes A, B
and C, respectively.
A portion of the interest income may be taxable for investors subject to the
federal alternative minimum tax (AMT).
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 200
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C> <C> <C>
AAA.................... 74.8%
AA..................... 2.0%
A...................... 9.6% [Pie Chart]
BBB.................... 9.6%
Non-Rated.............. 4.0%
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C> <C> <C>
AAA.................... 69.3%
AA..................... 2.3%
A...................... 10.9% [Pie Chart]
BBB.................... 13.0%
Non-Rated.............. 4.5%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care............ 26.9%
General Purpose........ 11.1%
Public Building........ 10.4%
Retail
Elec/Gas/Telephone... 9.2%
Single Family
Housing.............. 8.1%
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
Health Care............ 30.4%
General Purpose........ 12.6%
Retail
Elec/Gas/Telephone... 10.4%
Public Building........ 9.1%
Transportation......... 7.0%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 8.25 years 7.44 years
</TABLE>
4
<PAGE> 201
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
New Jersey Tax Free Income Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Timothy D. Haney, portfolio manager, and Peter W. Hegel, executive vice
president for fixed-income investments. The following excerpts reflect their
views on the Fund's performance during the six-month period ended June 30, 1996.
Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?
A Early in the year, indicators pointing to a stronger, expanding economy
sparked concern over inflation and expectations that the Federal Reserve
Board would increase short-term interest rates to keep the economy from
overheating. The prospect of higher rates was a concern to the market, which
responded by trading toward lower prices and higher yields.
On the other hand, municipal market concerns that major tax reform proposals
may gain acceptance--and potentially erode the tax-exempt status associated with
municipals--eased in the first half of 1996. So, even though bond prices
generally declined, they did so to a lesser extent in the municipal market.
The supply and demand relationship continued to be a positive influence on
the municipal bond market over the reporting period--supply remained low while
demand remained fairly strong. This helped support bond prices and partly offset
the negative effect that rising interest rates had on bond prices.
Q HOW WAS THE FUND'S PORTFOLIO STRUCTURED IN LIGHT OF
THESE CONDITIONS?
A The Fund was structured with a duration of 8.25 years at the end of the
period, which is slightly higher than the benchmark that we try to target
over time. Duration is a measure of a portfolio's sensitivity to changes
in interest rates. The shorter the duration, the less sensitive the portfolio is
expected to be to interest rates. The Fund's average weighted maturity remained
at 20 years, which we feel offered the best overall balance between income and
total return performance.
One of the biggest challenges that we faced was finding New Jersey state
issues that offered relative value in the current low supply environment. The
highest concentration of holdings continues to be in the healthcare sector,
representing 26.9 percent of the Fund's portfolio. We believe healthcare is
attractive primarily because the majority of new issues have been from this
sector. Please refer to page four for Fund portfolio highlights.
5
<PAGE> 202
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A For the six-month period ended June 30, 1996, the Fund's total return was
-0.81 percent(1) (Class A shares at net asset value). In comparison, the
market in general, as represented by the Lehman Brothers Municipal Bond
Index, returned -0.45 percent for the same period. Longer term, the Fund
generated a one-year total return of 6.67 percent(1) (Class A shares at net
asset value) through June 30, 1996. The Lehman Index is a broad-based, unmanaged
index of municipal bonds and does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents. Please refer to
the chart on page three for additional Fund performance results.
From an income perspective, the Fund's Class A shares ended the period with
an annualized dividend of $0.774 per share. The Fund continues to provide a
respectable level of tax-exempt income with a distribution rate of 5.09
percent(3) as of June 30, 1996--the equivalent of a 8.50 percent(4) taxable
distribution rate for investors in the 40.1 percent combined federal and state
income tax bracket.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A The New Jersey economy is generally sound, and we do not anticipate any
significant changes in the management of the Fund. However, if the
national economy continues to show signs of strong growth, we could see
some changes in market fundamentals:
- - INFLATION has been holding at a low 2 to 3 percent range for some time now,
but going forward, there is some concern that inflation could slowly creep
upward, which could have a negative effect on the market.
- - INTEREST RATES: We anticipate the Federal Reserve will remain in a neutral
policy mode, but it may become necessary to tighten interest rates if the
economy continues to strengthen.
- - The positive ratio between LOWER SUPPLY AND HIGHER DEMAND should continue in
the upcoming months, which is a stabilizing influence on municipal bond
values. If there is a rally in bond prices, we could see an increase in
refundings, which could bring more supply into the market.
