<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Financial Highlights............................. 22
Notes to Financial Statements.................... 25
Report of Independent Accountants................ 32
</TABLE>
TFIN ANR 11/98
<PAGE> 2
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic
and highly unusual times for global
financial markets. However, the United
States has been relatively unscathed by
the turmoil in many overseas markets.
In fact, the U.S. fixed-income markets [PHOTO]
benefited as many investors moved
assets from stocks into more
conservative fixed-income investments.
The volatility also forced yield
spreads to widen between Treasuries and
high-yield securities, corporate bonds,
and mortgage-backed securities. DENNIS J. MCDONNELL AND DON G. POWELL
We expect that volatility will
remain high until the situation
overseas stabilizes. In this
environment, it is important to stay
focused on long-term investment goals. As we explain elsewhere in this letter,
the U.S. economy remains among the healthiest in the world, and Federal Reserve
policymakers have demonstrated an ability to make prudent decisions with regard
to monetary policy. These factors bode well for investors during the months
ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as
fallout from the global financial crisis finally began to hit home. Weak demand
for American goods in Asia and Latin America caused the U.S. trade deficit to
hit a record $56.5 billion during the second quarter, undermining corporate
profits. Weak earnings, in turn, caused job growth to slow and unemployment to
increase modestly from the 28-year low set earlier this year. Manufacturing
activity fell in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
Continued on page 2
1
<PAGE> 3
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer
section with your portfolio management team, are provided in this report. As
always, we are pleased to have the opportunity to share with you the progress of
your investment.
Sincerely,
[SIG.]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on NAV(1)..................... 5.61% 5.07% 5.02%
Nine-month total return(2).................................. 0.59% 1.07% 4.02%
One-year total return based on NAV(1)....................... 8.49% 7.68% 7.68%
One-year total return(2).................................... 3.34% 3.68% 6.68%
Five-year average annual total return(2).................... 4.59% 4.57% 4.81%
Ten-year average annual total return(2)..................... 7.37% N/A N/A
Life-of-Fund average annual total return(2)................. 8.91% 5.30% 5.11%
Commencement Date........................................... 12/14/84 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution Rate(3)........................................ 4.58% 4.07% 4.07%
Taxable Equivalent Distribution Rate(4)..................... 7.16% 6.36% 6.36%
SEC Yield(5)................................................ 3.11% 2.49% 2.51%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1998.
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.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from December 31 to September 30. As a result, this financial report
reflects the 9-month transition period commencing on January 1, 1998 and ending
on September 30, 1998.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time. The index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Insured Tax Free Income Fund vs. the Lehman Brothers Municipal
Bond Index
(September 30, 1988 through September 30, 1998)
investment performance chart
<TABLE>
<CAPTION>
Van Kampen Lehman Brothers
Insured Tax Free Municipal Bond
Income Fund Index
<S> <C> <C>
Sep 1988 9525.00 10000.00
9729.00 10176.00
9604.00 10082.40
9802.00 10185.20
9905.00 10396.10
9835.00 10277.50
9794.00 10252.90
9970.00 10495.90
10210.00 10714.20
10365.00 10859.90
10456.00 11007.60
10343.00 10899.70
Sep 1989 10294.00 10867.00
10410.00 10999.60
10606.00 11192.10
10720.00 11283.90
10665.00 11230.80
10748.00 11330.80
10765.00 11334.20
10616.00 11252.60
10818.00 11497.90
10903.00 11599.10
11076.00 11769.60
10880.00 11598.90
Sep 1990 10885.00 11605.90
11080.00 11815.90
11371.00 12053.40
11478.00 12106.50
11605.00 12268.70
11739.00 12375.40
11705.00 12380.40
11808.00 12545.00
11932.00 12656.70
11904.00 12644.00
12028.00 12798.30
12187.00 12967.20
Sep 1991 12298.00 13135.80
12410.00 13254.00
12454.00 13291.10
12697.00 13576.90
12803.00 13608.10
12786.00 13612.20
12769.00 13617.70
12863.00 13738.90
13042.00 13901.00
13278.00 14134.50
13862.00 14558.50
13610.00 14415.90
Sep 1992 13678.00 14509.60
13406.00 14367.40
13744.00 14624.60
13905.00 14773.70
14064.00 14945.10
14718.00 15486.10
14451.00 15322.00
14636.00 15476.70
14678.00 15563.40
14948.00 15823.30
14910.00 15843.90
15280.00 16173.40
Sep 1993 15489.00 16357.80
15506.00 16388.90
15273.00 16244.60
15618.00 16587.40
15821.00 16776.50
15401.00 16342.00
14669.00 15676.90
14747.00 15810.10
14906.00 15947.70
14824.00 15850.40
15113.00 16140.50
15144.00 16197.00
Sep 1994 14840.00 15958.90
14535.00 15674.80
14212.00 15391.10
14633.00 15729.70
15104.00 16179.50
15594.00 16650.40
15708.00 16841.90
15696.00 16862.10
16201.00 17400.00
16010.00 17248.60
16100.00 17412.40
16242.00 17633.60
Sep 1995 16333.00 17744.70
16624.00 18002.00
16961.00 18300.80
17193.00 18476.50
17301.00 18616.90
17163.00 18490.30
16810.00 18253.60
16742.00 18202.50
16780.00 18195.30
16909.00 18393.60
17100.00 18561.00
17119.00 18557.20
Sep 1996 17357.00 18817.00
17551.00 19029.70
17901.00 19377.90
17819.00 19296.50
17775.00 19333.20
17934.00 19511.10
17668.00 19251.60
17801.00 19413.30
18049.00 19704.50
18240.00 19915.30
18824.00 20467.00
18555.00 20274.60
Sep 1997 18767.00 20515.90
18864.00 20647.20
18990.00 20769.00
19278.00 21072.20
19475.00 21289.20
19455.00 21295.60
19441.00 21314.80
19281.00 21218.80
19641.00 21554.10
19722.00 21638.20
19752.00 21692.30
20069.00 22028.50
Sep 1998 20360.00 22303.90
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because
it is assumed that the issuer will redeem the bond at its call date, rather
than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways
and schools.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
5
<PAGE> 7
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
6
<PAGE> 8
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INSURED TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen Insured Tax Free
Income Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes Joseph A. Piraro, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE CONDITIONS IN THE BOND MARKET DURING THE PAST
NINE MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent.