/s/ Peter W. Hegel
Peter W. Hegel
Executive Vice President
Fixed Income Investments
/s/Timothy D. Haney
Timothy D. Haney
Portfolio Manager
Please see footnotes on page three
6
<PAGE> 203
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
NEW JERSEY 82.0%
$400 Atlantic City, NJ Brd Edl Sch (AMBAC Insd)........ 6.125% 12/01/11 $ 415,972
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty Gtd (MBIA
Insd)............................................. 6.150 10/01/14 259,310
250 Delaware River Port Auth PA & NJ (FGIC Insd)...... 5.500 01/01/26 239,290
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth House
Proj (Prerefunded @ 12/01/04) (AMBAC Insd)........ 6.600 12/01/07 280,237
375 Essex Cnty, NJ Impt Auth Lease Jail & Youth House
Proj Rfdg (AMBAC Insd)............................ 5.350 12/01/24 350,872
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd)........... 5.375 09/01/10 363,495
500 Essex Cnty, NJ Util Auth Solid Waste Rev Ser A
(FSA Insd)........................................ 5.600 04/01/16 490,875
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac Rfdg
(MBIA Insd)....................................... 6.600 12/01/21 265,733
250 Lacey Muni Util Auth NJ Wtr Rev (MBIA Insd)....... 6.250 12/01/24 258,598
250 Mercer Cnty, NJ Impt Auth Rev Cap Apprec.......... * 04/01/11 107,210
400 Mercer Cnty, NJ Impt Auth Rev Solid Waste Ser A
Rfdg (FGIC Insd).................................. 6.700 04/01/13 406,100
250 Mercer County, NJ Impt Auth Rev Ewing Brd Edl
Lease Proj Rfdg (MBIA Insd)....................... 5.000 11/15/16 228,345
500 Millburn Twp, NJ Brd of Ed........................ 5.350 07/15/12 489,710
500 New Jersey Econ Dev Auth Dist Heating & Cooling
Rev Trigen Trenton Ser A.......................... 6.200 12/01/10 498,415
400 New Jersey Econ Dev Auth Holt Hauling & Warehsg
Rev Ser G Rfdg.................................... 8.400 12/15/15 409,584
300 New Jersey Econ Dev Auth Mkt Transition Fac Rev Sr
Lien Ser A (MBIA Insd)............................ 5.800 07/01/09 304,572
200 New Jersey Econ Dev Auth Pollutn Ctl Rev (AMBAC
Insd)............................................. 7.100 07/01/15 233,656
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub Svcs
Elec & Gas Co Proj A (MBIA Insd).................. 6.400 05/01/32 216,863
350 New Jersey Econ Dev Auth Rev RWJ Hlth Care Corp
(FSA Insd)........................................ 6.250 07/01/14 363,041
300 New Jersey Econ Dev Auth Wtr Fac Rev Hackensack
Wtr Co Proj B Rfdg (MBIA Insd).................... 5.900 03/01/24 300,102
490 New Jersey Hlthcare Fac Fin Auth Rev Atlantic City
Med Cent Ser C Rfdg............................... 6.800 07/01/11 521,517
700 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)..................... 7.000 07/01/04 780,220
400 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)..................... 7.000 07/01/06 452,124
250 New Jersey Hlthcare Fac Fin Auth Rev Englewood
Hosp & Med Cent................................... 6.700 07/01/15 253,433
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)........................ 6.000 07/01/06 265,150
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)........................ 6.750 07/01/19 269,713
400 New Jersey Hlthcare Fac Fin Auth Rev Jersey Shore
Med Cent (AMBAC Insd)............................. 6.250 07/01/21 410,316
</TABLE>
See Notes to Financial Statements
7
<PAGE> 204
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$350 New Jersey Hlthcare Fac Fin Auth Rev Saint Clares
Riverside Med Cent (MBIA Insd).................... 5.750% 07/01/14 $ 348,638
500 New Jersey Hlthcare Fac Fin Auth Rev Southern
Ocean Cnty Hosp Ser A............................. 6.125 07/01/13 485,365
400 New Jersey Sports & Exposition Auth Convention
Cent Luxury Tax Rev Ser A Rfdg (MBIA Insd)........ 6.250 07/01/20 412,300
200 New Jersey St Edl Fac Auth Rev Caldwell College
Ser A............................................. 7.250 07/01/25 205,880
250 New Jersey St Edl Fac Auth Rev Glassboro St
College Ser A (MBIA Insd)......................... 6.700 07/01/21 266,505
300 New Jersey St Edl Fac Auth Rev Montclair St Univ
Ser F (AMBAC Insd)................................ 5.400 07/01/25 283,047
270 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser
K (MBIA Insd)..................................... 6.375 10/01/26 272,281
500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser
O (MBIA Insd)..................................... 6.300 10/01/23 501,540
280 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg (MBIA
Insd)............................................. 6.500 01/01/16 309,854
200 Port Auth NY & NJ Cons Ninety Fifth Ser........... 6.125 07/15/22 203,442
400 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev Pub
Svc Elec & Gas Co Proj C Rfdg (MBIA Insd)......... 6.200 08/01/30 413,456
300 Union City, NJ (FSA Insd)......................... 6.375 11/01/10 325,935
------------
13,462,696
------------
GUAM 1.5%
250 Guam Govt Ser A................................... 5.750 09/01/04 244,722
------------
PUERTO RICO 10.5%
200 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg.............................................. 6.625 07/01/12 212,122
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T........... 6.375 07/01/24 258,782
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg...... 6.000 07/01/14 251,585
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z Rfdg...... 5.500 07/01/14 239,130
470 Puerto Rico Hsg Bank & Fin Agy Single Family Mtg
Rev (GNMA Collateralized)......................... 6.250 04/01/29 472,134
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd)............................. 5.750 07/01/15 299,481
------------
1,733,234
------------
TOTAL LONG-TERM INVESTMENTS 94.0%
(Cost $15,021,464) (a)....................................................... 15,440,652
SHORT-TERM INVESTMENTS AT AMORTIZED COST 3.1%................................. 500,000
OTHER ASSETS IN EXCESS OF LIABILITIES 2.9%.................................... 481,332
------------
NET ASSETS 100%............................................................... $16,421,984
-----------
</TABLE>
*Zero coupon bond
(a) At June 30, 1996, cost for federal income tax purposes is $15,021,464; the
aggregate gross unrealized appreciation is $515,925 and the aggregate gross
unrealized depreciation is $96,737, resulting in net unrealized appreciation
of $419,188.
See Notes to Financial Statements
8
<PAGE> 205
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $15,021,464) (Note 1)................. $15,440,652
Short-Term Investments (Note 1).......................................... 500,000
Cash..................................................................... 26,169
Receivables:
Interest............................................................... 341,154
Fund Shares Sold....................................................... 136,656
Unamortized Organizational Expenses (Note 1)............................. 73,799
-----------
Total Assets....................................................... 16,518,430
-----------
LIABILITIES:
Payables:
Income Distributions................................................... 35,862
Fund Shares Repurchased................................................ 10,506
Distributor and Affiliates (Notes 2 and 5)............................. 7,503
Accrued Expenses......................................................... 33,103
Deferred Compensation and Retirement Plans (Note 2)...................... 9,472
-----------
Total Liabilities.................................................. 96,446
-----------
NET ASSETS............................................................... $16,421,984
===========
NET ASSETS CONSIST OF:
Capital (Note 3)......................................................... $16,241,771
Net Unrealized Appreciation on Securities................................ 419,188
Accumulated Undistributed Net Investment Income.......................... 16,711
Accumulated Net Realized Loss on Securities.............................. (255,686)
-----------
NET ASSETS............................................................... $16,421,984
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $7,004,006 and 483,279 shares of capital stock issued and
outstanding) (Note 3).............................................. $ 14.49
Maximum sales charge (4.75%* of offering price)...................... .72
-----------
Maximum offering price to public..................................... $ 15.21
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$8,741,158 and 603,528 shares of capital stock issued and
outstanding) (Note 3).............................................. $ 14.48
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$676,820 and 46,713 shares of capital stock issued and outstanding)
(Note 3)........................................................... $ 14.49
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
9
<PAGE> 206
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................... $ 451,075
---------
EXPENSES:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$8,178, $42,226 and $3,315, respectively) (Note 5)....................... 53,719
Investment Advisory Fee (Note 2)........................................... 46,951
Custody.................................................................... 27,388
Printing................................................................... 14,560
Amortization of Organizational Expenses (Note 1)........................... 11,961
Legal (Note 2)............................................................. 10,920
Shareholder Services (Note 2).............................................. 10,686
Audit...................................................................... 10,010
Trustees Fees and Expenses (Note 2)........................................ 3,099
Other...................................................................... 5,766
---------
Total Expenses......................................................... 195,060
Less Fees Deferred and Expenses Reimbursed ($46,951 and $100,362,
respectively)........................................................ 147,313
---------
Net Expenses........................................................... 47,747
---------
NET INVESTMENT INCOME...................................................... $ 403,328
=========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments........................................... $ 3,420
---------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.................................................. 982,282
End of the Period:
Investments............................................................ 419,188
---------
Net Unrealized Depreciation on Securities During the Period................ (563,094)
---------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES............................. $(559,674)
=========
NET DECREASE IN NET ASSETS FROM OPERATIONS................................. $(156,346)
=========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 207
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 403,328 $ 600,707
Net Realized Gain/Loss on Securities.................. 3,420 (171,585)
Net Unrealized Appreciation/Depreciation on
Securities During the Period........................ (563,094) 1,207,816
---------- -----------
Change in Net Assets from Operations.................. (156,346) 1,636,938
---------- -----------
Distributions from Net Investment Income.............. (382,364) (601,952)
Distributions in Excess of Net Investment Income (Note
1).................................................. -0- (4,253)
---------- -----------
Distributions from and in Excess of Net Investment
Income*............................................. (382,364) (606,205)
---------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (538,710) 1,030,733
---------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 2,739,591 5,834,549
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 181,513 296,757
Cost of Shares Repurchased............................ (486,684) (2,307,583)
---------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 2,434,420 3,823,723
---------- -----------
TOTAL INCREASE IN NET ASSETS.......................... 1,895,710 4,854,456
NET ASSETS:
Beginning of the Period............................... 14,526,274 9,671,818
---------- -----------
End of the Period (Including undistributed net
investment income of
$16,711 and $(4,253), respectively)................. $16,421,984 $14,526,274
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares....................... $(173,874) $(244,934)
Class B Shares....................... (193,313) (345,970)
Class C Shares....................... (15,177) (15,301)
--------- ---------
$(382,364) $(606,205)
========= =========
</TABLE>
See Notes to Financial Statements
11
<PAGE> 208
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Operations) to
Class A Shares June 30, 1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period... $15.000 $13.754 $14.300
------- ------- -------
Net Investment Income.................... .406 .792 .295
Net Realized and Unrealized Gain/Loss
on Securities.......................... (.526) 1.253 (.551)
------- ------- -------
Total from Investment Operations........... (.120) 2.045 (.256)
Less Distributions from and in Excess of
Net Investment Income (Note 1)........... .387 .799 .290
------- ------- -------
Net Asset Value, End of the Period......... $14.493 $15.000 $13.754
------- ------- -------
Total Return* (a).......................... (.81%)** 15.26% (1.81%)**
Net Assets at End of the Period (In
millions)................................ $7.0 $5.8 $3.0
Ratio of Expenses to Average
Net Assets*.............................. .17% .27% .17%
Ratio of Net Investment Income to Average
Net Assets*.............................. 5.59% 5.43% 5.16%
Portfolio Turnover......................... 6%** 31% 11%**
*If certain expenses had not been assumed
by VKAC, total return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets.... 2.05% 2.53% 3.17%
Ratio of Net Investment Income to Average
Net Assets............................... 3.71% 3.17% 2.17%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
12
<PAGE> 209
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Operations) to
Class B Shares June 30, 1996 December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
the Period.......................... $14.991 $13.738 $14.300
------- ------- -------
Net Investment Income................. .351 .685 .253
Net Realized and Unrealized
Gain/Loss on Securities............. (.526) 1.260 (.563)
------- ------- -------
Total from Investment Operations...... (.175) 1.945 (.310)
Less Distributions from and in
Excess of Net Investment Income
(Note 1)............................ .333 .692 .252
------- ------- -------
Net Asset Value, End of the Period.... $14.483 $14.991 $13.738
------- ------- -------
Total Return* (a)..................... (1.18%)** 14.43% (2.16%)**
Net Assets at End of the Period
(In millions)....................... $8.7 $8.2 $6.5
Ratio of Expenses to Average
Net Assets*......................... .92% 1.01% .93%