At the end of the reporting period, the yield on AAA-rated 30-year general
obligation municipal bonds was just slightly less than the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
Q THE FUND MUST INVEST ONLY IN INSURED BONDS--DID YOU FIND FAVORABLE
OPPORTUNITIES IN THIS SEGMENT OF THE MUNICIPAL MARKET?
A Yes, we did. Currently, about half of all new municipal bond issues are
insured, so supply was very heavy. Demand, meanwhile, was also healthy.
The difference in yield between AAA-rated bonds and comparable BBB-rated
bonds is currently narrow by historical standards. On September 30, this yield
spread was just 36 basis points (0.36 percent). Because investors can buy a
AAA-rated bond and get a yield that is close to that of a BBB-rated bond, many
investors are choosing the higher-rated securities.
The flood of insured issues coming to market has been positive for the Fund,
because it has given us a broad selection of bonds from which to choose and
allowed us to participate in more new issues. We took advantage of several
opportunities to purchase new bonds that came to market at good prices, and we
sold them later when their prices appreciated. This strategy was designed to
bolster the Fund's total return.
Q WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO?
A Due to low interest rates, new bonds would have had lower yields than most
of the bonds already in the portfolio, so we chose to hold onto our
higher-yielding bonds in order to help preserve the Fund's dividend. We
did purchase several bonds that we believed were undervalued. Many of these
bonds came from the health care, utility, and water/sewer sectors. About 23
percent of the Fund's long-term investments are invested in health care
bonds--we've often found good values in this sector. In order to diversify the
Fund, however, we try to keep the Fund's allocation to health care bonds below
25 percent.
We tended to favor bonds from "specialty" states, which are dual-taxed
states such as California and New York. Demand for tax-free bonds is generally
higher in those states, because their residents have a greater desire for tax-
exempt income. The states that are most widely represented in the Fund are
Illinois, at about 20 percent of the portfolio, followed by California and New
York. For additional Fund portfolio highlights, please refer to page 9.
7
<PAGE> 9
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund has been a very strong performer in 1998. Its year-to-date total
return is 5.61 percent(1) (Class A shares at net asset value). By
comparison, the Lehman Brothers Municipal Bond Index produced a total
return of 5.84 percent for the same period. This broad-based index of
municipal bonds does not include any commissions or sales charges that would be
paid by an investor purchasing the securities or investments it represents.
The Fund's dividend will be reduced from $0.0800 to $0.0760, effective
November 1, 1998, and payable November 30, 1998. Because interest rates are at
low levels, a number of the higher-yielding bonds in the Fund's portfolio have
been called away (redeemed by their issuer before the maturity date). Issuers
often call their bonds when interest rates drop significantly, because they can
save money by issuing new bonds at lower rates. When a bond in the portfolio is
called, we must use those assets to purchase new securities at prevailing
interest rates. Losing some of the Fund's higher-yielding bonds and having to
replace them with lower-yielding bonds has put pressure on the dividend and
required us to make the reduction. Please refer to the chart on page 3 for
additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE BOND MARKETS AND FOR THE FUND?
A The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a supportive
environment for bonds. (Editor's note: After the reporting period ended,
the Fed reduced interest rates again by 0.25 percent.) The supply of
municipal bond issues looks like it will remain heavy, as low interest rates
spark further refunding of outstanding bond issues and bring new municipal bonds
into the marketplace. As more investors recognize the value available in the
municipal market, demand is likely to increase and municipal bonds could see
favorable returns in coming months.
Slower economic growth is likely to fuel the demand for insured bonds, as
investors seek the relative safety of insured issues. We also expect to see
plentiful issuance of insured bonds, as an economic slowdown could provide an
incentive for issuers to insure their bonds. We would expect these conditions to
be positive for the Fund. On the other hand, a continuation of low interest
rates could make the Fund's higher-yielding bonds vulnerable to calls, thereby
pressuring the Fund's dividend. We will continue to manage the portfolio to
provide a high level of tax-exempt income through a portfolio of insured bonds.
[SIG.]