Ratio of Net Investment Income to
Average Net Assets*................. 4.84% 4.73% 4.38%
Portfolio Turnover.................... 6%** 31% 11%**
*If certain expenses had not been
assumed by VKAC, total return would
have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets.............................. 2.81% 3.23% 3.89%
Ratio of Net Investment Income to
Average Net Assets.................. 2.96% 2.51% 1.41%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
13
<PAGE> 210
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Operations) to
Class C Shares June 30, 1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period... $15.000 $13.753 $14.300
------- ------- -------
Net Investment Income.................... .350 .706 .240
Net Realized and Unrealized Gain/Loss
on Securities.......................... (.528) 1.233 (.535)
------- ------- -------
Total from Investment Operations........... (.178) 1.939 (.295)
Less Distributions from and in Excess of
Net Investment Income (Note 1)........... .333 .692 .252
------- ------- -------
Net Asset Value, End of the Period......... $14.489 $15.000 $13.753
------- ------- -------
Total Return* (a).......................... (1.18%)** 14.42% (2.09%)**
Net Assets at End of the Period (In
millions)................................ $.7 $.5 $.2
Ratio of Expenses to Average
Net Assets*.............................. .93% 1.00% .91%
Ratio of Net Investment Income to Average
Net Assets*.............................. 4.82% 4.73% 4.39%
Portfolio Turnover......................... 6%** 31% 11%**
*If certain expenses had not been assumed
by VKAC, total return would have been
lower and the ratios would have been as
follows:
Ratio of Expenses to Average Net Assets.... 2.81% 3.23% 3.85%
Ratio of Net Investment Income to Average
Net Assets............................... 2.95% 2.50% 1.46%
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
14
<PAGE> 211
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital New Jersey Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital 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 income tax and New Jersey gross
income tax, consistent with preservation of capital. 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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. As of June 30, 1996, there were no
when issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
15
<PAGE> 212
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Fund will reimburse Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $120,000. These costs
are being amortized on a straight line basis over the 60 month period ending
July 28, 1999. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed by the Fund during the amortization
period, the Fund will be reimbursed for any unamortized organizational expenses
in the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $259,106, of which $11,885 and $247,221 will
expire on December 31, 2002 and 2003, respectively. Net realized gains or losses
may differ for financial and tax reporting purposes primarily as a result of
post October 31 losses which are not recognized for tax purposes until the first
day of the following fiscal year.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and federal income tax
purposes, 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 distribution in excess of
net investment income for certain periods.
16
<PAGE> 213
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .600 of 1%
Over $500 million....................................... .500 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $5,900 representing VKAC's cost of providing cash management and
legal services to the Fund. All of this cost has been assumed by VKAC.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $2,900,
representing ACCESS's cost of providing transfer agency and shareholder services
plus a profit. All of this expense has been assumed by VKAC.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 100 shares each of Classes A, B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
17
<PAGE> 214
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $6,947,068, $8,614,955 and $679,748 for
Classes A, B and C, respectively. For the six months ended June 30, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 103,214 $1,518,517
Class B....................................... 67,844 998,840
Class C....................................... 14,814 222,234
------- ----------
Total Sales..................................... 185,872 $2,739,591
======= ==========
Dividend Reinvestment:
Class A....................................... 5,279 $ 77,142
Class B....................................... 6,213 90,730
Class C....................................... 933 13,641
------- ----------
Total Dividend Reinvestment..................... 12,425 $ 181,513
======= ==========
Repurchases:
Class A....................................... (14,779) $ (214,527)
Class B....................................... (18,740) (272,157)
Class C....................................... -0- -0-
------- ----------
Total Repurchases............................... (33,519) $ (486,684)
======= ==========
</TABLE>
18
<PAGE> 215
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $5,565,936, $7,797,542 and $443,873
for Classes A, B and C, respectively. For the year ended December 31, 1995,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 207,068 $ 2,985,783
Class B.................................... 184,393 2,661,480
Class C.................................... 12,868 187,286
-------- -----------
Total Sales.................................. 404,329 $ 5,834,549
======== ===========
Dividend Reinvestment:
Class A.................................... 8,428 $ 122,246
Class B.................................... 11,009 159,264
Class C.................................... 1,049 15,247
-------- -----------
Total Dividend Reinvestment.................. 20,486 $ 296,757
======== ===========
Repurchases:
Class A.................................... (41,615) $ (605,336)
Class B.................................... (117,446) (1,691,133)
Class C.................................... (755) (11,114)
-------- -----------
Total Repurchases............................ (159,816) $(2,307,583)
======== ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<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........................... 0.00% None
</TABLE>
19
<PAGE> 216
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$3,800 and CDSC on redeemed shares of approximately $7,400. 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 $2,753,384 and $940,520, respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $31,700.
20
<PAGE> 217
VAN KAMPEN AMERICAN CAPITAL NEW JERSEY TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, 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.
21
<PAGE> 218
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 9
Statement of Operations.......................... 10
Statement of Changes in Net Assets............... 11
Financial Highlights............................. 12
Notes to Financial Statements.................... 15
</TABLE>
NYTF SAR 8/96
<PAGE> 219
LETTER TO SHAREHOLDERS
PHOTO OF MCDONNELL & POWELL
DENNIS J. MCDONNELL AND DON G.
POWELL
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of
Van Kampen American Capital, Inc., to
be acquired by the Morgan Stanley
Group Inc. While this announcement
may appear commonplace in an
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our
investment products.
With Morgan Stanley's global
leadership in investment banking and
asset management and Van Kampen American Capital's reputation for competitive
long-term performance and superior investor services, together we will offer a
broader range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW AND OUTLOOK
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew by 4.2 percent in
the second quarter, partly reflecting a recovery from the effects of labor
strikes earlier in the year and extreme weather conditions across the country.
Upward momentum has been assisted by consumer spending, as indicated by a 5.6
percent rise in retail sales in the first five months of this year versus the
comparable 1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food and energy components, has risen year over
year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings at a
moderate 2.7 percent. In general, recent reports have suggested an upward creep
in labor-related costs, while indicating that prices of many commodities have
begun to decline.
Continued on page two
1
<PAGE> 220
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. Specifically,
we expect 10-year Treasury yields to trade within a range of 5.7 and 6.3
percent, particularly when compared to taxable investments.
MUNICIPAL MARKET REVIEW AND OUTLOOK
We witnessed significant movement in municipal bond yields during the first
six months of 1996. Early in the period, the Fed lowered rates in order to
energize the economy, and bond prices increased. By late February, however, the
markets became concerned that the Fed could reverse its strategy direction and
raise rates. As a result, yields, as measured by the Bond Buyer 40 Municipal
Bond Index, rose from 5.6 percent to 6.0 percent during the period.
We believe market conditions for municipal bonds are poised for improvement
in the second half of 1996. Three major factors contribute to our optimism:
- - Near-term concerns about the implementation of a major tax reform have
faded. In early 1996, the municipal market was wary of the growing political
momentum for tax reform, which could have eroded the value of the market's
tax-exempt status. However, the momentum slowed substantially and now
appears to be on the back burner until after the 1996 presidential election.
This has added stability to the market.
- - For high-income households, tax-exempt bonds provide an attractive after-tax
alternative. Municipal bond yields have elevated to a point where taxable
equivalent yields range between 8.5 and 10 percent for investors in the 31
percent tax bracket or higher.
- - Recent volatility in the equity markets coupled with rising interest rates
are leading individual investors, as well as institutions, to reexamine
their allocation of assets. In general, this translates into an increased
emphasis on fixed-income, which should lend support to the municipal market.
Looking ahead, inflation fears and concerns about economic growth may
continue to influence the municipal bond market and fund performance results.
Nevertheless, we are optimistic that tax-exempt securities will produce
attractive results for investors during the remainder of 1996.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
Don G. Powell
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
Dennis J. McDonnell
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 221
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on
NAV(1)............................... (1.06%) (1.36%) (1.29%)
Six-month total return(2).............. (5.76%) (5.21%) (2.26%)
One-year total return(2)............... 1.81% 2.15% 5.15%
Life-of-Fund average annual total
return(2)............................ 3.76% 3.82% 5.69%
Commencement date...................... 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3)................... 5.25% 4.76% 4.76%
Taxable equivalent distribution
rate(4).............................. 8.82% 8.00% 8.00%
SEC Yield(5)........................... 5.57% 5.08% 5.08%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period ended and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a combined federal and state income
tax rate of 40.5% which takes into consideration the deductibility of individual
state taxes paid.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
3.86%, 3.37%, and 3.37% for Classes A, B and C, respectively, and total returns
would have been lower.
A portion of the interest income may be taxable for those Investors subject to
the federal alternative minimum tax (AMT).
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE> 222
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND
CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
AAA................... 47.1%
AA.................... 5.2%
A..................... 7.0% [Pie Chart]
BBB................... 24.2%
Non-Rated............. 16.5%
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
AAA................... 45.0%
AA.................... 5.9% [Pie Chart]
A..................... 15.5%
BBB................... 28.5%
Non-Rated............. 5.1%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
Health Care .......... 22.8%
General Purpose ...... 21.6%
Industrial Revenue ... 14.1%
Public Building ...... 10.5%
Higher Education ..... 8.3%
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
General Purpose ...... 26.7%
Public Building ...... 15.5%
Health Care .......... 14.9%
Industrial Revenue ... 14.1%
Water and Sewer ...... 6.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996 AS OF DECEMBER 31, 1995
<S> <C> <C>
Duration 8.43 years 7.65 years
</TABLE>
4
<PAGE> 223
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
New York Tax Free Income Fund about the key events and economic forces that
shaped the markets during the first half of the Fund's fiscal year. The team
includes Dennis Pietrzak, portfolio manager, and Peter W. Hegel, executive vice
president for fixed-income investments. The following excerpts reflect their
views concerning the Fund's performance during the six-month period ended June
30, 1996.
Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THE FIRST HALF OF THIS YEAR?
A Early in the year, indicators pointing to a stronger, expanding economy
sparked concern over inflation and expectations that the Federal Reserve
Board would increase short-term interest rates in order to keep the
economy from overheating. The prospect of higher rates was a concern to the
market, which responded by trading toward lower prices and higher yields.
On the other hand, municipal market concerns that major tax reform proposals
may gain acceptance--and potentially erode the tax-exempt status associated with
municipals--eased in the first half of 1996. So, even though bond prices
generally declined, they did so to a lesser extent in the municipal market.
The supply and demand relationship continued to be a positive influence on
the municipal bond market over the reporting period--supply remained low while
demand remained fairly strong. This helped support bond prices and partly offset
the negative effect that rising interest rates had on bond prices.
Q HOW WAS THE FUND'S PORTFOLIO STRUCTURED IN LIGHT OF
THESE CONDITIONS?
A The Fund was structured with a duration of 8.4 years at the end of the
period, which is slightly higher than the benchmark that we try to target
over time. Duration is a measure of a portfolio's sensitivity to changes
in interest rates. The shorter the duration, the less sensitive the portfolio is
expected to be to interest rates. The Fund's average weighted maturity remained
at 18 years, which we feel offered the best overall balance between income and
total return performance.
One of the biggest challenges that we faced was finding New York state
issues that offered relative value in the current low supply environment. The
majority of the Fund's assets (83.5 percent) were invested in securities of
investment-grade quality (BBB-rated or higher). The highest concentration of
holdings continues to be in healthcare at 22.8 percent. We believe healthcare is
attractive primarily because the majority of new issues have been from this
sector. Please refer to page four for Fund portfolio highlights.
5
<PAGE> 224
Q HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED JUNE 30, 1996?
A For the six-month period ended June 30, 1996, the Fund's total return was
-1.06 percent(1) (Class A shares at net asset value). By comparison, the
market in general, as represented by the Lehman Brothers Municipal Bond
Index, returned - 0.45 percent over the same period. Longer term, the Fund
generated a one-year total return of 6.86 percent(1) (Class A shares at net
asset value) through June 30, 1996. The Lehman Index is a broad-based, unmanaged
index of municipal bonds and does not reflect any commissions or fees that would
be paid by an investor purchasing the securities it represents. Please refer to
the chart on page three for additional Fund performance results.