Joseph A. Piraro
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INSURED TAX FREE INCOME FUND
TOP TEN STATES AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois .............................................. 20.2%
California ............................................ 17.1%
New York .............................................. 8.1%
Florida ............................................... 5.4%
Texas ................................................. 5.2%
Pennsylvania .......................................... 5.1%
Ohio .................................................. 4.5%
Utah .................................................. 3.1%
Kansas ................................................ 3.0%
Georgia .............................................. 3.0%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<S> <C>
AAA................................. 100%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Health Care ....................... 23.2% Health Care ....................... 28.5%
Public Building ................... 11.8% Public Education .................. 9.9%
General Purpose.................... 11.1% Public Building ................... 8.9%
Public Education .................. 10.2% Retail Electric / Gas /
Retail Electric / Gas / Telephone ....................... 8.8%
Telephone........................ 8.8% General Purpose ................... 8.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 7.31 years 7.07 years
</TABLE>
(1)Unaudited
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 97.8%
ALABAMA 2.1%
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty College (MBIA
Insd)....................................................... 6.000% 10/01/14 $ 2,511,360
1,955 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser A (AMBAC
Insd)....................................................... 6.750 08/15/17 2,231,730
1,900 Birmingham-Carraway, AL Methodist Hlth Sys Ser A (Connie Lee
Insd)....................................................... 5.875 08/15/25 2,045,122
2,500 Jefferson Cnty, AL Brd Edl Cap Outlay Sch (AMBAC Insd)...... 5.875 02/15/20 2,692,400
2,000 Lauderdale Cnty & Florence AL Hlthcare Auth Rev Eliza Coffee
Mem Hosp Rfdg (MBIA Insd)................................... 5.750 07/01/19 2,163,440
4,000 Madison Alabama Wts Ser C (MBIA Insd)....................... 5.000 09/01/27 4,012,320
3,130 Montgomery, AL Edl Bldg Auth Faulkner Univ Proj (AMBAC Insd)
(a)......................................................... 5.000 10/01/23 3,134,194
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp Rev Decatur Genl
Hosp Rfdg (Connie Lee Insd)................................. 6.250 03/01/13 6,088,005
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA Insd)......... 6.500 04/01/16 2,720,208
1,400 West Morgan East Lawrence Wtr Auth AL Wtr Rev (FGIC Insd)... 5.625 08/15/21 1,514,520
1,000 West Morgan East Lawrence Wtr Auth AL Wtr Rev (FGIC Insd)... 5.625 08/15/25 1,081,800
--------------
30,195,099
--------------
ALASKA 0.2%
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd)................ 6.600 12/01/07 2,637,624
--------------
ARIZONA 1.3%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC Insd)............... 6.250 09/01/10 11,988,130
2,110 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig Irvington
Proj Tucson Ser A Rfdg (FSA Insd)........................... 7.250 07/15/10 2,360,246
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)................................................ 6.000 09/01/12 2,090,925
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)................................................ 6.125 09/01/17 1,946,927
--------------
18,386,228
--------------
CALIFORNIA 16.8%
4,290 Antioch Area, CA Pub Fac Fin Agy Cmnty Fac Dist No 1989
(FGIC Insd)................................................. 5.300 08/01/15 4,565,676
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy Pool Rev
Ser A (FSA Insd)............................................ 6.000 12/15/14 3,195,669
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev Ser A (MBIA
Insd)....................................................... 5.650 06/01/15 5,302,700
10,000 California Hlth Fac Fin Auth Rev Sutter Hosp Ser A Rfdg
(AMBAC Insd)................................................ 6.700 01/01/13 10,176,900
3,415 California Pub Cap Impt Fin Auth Rev Pooled Proj Ser B (BIGI
Insd)....................................................... 8.100 03/01/18 3,496,243
10,000 California St Pub Wks Brd Lease Rev Dept of Corrections CA
St Prison D Susanville (MBIA Insd).......................... 5.375 06/01/18 10,396,500
10,000 California Statewide Cmntys Dev Auth Rev Sherman Oaks
Project Ser A Rfdg (AMBAC Insd)............................. 5.000 08/01/22 10,274,300
16,770 Capistrano, CA Uni Pub Fin Auth Spl Tax Rev First Lien Ser A
Rfdg (AMBAC Insd)........................................... 5.700 09/01/16 18,469,304
6,420 Central Vly Sch Dist Fin Auth CA Cap Apprec Sch Dist Ser A
Rfdg (MBIA Insd)............................................ * 08/01/09 4,037,987
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd).................. 6.200 09/01/18 3,349,200
220 Concord, CA Redev Agy Tax Alloc Cent Concord Redev Proj Ser
3 (BIGI Insd)............................................... 8.000 07/01/18 226,818
805 Corona Norco, CA Uni Sch Dist Lease Rev Partn Insd Land
Acquis Ser A (FSA Insd)..................................... 6.000 04/15/19 893,703
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac Refin (FGIC
Insd)....................................................... 6.300 09/01/12 1,355,938
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC Insd).............. 6.700 08/01/21 542,861
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the
Arts Rfdg (AMBAC Insd)...................................... * 09/01/17 1,875,361
6,500 Grossmont, CA Union High Sch Dist Ctfs Partn (MBIA Insd).... * 11/15/21 1,503,385
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark Proj (FSA
Insd)....................................................... 6.625 11/01/22 7,952,560
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark Proj