At its current annualized dividend level of $0.798 per share, the Fund
generated a tax-free distribution rate of 5.25 percent(3) (Class A shares) as of
June 30, 1996. At this distribution rate, the Fund provides shareholders in the
40.5 percent combined federal and state income tax bracket with a yield
equivalent to a taxable investment earning 8.82 percent(4).
Q WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL BOND MARKET IN THE UPCOMING MONTHS?
A The New York economy continues to improve, and we do not anticipate any
significant changes in the management of the Fund. However, if the
national economy continues to show signs of strong growth, we could see
some changes in market fundamentals:
- - INFLATION has been holding at a low 2 to 3 percent range for some time now,
but going forward, there is some concern that inflation could slowly creep
upward, which could have a negative effect on the market.
- - INTEREST RATES: We anticipate the Federal Reserve will remain in a neutral
policy mode, but it may become necessary to tighten interest rates if the
economy continues to strengthen.
- - The positive ratio between LOWER SUPPLY AND HIGHER DEMAND should continue in
the upcoming months, which is a stabilizing influence on municipal bond
values. If there is a rally in bond prices, we could see an increase in
refundings, which could bring more supply into the market.
Peter W. Hegel
Peter W. Hegel
Executive Vice President
Fixed Income Investments
Dennis Pietrzak
Dennis Pietrzak
Portfolio Manager
Please see footnotes on page three
6
<PAGE> 225
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
NEW YORK 96.1%
$ 815 Battery Park City Auth NY Rev (MBIA Insd)....... 5.250% 11/01/17 $ 755,293
400 Battery Park City Auth NY Rev Sr Ser A Rfdg..... 5.000 11/01/13 354,652
200 Broome Cnty, NY Ctfs Partn Pub Safety Fac (MBIA
Insd)........................................... 5.250 04/01/15 187,396
500 Buffalo, NY Swr Auth Rev Swr Sys Ser G Rfdg
(FGIC Insd)..................................... 5.000 07/01/12 456,455
750 Clifton Springs, NY Hosp & Clinic Ser A Rfdg &
Impt............................................ 7.650 01/01/12 751,785
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY Inst of
Technology Rfdg................................. 7.500 03/01/26 502,005
500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj............................................ 7.950 01/01/28 516,360
375 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj............................. 5.700 01/01/04 368,944
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B (AMBAC Insd).......................... 5.375 06/15/19 469,290
500 New York City Ser C............................. 7.250 08/15/24 527,540
500 New York City Ser H (Cap Guar Insd)............. 7.000 02/01/21 548,145
300 New York St Dorm Auth Rev City Univ Ser F....... 5.000 07/01/14 257,628
350 New York St Dorm Auth Rev Cons City Univ Sys Ser
A............................................... 5.625 07/01/16 329,969
500 New York St Dorm Auth Rev Court Fac Lease Ser
A............................................... 5.700 05/15/22 461,010
250 New York St Dorm Auth Rev Dept of Hlth.......... 5.625 07/01/12 233,613
615 New York St Dorm Auth Rev Insd John T Mather Mem
Hosp Rfdg (Connie Lee Insd)..................... 6.500 07/01/10 654,680
300 New York St Dorm Auth Rev St Univ Edl Fac B
Rfdg............................................ 6.000 05/15/17 291,126
500 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA Insd).... 7.500 01/01/26 536,885
300 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Proj... 6.000 04/01/00 308,172
500 New York St Environmental Fac Corp Pollutn Ctl
Rev St Wtr Revolving Fund Ser D................. 6.850 11/15/11 564,305
500 New York St Hsg Fin Agy Rev Insd Multi-Family
Mtg Ser B (AMBAC Insd).......................... 6.250 08/15/14 507,825
425 New York St Loc Govt Assistance Corp Ser B...... 6.000 04/01/12 428,489
595 New York St Med Care Fac Fin Agy Rev North Shore
Univ Glen Cove Ser A (MBIA Insd)................ 5.125 11/01/12 552,672
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd).............................. 6.200 08/15/05 538,390
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd).............................. 6.600 02/15/11 534,025
300 New York St Med Care Fac Fin Agy Rev
Presbyterian Hosp Mtg Ser A Rfdg (FHA Gtd)...... 5.250 08/15/14 279,234
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B... 6.650 10/01/25 512,170
</TABLE>
See Notes to Financial Statements
7
<PAGE> 226
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 370 New York St Urban Dev Corp Rev Correctional Fac
Rfdg............................................ 5.625% 01/01/07 $ 357,901
300 New York St Urban Dev Corp Rev Correctional Fac
Rfdg............................................ 5.750 01/01/13 283,950
250 Newark Wayne Cmnty Hosp Inc NY Hosp Rev Ser..... 7.600 09/01/15 247,130
500 Niagara Falls, NY Brdg Comm Toll Rev Ser B Rfdg
(FGIC Insd)..................................... 5.250 10/01/21 459,700
420 Niagara Falls, NY Pub Impt (MBIA Insd).......... 6.900 03/01/20 457,624
500 Oneida Cnty, NY Pub Impt........................ 5.850 03/15/12 487,920
700 Port Auth NY & NJ Spl Oblig..................... 7.000 10/01/07 735,707
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
A Rfdg.......................................... 5.000 01/01/12 368,904
340 Western Nassau Cnty, NY Wtr Auth Wtr Sys Rev
(AMBAC Insd).................................... 5.650 05/01/26 330,194
-----------
16,157,088
-----------
GUAM 3.0%
500 Guam Govt Ser A................................. 5.500 09/01/01 495,750
-----------
TOTAL LONG-TERM INVESTMENTS 99.1%
(Cost $16,158,698) (a)..................................................... 16,652,838
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%.................................. 152,865
-----------
NET ASSETS 100%............................................................. $16,805,703
===========
</TABLE>
(a) At June 30, 1996, cost for federal income tax purposes is $16,158,698; the
aggregate gross unrealized appreciation is $551,518 and the aggregate gross
unrealized depreciation is $57,378, resulting in net unrealized appreciation
of $494,140.