(Prerefunded @ 11/01/02) (FSA Insd)......................... 6.500 11/01/12 1,131,360
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp Leasehold Rev Rfdg
(AMBAC Insd)................................................ 6.000 12/01/16 3,846,080
5,350 Los Angeles Cnty, CA Metro Tran Auth Sales Tax Rev First
Tier Prop A Ser A Rfdg (FSA Insd) (a)....................... 5.000 07/01/04 5,581,441
13,480 Los Angeles Cnty, CA Metro Tran Auth Sales Tax Rev Prop A
Second Tier Rfdg (MBIA Insd)................................ 6.000 07/01/21 14,946,085
3,000 Los Angeles, CA Cmnty Redev Agy Tax Alloc Bunker Hill Ser H
Rfdg (FSA Insd)............................................. 6.500 12/01/14 3,410,160
1,830 Los Angeles, CA Ser A (FGIC Insd)........................... 6.125 09/01/13 2,054,724
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1 Ser A Rfdg
(MBIA Insd)................................................. 6.700 10/01/21 8,401,350
1,290 Martinez, CA Uni Sch Dist Ctfs Elig Rfdg (FSA Insd)......... 6.000 08/01/09 1,370,483
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser F Rfdg (AMBAC
Insd)....................................................... 6.000 07/01/20 2,195,880
13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj Area No 1
Rfdg (MBIA Insd)............................................ 6.250 03/01/19 14,864,978
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,500 North City West, CA Sch Fac Fin Auth Spl Tax Ser B Rfdg (FSA
Insd)....................................................... 6.000% 09/01/19 $ 1,669,005
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice Cent Fac Rfdg
(AMBAC Insd)................................................ 6.000 06/01/17 3,107,304
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj Areas Ser A
(MBIA Insd)................................................. 6.000 09/01/15 3,100,832
2,160 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/11 2,411,878
2,295 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/12 2,562,620
2,435 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/13 2,718,945
2,585 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/14 2,886,437
2,750 Paramount, CA Redev Agy Tax Alloc (MBIA Insd)............... 6.250 08/01/15 3,070,678
2,000 Perris, CA Pub Fin Auth Local Agy Rev Parity Ser F (FSA
Insd)....................................................... 5.850 09/01/24 2,211,480
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr Treatment Plant
Proj (AMBAC Insd)........................................... 6.050 05/01/15 1,504,356
2,945 Rubidoux, CA Cmnty Svcs Dist Ctfs Partn Wtr Sys Impt Rfdg
(AMBAC Insd)................................................ 5.050 12/01/17 3,091,278
4,170 Rubidoux, CA Cmnty Svcs Dist Ctfs Partn Wtr Sys Impt Rfdg
(AMBAC Insd)................................................ 5.100 12/01/24 4,403,186
5,000 Sacramento, CA Cogeneration Auth Cogeneration Proj Rev (MBIA
Insd)....................................................... 5.000 07/01/17 5,113,500
3,900 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg (MBIA
Insd)....................................................... 5.750 08/15/13 4,170,699
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B (Embedded Swap)
(MBIA Insd)................................................. 7.000 07/01/16 15,169,374
1,000 San Jose, CA Fin Auth Rev Convention Cent Proj Ser C Rfdg
(FSA Insd).................................................. 6.300 09/01/09 1,092,180
2,500 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac Replacement
Proj Ser A (Prerefunded @ 11/15/04) (AMBAC Insd)............ 6.875 11/15/14 2,981,925
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist Rfdg & Impt (AMBAC
Insd)....................................................... 6.200 07/02/09 1,100,650
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg (FGIC Insd)............... 6.200 09/01/09 2,192,700
2,510 Solano Cnty, CA Ctfs Partn Solano Park Hosp Proj (FSA
Insd)....................................................... 5.750 08/01/14 2,754,323
12,600 Southern CA Pub Pwr Auth Transmission Proj Rev (FSA Insd)... 6.000 07/01/12 13,688,136
3,370 Stockton, CA Pub Fin Auth Rev Ser A Rfdg (FSA Insd)......... 5.875 09/02/16 3,764,526
2,500 Temecula Vly, CA Uni Sch Dist Ctfs Partn Rfdg (FSA Insd).... 6.000 09/01/25 2,778,125
1,000 Temecula Vly, CA Uni Sch Dist Ser B Rfdg (FGIC Insd)........ 6.000 09/01/12 1,091,840
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg (MBIA Insd).... 6.750 01/01/12 2,479,778
3,845 Vista, CA Uni Sch Dist Ctfs Partn Ser A Rfdg (FSA Insd)..... * 11/01/17 1,302,955
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev Cmnty Fac Rfdg
(FSA Insd).................................................. 6.500 09/01/14 2,325,320
--------------
240,161,676
--------------
COLORADO 2.2%
2,090 Colorado Hlth Fac Auth Rev Sisters of Charity Hlthcare Ser A
(Prerefunded @ 05/15/01) (MBIA Insd)........................ 6.000 05/15/13 2,213,122
17,750 Denver, CO City & Cnty Arpt Rev Ser A (MBIA Insd)........... 5.700 11/15/25 19,312,888
5,500 Denver, CO City & Cnty Arpt Rev Ser D Rfdg (MBIA Insd)...... 5.500 11/15/25 5,845,125
10 Jefferson Cnty, CO Single Family Mtg Rev Ser A Rfdg (MBIA
Insd)....................................................... 8.875 10/01/13 10,698
2,050 Thornton, CO Rfdg (FGIC Insd)............................... * 12/01/11 1,148,226
1,100 Thornton, CO Rfdg (FGIC Insd)............................... * 12/01/15 497,101
2,000 Westminster, CO Wtr & Wastewtr Util Enterprise Rev (AMBAC
Insd)....................................................... 6.250 12/01/14 2,232,740
--------------
31,259,900
--------------
DISTRICT OF COLUMBIA 0.0%
250 District of Columbia Ser B Rfdg (MBIA Insd)................. * 06/01/04 199,278
--------------
FLORIDA 5.3%
1,350 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC Insd)......... 5.500 05/01/25 1,429,002
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/03 1,201,365
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/04 841,138
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/05 1,470,292
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/06 1,620,831
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA Insd)............ 8.000 10/01/07 1,779,525
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd)................ 12.000 10/01/04 2,986,401
175 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev Ser C
(FGIC Insd)................................................. 7.650 09/01/10 185,560
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 755 Duval Cnty, FL Hsg Fin Auth Single Family Mtg Rev Ser C
(FGIC Insd)................................................. 7.700% 09/01/24 $ 799,681
1,410 Florida St Dept Corrections Ctfs Partn Okeechobee
Correctional (AMBAC Insd)................................... 6.250 03/01/15 1,588,873
2,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd).............. 6.100 10/01/18 2,244,680
1,000 Key West, FL Util Brd Elec Rev Ser D (AMBAC Insd)........... * 10/01/13 503,970
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev (Inverse Fltg) (MBIA
Insd)....................................................... 9.468 04/01/20 4,695,000
15,825 Miami Dade Cnty, FL Solid Waste Sys Rev (AMBAC Insd)........ 4.750 10/01/18 15,754,104
14,275 Miami Dade Cnty, FL Spl Oblig Ser B (MBIA Insd)............. 5.000 10/01/37 14,343,234
6,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse Fltg) (MBIA
Insd)....................................................... 8.796 10/29/21 7,162,500
2,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A (Prerefunded @
08/01/04) (AMBAC Insd)...................................... 6.375 08/01/15 2,281,540
1,090 Sarasota Cnty, FL Util Sys Rev (Prerefunded @ 10/01/04)
(FGIC Insd)................................................. 6.500 10/01/14 1,263,070
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem Regl Med Ser A
Rfdg (MBIA Insd)............................................ 6.625 12/01/13 11,433,500
1,750 Tampa, FL Rev Hlth Sys Catholic Hlth Ser A1 (MBIA Insd)..... 4.875 11/15/23 1,727,425
--------------
75,311,691
--------------
GEORGIA 2.9%
1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent (MBIA
Insd)....................................................... 6.250 12/01/08 1,381,288
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial Detention Cent (MBIA
Insd)....................................................... 6.250 12/01/17 1,922,638
15,550 Georgia Muni Elec Auth Pwr Rev Ser Y (AMBAC Insd)........... 6.400 01/01/13 18,568,566
10,000 Georgia Muni Elec Auth Pwr Rev Ser Y (MBIA Insd)............ 6.500 01/01/17 12,251,300
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI Insd)....... * 01/01/07 4,649,970
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI Insd)....... * 01/01/08 3,233,468
--------------
42,007,230
--------------
HAWAII 1.0%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA Insd)............ 6.400 07/01/08 14,306,031
--------------
ILLINOIS 19.8%
1,000 Berwyn, IL (MBIA Insd)...................................... 7.000 11/15/10 1,081,490
5,000 Chicago, IL (FGIC Insd)..................................... 5.500 01/01/21 5,316,850
5,000 Chicago, IL Lakefront Millennium Parking Fac (MBIA Insd).... 5.000 01/01/18 5,045,250
1,400 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC Insd)....... 5.750 12/01/20 1,540,686
25,725 Chicago, IL Brd of Ed Chicago Sch Reform (MBIA Insd)........ 6.000 12/01/26 28,461,111
16,000 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC Insd)....... 5.750 12/01/27 17,582,560
22,000 Chicago, IL Brd of Ed Chicago Sch Reform Ser A (AMBAC
Insd)....................................................... 5.250 12/01/30 22,474,320
6,950 Chicago, IL Midway Arpt Rev Ser B (MBIA Insd)............... 5.000 01/01/28 6,901,906
24,925 Chicago, IL Midway Arpt Rev Ser B (MBIA Insd)............... 5.000 01/01/35 24,778,441
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago Transit Auth
(AMBAC Insd)................................................ 6.600 01/01/15 3,081,080
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd)........ * 01/01/06 2,583,448
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd)........ * 01/01/07 2,203,370
4,150 Chicago, IL Skyway Toll Brdg Rev (MBIA Insd)................ 5.500 01/01/23 4,408,670
2,000 Chicago, IL Wastewtr Transmission Rev (FGIC Insd)........... 5.125 01/01/25 2,017,440
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.400 01/01/01 1,098,030
5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/03 6,582,245
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/04 10,340,150
2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/05 3,086,291
3,500 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/07 4,588,325
1,280 Cook Cnty, IL Cmnty High Sch Dist No 233 Homewood & Flossmor
(AMBAC Insd)................................................ * 12/01/05 956,838
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser A (AMBAC Insd).... * 11/01/08 5,417,687
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA Insd)....... 8.200 12/01/14 2,113,607
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA Insd)....... 8.100 12/01/16 2,499,147
5,500 Cook County, IL Ser A Rfdg (AMBAC Insd)..................... 5.000 11/15/22 5,495,875
1,115 Evanston, IL Residential Mtg Rev (AMBAC Insd)............... 6.375 01/01/09 1,186,472
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<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 $ 11,455,700
35,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser A
First Mtg Rfdg (MBIA Insd).................................. 7.400 12/01/24 41,266,050
5,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser A
Rfdg (MBIA Insd)............................................ 5.400 03/01/28 5,114,250
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 (FSA
Insd)....................................................... 6.650 02/01/11 2,427,920
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford Sch 205 Rfdg
(FSA Insd).................................................. 6.650 02/01/12 5,846,487
6,015 Illinois Edl Fac Auth Rev Lake Forest College (MBIA Insd)... 5.000 10/01/28 5,973,376
971 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm Ser B (MBIA