See Notes to Financial Statements
8
<PAGE> 227
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $16,158,698) (Note 1)................. $16,652,838
Receivables:
Interest............................................................... 314,904
Fund Shares Sold....................................................... 59,601
Unamortized Organizational Expenses (Note 1)............................. 73,799
-----------
Total Assets....................................................... 17,101,142
-----------
LIABILITIES:
Payables:
Custodian Bank......................................................... 194,322
Income Distributions................................................... 34,938
Distributor and Affiliates (Notes 2 and 5)............................. 7,353
Fund Shares Repurchased................................................ 1,600
Accrued Expenses......................................................... 47,754
Deferred Compensation and Retirement Plans (Note 2)...................... 9,472
-----------
Total Liabilities.................................................. 295,439
-----------
NET ASSETS............................................................... $16,805,703
===========
NET ASSETS CONSIST OF:
Capital (Note 3)......................................................... $16,558,465
Net Unrealized Appreciation on Securities................................ 494,140
Accumulated Undistributed Net Investment Income (Note 1)................. 7,695
Accumulated Net Realized Loss on Securities.............................. (254,597)
-----------
NET ASSETS............................................................... $16,805,703
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $6,311,509 and 435,492 shares of capital stock issued and
outstanding) (Note 3).............................................. $ 14.49
Maximum sales charge (4.75%* of offering price)...................... .72
-----------
Maximum offering price to public..................................... $ 15.21
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$10,095,158 and 696,237 shares of capital stock issued and
outstanding) (Note 3).............................................. $ 14.50
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$399,036 and 27,528 shares of capital stock issued and outstanding)
(Note 3)........................................................... $ 14.50
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
9
<PAGE> 228
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................. $ 469,380
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$7,228, $49,236, and $2,001, respectively) (Note 5).................... 58,465
Investment Advisory Fee (Note 2)......................................... 48,089
Custodian................................................................ 22,604
Printing................................................................. 21,840
Amortization of Organizational Expenses (Note 1)......................... 11,961
Audit.................................................................... 10,010
Shareholder Services (Note 2)............................................ 6,512
Legal (Note 2)........................................................... 4,550
Trustees Fees and Expenses (Note 2)...................................... 3,099
Other.................................................................... 5,767
-----------
Total Expenses....................................................... 192,897
Less Fees Deferred and Expenses Reimbursed ($48,089 and $92,773,
respectively)...................................................... 140,862
-----------
Net Expenses......................................................... 52,035
-----------
NET INVESTMENT INCOME.................................................... $ 417,345
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments......................................... $ 54,099
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................................ 1,152,943
End of the Period:
Investments.......................................................... 494,140
-----------
Net Unrealized Depreciation on Securities During the Period.............. (658,803)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES........................... $ (604,704)
===========
NET DECREASE IN NET ASSETS FROM OPERATIONS............................... $ (187,359)
===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 229
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 417,345 $ 691,227
Net Realized Gain/Loss on Securities.................. 54,099 (150,409)
Net Unrealized Appreciation/Depreciation on Securities
During the Period................................... (658,803) 1,493,429
---------- -----------
Change in Net Assets from Operations.................. (187,359) 2,034,247
---------- -----------
Distributions from Net Investment Income.............. (401,862) (691,442)
Distributions in Excess of Net Investment Income
(Note 1) ........................................... -0- (7,788)
---------- -----------
Distributions from and in Excess of Net Investment
Income*............................................. (401,862) (699,230)
---------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (589,221) 1,335,017
---------- -----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 3,034,890 4,830,393
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 202,598 353,229
Cost of Shares Repurchased............................ (1,356,178) (2,209,451)
---------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 1,881,310 2,974,171
---------- -----------
TOTAL INCREASE IN NET ASSETS.......................... 1,292,089 4,309,188
NET ASSETS:
Beginning of the Period............................... 15,513,614 11,204,426
---------- -----------
End of the Period (Including undistributed net
investment income of $7,695 and $(7,788),
respectively)....................................... $16,805,703 $15,513,614
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
---------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares..................... $(158,678) $(226,467)
Class B Shares..................... (233,689) (459,895)
Class C Shares..................... (9,495) (12,868)
--------- ---------
$(401,862) $(699,230)
========= =========
</TABLE>
See Notes to Financial Statements
11
<PAGE> 230
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Operations) to
Class A Shares June 30, 1996 December 31, 1995 December 31, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $15.048 $13.579 $14.300
------- ------- -------
Net Investment Income................. .413 .821 .302
Net Realized and Unrealized Gain/Loss
on Securities....................... (.569) 1.476 (.722)
------- ------- -------
Total from Investment Operations........ (.156) 2.297 (.420)
Less Distributions from and in Excess of
Net Investment Income (Note 1)........ .399 .828 .301
------- ------- -------
Net Asset Value, End of the Period...... $14.493 $15.048 $13.579
======= ======= =======
Total Return*(a)........................ (1.06%)** 17.33% (2.93%)**
Net Assets at End of the Period (In
millions)............................. $ 6.3 $ 5.4 $ 2.9
Ratio of Expenses to Average Net
Assets*............................... .17% .21% .26%
Ratio of Net Investment Income to
Average Net Assets*................... 5.68% 5.63% 5.27%
Portfolio Turnover...................... 43%** 51% 68%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................ 1.92% 2.10% 2.73%
Ratio of Net Investment Income to
Average Net Assets.................... 3.93% 3.74% 2.81%
**Non-Annualized
</TABLE>
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
12
<PAGE> 231
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended Operations) to
Class B Shares June 30, 1996 December 31, 1995 December 31, 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $15.046 $13.578 $14.300
------- ------- -------
Net Investment Income................. .359 .713 .263