Insd)....................................................... 7.900 08/15/03 984,196
220 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled Pgm Ser B Rfdg
(MBIA Insd)................................................. 7.900 08/15/03 253,726
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters Svcs (Inverse Fltg)
(MBIA Insd)................................................. 9.467 06/19/15 6,037,500
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth Proj (Inverse
Fltg) (AMBAC Insd).......................................... 9.872 05/18/21 5,937,500
3,400 Illinois Hlth Fac Auth Rev Rush Presbyterian Saint Luke Hosp
(Inverse Fltg) (MBIA Insd).................................. 9.818 10/01/24 4,046,000
3,000 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln Hlth Rfdg
(AMBAC Insd)................................................ 6.000 01/01/27 3,284,790
1,320 Kane Cnty, IL Sch Dist No 129 Aurora West Side (FSA Insd)... 5.000 02/01/14 1,344,064
5,350 Melrose Park, IL Wtr Rev Ser A (MBIA Insd).................. 5.200 07/01/18 5,490,812
2,625 Melrose Park, IL Wtr Rev Ser A (MBIA Insd).................. 5.000 07/01/20 2,627,809
6,110 Rosemont, IL Tax Increment 3 (FGIC Insd).................... * 12/01/06 4,364,739
3,000 Rosemont, IL Tax Increment 3 (FGIC Insd).................... * 12/01/07 2,047,440
1,185 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd)................. 8.000 12/01/04 1,443,591
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd)................. 8.000 12/01/05 1,600,262
1,500 Will Cnty, IL Cmnty Unit Sch Dist No 201 Ser C (FSA Insd)... * 10/01/13 743,865
1,000 Will Cnty, IL Cmnty Unit Sch Dist No 201 Ser C (FSA Insd)... * 10/01/14 472,520
--------------
283,603,886
--------------
INDIANA 0.6%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd)................ 9.750 08/01/09 2,644,560
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps Proj Rfdg &
Impt (MBIA Insd)............................................ 6.400 05/01/12 5,441,250
1,000 Marion Cnty, IN Convention & Rectl Fac Auth Excise Tax Rev
Lease Rental Ser A (AMBAC Insd)............................. 7.000 06/01/21 1,091,960
--------------
9,177,770
--------------
KANSAS 3.0%
38,750 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co Proj Rfdg
(MBIA Insd) (b)............................................. 7.000 06/01/31 42,296,013
--------------
KENTUCKY 0.2%
20 Kentucky Cntys Single Family Mtg Presbyterian Homes Ser A
Rfdg (MBIA Insd)............................................ 8.625 09/01/15 20,252
2,000 Kentucky Econ Dev Fin Auth Hosp Fac Rev Rfdg (Connie Lee
Insd)....................................................... 5.700 02/01/28 2,144,340
--------------
2,164,592
--------------
LOUISIANA 1.6%
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 4,849,748
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 6,756,056
310 Louisiana Pub Fac Auth Rev Med Cent LA at New Orleans Proj
(Connie Lee Insd)........................................... 6.250 10/15/10 332,488
4,150 Louisiana Pub Fac Auth Rev Pgm Hlth & Edl Cap Fac Our Lady
Med Cent Ser C (BIGI Insd).................................. 8.200 12/01/15 4,264,872
5,000 Louisiana Pub Fac Auth Rev Tulane Univ of LA (AMBAC Insd)... 6.050 10/01/25 5,559,200
10,000 New Orleans, LA Home Mtg Auth Single Family Mtg Rev 1985 Ser
A (MBIA Insd)............................................... * 09/15/16 1,598,500
--------------
23,360,864
--------------
MAINE 0.3%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser 1985 (AMBAC
Insd)....................................................... 9.200 08/01/99 2,790,920
35 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA Insd)....... 7.100 07/01/14 40,894
1,715 Maine Hlth & Higher Edl Fac Auth Rev Ser B (Prerefunded @
07/01/04) (FSA Insd)........................................ 7.100 07/01/14 2,023,768
--------------
4,855,582
--------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS 0.9%
$ 1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt Auburn Hosp Ser
B1 (MBIA Insd).............................................. 6.250% 08/15/14 $ 1,902,062
1,555 Massachusetts St Indl Fin Agy Rev Western New England
College (AMBAC Insd)........................................ 5.000 07/01/18 1,570,737
3,750 Massachusetts St Wtr Res Auth Houston Ind Inc Proj Ser A
(FSA Insd).................................................. 4.750 08/01/37 3,627,225
3,250 Massachusetts St Wtr Res Auth Genl Ser A (FGIC Insd)........ 5.500 11/01/21 3,437,525
1,920 Worcester, MA (MBIA Insd)................................... 5.000 08/01/17 1,960,992
--------------
12,498,541
--------------
MICHIGAN 2.7%
2,325 Bay City, MI (AMBAC Insd)................................... * 06/01/15 1,066,547
1,000 Bay City, MI (AMBAC Insd)................................... * 06/01/16 433,270
3,250 Central MI Univ Rev (FGIC Insd)............................. 5.625 10/01/22 3,646,955
1,100 Central MI Univ Rev (FGIC Insd)............................. 5.500 10/01/26 1,224,531
2,175 Clintondale, MI Cmnty Sch Rfdg (FSA Insd)................... 5.125 05/01/28 2,197,881
2,000 Durand, MI Area Schs (FGIC Insd)............................ 5.375 05/01/23 2,080,780
5,000 Ecorse, MI Pub Sch Dist (FGIC Insd)......................... 5.500 05/01/27 5,336,850
3,000 Lake Shore, MI Pub Schs Macomb Cnty (FSA Insd).............. 5.500 05/01/20 3,171,090
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC Insd)................. * 05/01/21 5,624,010
5,000 Michigan St Hosp Fin Auth Rev Hosp Sparrow Oblig Group (MBIA
Insd)....................................................... 6.000 11/15/36 5,529,900
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B (AMBAC
Insd)....................................................... 4.850 04/01/04 2,052,400
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec (Prerefunded @
05/01/07) (MBIA Insd)....................................... * 05/01/17 1,753,350
5,115 Wayne Charter Cnty, MI Arpt Rev Detroit Metropolitan Wayne
County Airport B (MBIA Insd)................................ 5.000 12/01/28 5,075,239
--------------
39,192,803
--------------
MINNESOTA 0.5%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B Rfdg (FSA
Insd)....................................................... 6.650 03/01/17 1,098,120
5,600 Minneapolis-St Paul, MN Hsg & Redev Auth Hlthcare Sys Rev
Hlth One Ser A (MBIA Insd).................................. 7.400 08/15/11 6,061,832
--------------
7,159,952
--------------
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 1,412,540
--------------
MISSOURI 0.6%
1,985 Green Cnty, MO Single Family Mtg Rev (AMBAC Insd)........... * 12/01/16 336,815
4,585 Missouri St Hlth & Edl Fac Auth (MBIA Insd)................. 6.250 06/01/16 4,988,984
1,065 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev Rfdg
(Prerefunded @ 06/01/02) (MBIA Insd)........................ 6.250 06/01/16 1,174,972
175 Saint Louis Cnty, MO Single Family Mtg Rev (AMBAC Insd)..... 9.250 10/01/16 190,708
2,000 St Charles Cnty, MO Cmnty College (FGIC Insd)............... 5.000 02/15/16 2,042,680
--------------
8,734,159
--------------
NEVADA 0.7%
1,000 Carson City, NV Hosp Rev Ser B (AMBAC Insd)................. 5.400 03/01/17 1,047,700
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser C Rfdg (AMBAC
Insd)....................................................... 7.200 10/01/22 2,253,220
4,355 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc Ser C
(Prerefunded @ 01/01/00) (BIGI Insd)........................ 7.750 07/01/15 4,657,107
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd)..................... * 07/01/07 2,596,597
--------------
10,554,624
--------------
NEW HAMPSHIRE 0.6%
5,000 New Hampshire Higher Edl & Hlth Fac Auth Rev (AMBAC Insd)... 6.000 10/01/26 5,535,500
2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse Fltg) (FGIC
Insd)....................................................... 9.860 11/01/17 3,396,875
--------------
8,932,375
--------------
NEW JERSEY 0.7%
5,500 Howell Twp, NJ Rfdg (FGIC Insd)............................. 6.800 01/01/14 6,062,485
3,625 Morristown, NJ Rfdg (FSA Insd).............................. 6.400 08/01/14 4,161,826
--------------
10,224,311
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK 7.9%
$ 8,000 Metropolitan Tran Auth NY Commuter Fac Rev Ser A (MBIA
Insd)....................................................... 5.625% 07/01/27 $ 8,656,320
3,250 Metropolitan Tran Auth NY Dedicated Tax Fund Ser A (FGIC
Insd)....................................................... 5.000 04/01/23 3,262,707
2,090 New York City Ser G (MBIA Insd)............................. 5.750 02/01/14 2,274,861
4,350 New York City Indl Dev Agy Civic Fac Rev USTA Natl Tennis
Cent Proj (FSA Insd)........................................ 6.375 11/15/14 4,912,150
50 New York City Ser C Subser C1 (FSA Insd).................... 6.250 08/01/09 54,883
18,000 New York City Ser G (FGIC Insd)............................. 5.750 02/01/14 19,592,100
3,000 New York St Dorm Auth Lease Rev Muni Hlth Fac Impt Pgm Ser A
(FSA Insd).................................................. 5.500 05/15/25 3,171,720
2,775 New York St Dorm Auth Rev City Univ Ser C (FGIC Insd)....... 7.000 07/01/14 2,972,247
1,175 New York St Dorm Auth Rev City Univ Ser C (Prerefunded @
07/01/00) (AMBAC Insd)...................................... 7.000 07/01/14 1,265,616
4,700 New York St Dorm Auth Rev Insd Pace Univ Rfdg (MBIA Insd)... 5.750 07/01/26 5,194,205
170 New York St Med Care Fac Fin Agy Rev IBC Mental Hlth Svcs
Ser A (MBIA Insd)........................................... 7.750 08/15/10 181,810
1,000 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Ser E
(FSA Insd).................................................. 6.500 08/15/15 1,140,160
23,535 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg Ser A
(Prerefunded @ 02/15/05) (AMBAC Insd)....................... 6.750 08/15/14 27,691,987
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev Rochester Ser A
(Prerefunded @ 09/15/01) (MBIA Insd)........................ 6.625 03/15/06 3,726,128
1,500 New York St Urban Dev Corp Rev Correctional Fac Rfdg (AMBAC
Insd)....................................................... 5.250 01/01/18 1,538,820
13,500 New York, NY Ser I (MBIA Insd).............................. 5.000 05/15/23 13,528,755
14,000 New York, NY Ser I (MBIA Insd).............................. 5.000 05/15/28 14,029,820
--------------
113,194,289
--------------
NORTH CAROLINA 0.2%
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs (FGIC Insd)... 6.625 06/01/14 1,414,738
2,000 North Carolina Med Care Comm Hosp Rev Alamance Regl Med Cent
Inc (FSA Insd).............................................. 5.000 08/15/16 2,047,620
--------------
3,462,358
--------------
NORTH DAKOTA 0.8%
4,595 Grand Forks, ND Sales Tax Rev Aurora Proj Ser A (MBIA
Insd)....................................................... 5.625 12/15/29 4,939,625
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly Station Rfdg
(AMBAC Insd)................................................ 7.200 06/30/13 6,324,850
--------------
11,264,475
--------------
OHIO 4.4%
5,000 Clermont Cnty, OH Hosp Fac Rev Muni (Inverse Fltg) (AMBAC
Insd)....................................................... 9.596 10/05/21 6,000,000
2,010 Cleveland, OH (Prerefunded @ 11/15/04) (MBIA Insd).......... 6.500 11/15/09 2,330,495
2,285 Cleveland, OH (Prerefunded @ 11/15/04) (MBIA Insd).......... 6.500 11/15/10 2,649,343
9,600 Franklin Cnty, OH Convention Fac Auth Tax Lease Rev Antic
(MBIA Insd)................................................. 5.000 12/01/27 9,668,832
7,500 Hamilton Cnty, OH Hosp Fac Rev Childrens Hosp Med Cent Ser G
(MBIA Insd)................................................. 4.750 05/15/28 7,233,900
10,000 Hamilton Cnty, OH Hosp Fac Rev Childrens Hosp Med Cent Ser G
(MBIA Insd)................................................. 5.000 05/15/23 10,022,000
20,700 Hamilton Cnty, OH Sales Tax Hamilton Cnty Football Proj B
(MBIA Insd)................................................. 5.000 12/01/18 21,015,261
1,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl Cleveland Co
Proj Rfdg (FGIC Insd)....................................... 8.000 12/01/13 1,733,550