Net Realized and Unrealized Gain/Loss
on Securities....................... (.560) 1.476 (.722)
------- ------- -------
Total from Investment Operations........ (.201) 2.189 (.459)
Less Distributions from and in Excess of
Net Investment Income (Note 1)........ .345 .721 .263
------- ------- -------
Net Asset Value, End of the Period...... $14.500 $15.046 $13.578
======= ======= =======
Total Return*(a)........................ (1.36%)** 16.47% (3.20%)**
Net Assets at End of the Period (In
millions)............................. $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to Average Net
Assets*............................... .92% .93% .96%
Ratio of Net Investment Income to
Average Net Assets*................... 4.94% 4.93% 4.58%
Portfolio Turnover...................... 43%** 51% 68%**
*If certain expenses had not been assumed by VKAC, total return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................ 2.68% 2.82% 3.42%
Ratio of Net Investment Income to
Average Net Assets.................... 3.18% 3.04% 2.12%
**Non-Annualized
</TABLE>
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
13
<PAGE> 232
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
Six Months Year (Commencement
Ended Ended of Investment
June 30, December 31, Operations) to
Class C Shares 1996 1995 December 31, 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $15.041 $13.579 $14.300
------- ------- -------
Net Investment Income.............. .359 .711 .267
Net Realized and Unrealized
Gain/Loss on Securities.......... (.559) 1.472 (.725)
------- ------- -------
Total from Investment Operations..... (.200) 2.183 (.458)
Less Distributions from and in Excess
of Net Investment Income (Note
1)................................. .345 .721 .263
------- ------- -------
Net Asset Value, End of the Period... $14.496 $15.041 $13.579
======= ======= =======
Total Return*(a)..................... (1.29%)** 16.39% (3.20%)**
Net Assets at End of the Period (In
millions).......................... $ .4 $ .4 $ .2
Ratio of Expenses to Average Net
Assets*............................ .92% .98% .96%
Ratio of Net Investment Income to
Average Net Assets*................ 4.94% 4.81% 4.58%
Portfolio Turnover................... 43%** 51% 68%**
*If certain expenses had not been assumed by VKAC, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 2.68% 2.86% 3.42%
Ratio of Net Investment Income to
Average Net Assets................. 3.18% 2.93% 2.12%
**Non-Annualized
</TABLE>
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
See Notes to Financial Statements
14
<PAGE> 233
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital New York Tax Free Income Fund (the "Fund") is
organized as a series of the Van Kampen American Capital 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--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1996, there were no when
issued or delayed delivery purchase commitments.
C. INVESTMENT INCOME--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.
15
<PAGE> 234
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL EXPENSES--The Fund will reimburse Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $120,000. These costs
are being amortized on a straight line basis over the 60 month period ending
July 28, 1999. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational expenses in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the Federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 1995, the Fund had an accumulated capital loss
carryforward for tax purposes of $214,449, of which $116,418 and $98,031 will
expire on December 31, 2002 and 2003, respectively. Net realized gains or losses
may differ for financial and tax reporting purposes primarily as a result of
post October 31 losses which are not recognized for tax purposes until the first
day of the following fiscal year.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of certain
expenses under generally accepted accounting principles and federal income tax
purposes, 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 distribution in excess of
net investment income for certain periods.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million........................................ .600 of 1%
Over $500 million......................................... .500 of 1%
</TABLE>
16
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $5,600 representing VKAC's cost of providing cash management and
legal services to the Fund. All of this cost has been assumed by VKAC.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $3,700,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit. All of this expense has been assumed by VKAC.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 100 shares each of Classes A, B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C each
with a par value of $.01 per share. There are an unlimited number of shares of
each class authorized.
17
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $6,243,375, $9,916,112 and $398,978 for
Classes A, B and C, respectively. For the six months ended June 30, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 113,284 $ 1,665,201
Class B....................................... 93,235 1,368,323
Class C....................................... 94 1,366
------- -----------
Total Sales..................................... 206,613 $ 3,034,890
------- -----------
Dividend Reinvestment:
Class A....................................... 6,631 $ 96,882
Class B....................................... 6,879 100,572
Class C....................................... 351 5,144
------- -----------
Total Dividend Reinvestment..................... 13,861 $ 202,598
------- -----------
Repurchases:
Class A....................................... (40,265) $ (595,689)
Class B....................................... (51,697) (756,453)
Class C....................................... (283) (4,036)
------- -----------
Total Repurchases............................... (92,245) $(1,356,178)
------- -----------
</TABLE>
18
<PAGE> 237
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $5,076,981, $9,203,670, and
$396,504 for Classes A, B and C, respectively. For the year ended December 31,
1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 178,498 $ 2,590,867
Class B...................................... 139,452 2,015,988
Class C...................................... 15,339 223,538
-------- -----------
Total Sales.................................... 333,289 $ 4,830,393
-------- -----------
Dividend Reinvestment:
Class A...................................... 9,002 $ 130,867
Class B...................................... 14,956 216,684
Class C...................................... 389 5,678
-------- -----------
Total Dividend Reinvestment.................... 24,347 $ 353,229
-------- -----------
Repurchases:
Class A...................................... (46,443) $ (668,258)
Class B...................................... (104,963) (1,535,985)
Class C...................................... (352) (5,208)
-------- -----------
Total Repurchases.............................. (151,758) $(2,209,451)
-------- -----------
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). 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. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
19
<PAGE> 238
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<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............................ .00% None
</TABLE>
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$5,500 and CDSC on redeemed shares of approximately $18,000. 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 $8,798,862 and $6,725,483.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately $36,900.
20
<PAGE> 239
VAN KAMPEN AMERICAN CAPITAL NEW YORK TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, 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.
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