2,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl OH Edison Ser A
Rfdg (FGIC Insd)............................................ 7.450 03/01/16 2,668,700
--------------
63,322,081
--------------
OKLAHOMA 0.5%
2,100 Edmond, OK Pub Wks Auth Util Rev Rfdg (MBIA Insd)........... 5.000 07/01/18 2,110,311
1,760 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd)....... 5.250 12/01/20 1,825,208
2,440 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser A (MBIA
Insd)....................................................... 7.200 03/01/11 2,579,983
--------------
6,515,502
--------------
OREGON 0.1%
1,000 Wasco Cnty, OR Vets Home (FSA Insd)......................... 6.200 06/01/13 1,111,840
--------------
PENNSYLVANIA 5.0%
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh Mercy Hlth
Sys Inc (AMBAC Insd)........................................ 5.625 08/15/26 5,368,935
2,985 Butler, PA Area Sch Dist Cap Apprec (Prerefunded @ 11/15/07)
(FGIC Insd)................................................. * 11/15/23 812,010
5,650 Butler, PA Area Sch Dist Cap Apprec (Prerefunded @ 11/15/07)
(FGIC Insd)................................................. * 11/15/26 1,280,912
31,250 Dauphin Cnty, PA Genl Auth Hlth Sys Rev Pinnacle Hlth Sys
Proj Rfdg (MBIA Insd)....................................... 5.500 05/15/27 32,951,875
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco Phoenixville Hosp
Proj Ser B (FGIC Insd)...................................... 6.125% 07/01/10 $ 2,261,580
1,295 Deer Lakes Sch Dist PA Ser A (FSA Insd)..................... 5.250 01/15/17 1,351,501
750 Lehigh Cnty, PA Genl Purp Auth Rev Good Shepherd Rehab Hosp
Rfdg (AMBAC Insd)........................................... 5.250 11/15/27 767,415
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 1,106,820
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl Ser E Rfdg
(MBIA Insd)................................................. 6.700 12/01/21 4,087,200
1,000 New Kensington Arnold, PA Sch Dist (FGIC Insd).............. 5.500 05/15/26 1,057,220
8,365 Northeastern PA Hosp & Edl Auth Wyoming Vly Hlthcare Ser A
(AMBAC Insd)................................................ 5.250 01/01/26 8,540,581
1,000 Pennsylvania St Higher Edl Fac Auth College & Univ Rev Bryn
Mawr College (MBIA Insd).................................... 5.625 12/01/27 1,084,280
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg (FSA Insd)..... 6.375 07/01/14 2,511,653
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev Franciscan Hlth
Saint Mary Ser A (Prerefunded @ 07/01/02) (MBIA Insd)....... 6.500 07/01/22 1,113,690
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev Franciscan Hlth
Sys Ser B (Prerefunded @ 07/01/02) (MBIA Insd).............. 6.500 07/01/12 1,113,690
1,000 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin Pgm Ser H2
(AMBAC Insd)................................................ 7.625 12/01/15 1,071,260
3,750 Southmoreland Sch Dist PA (AMBAC Insd)...................... 5.250 10/01/17 3,909,787
1,000 State Pub Sch Bldg Auth PA Sch Rev Burgettstown Sch Dist Ser
D (Prerefunded @ 02/01/05) (MBIA Insd)...................... 6.500 02/01/14 1,144,960
--------------
71,535,369
--------------
RHODE ISLAND 1.7%
2,000 Rhode Island St Hlth & Edl Bldg Corp Rev Higher Edl Fac
Roger Williams (Prerefunded @ 11/15/04) (Connie Lee Insd)... 7.250 11/15/24 2,396,400
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI Hosp (Inverse
Fltg) (FGIC Insd)........................................... 9.968 08/15/21 21,622,500
--------------
24,018,900
--------------
SOUTH CAROLINA 0.1%
70 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd)............ 6.875 06/01/14 80,098
1,430 Charleston Cnty, SC Ctfs Partn Ser B (Prerefunded @
06/01/04) (MBIA Insd)....................................... 6.875 06/01/14 1,672,986
--------------
1,753,084
--------------
SOUTH DAKOTA 0.8%
5,205 South Dakota St Lease Rev Trust Ctfs Ser A (FSA Insd)....... 6.625 09/01/12 6,373,158
4,000 South Dakota St Lease Rev Trust Ctfs Ser A (FSA Insd)....... 6.700 09/01/17 4,986,480
--------------
11,359,638
--------------
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)....................................................... 9.956 05/25/21 2,370,000
3,320 Johnson City, TN Sch Sales Tax (Prerefunded @ 05/01/06)
(AMBAC Insd)................................................ 6.700 05/01/18 3,916,870
--------------
6,286,870
--------------
TEXAS 5.1%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains Baptist Hosp
(Inverse Fltg) (FSA Insd)................................... 9.088 01/01/22 3,506,250
1,000 Austin, TX Util Sys Rev (Prerefunded @ 05/15/02) (BIGI
Insd)....................................................... 8.625 11/15/12 1,163,910
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA Insd).............. * 11/15/10 7,330,750
2,470 Corpus Christi, TX Hsg Fin Corp Single Family Mtg Rev Ser A
Rfdg (MBIA Insd)............................................ 7.700 07/01/11 2,722,829
6,525 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd)......... * 02/15/07 3,838,201
6,780 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd)......... * 02/15/08 3,696,524
7,705 Dallas Cnty, TX Util & Reclamation Dist (MBIA Insd)......... * 02/15/09 3,882,087
5,000 Dallas, TX Civic Cent Convention Rfdg & Impt (MBIA Insd).... 5.000 08/15/28 5,010,800
5,000 Dallas, TX Rev Spl Tax Ser A (AMBAC Insd) (a)............... 5.000 08/15/20 5,046,550
6,490 El Paso, TX Hsg Fin Corp Mtg Rev Single Family (FGIC
Insd)....................................................... * 11/01/16 987,713
1,250 Harris Cnty, TX Hlth Fac Dev Corp Thermal Util Rev Teco Proj
Ser A (AMBAC Insd).......................................... 7.250 02/15/15 1,329,250
7,000 Harris Cnty, TX Toll Rd Sr Lien Rfdg (MBIA Insd)............ 5.000 08/15/24 7,012,040
4,615 Harris Cnty, TX Toll Rd Tax & Sub Lien Ser A Rfdg (FGIC
Insd)....................................................... * 08/15/07 3,205,164
13,625 Harris Cnty-Houston, TX Sports Auth Spl Rev Ser A (MBIA
Insd)....................................................... 5.000 11/15/28 13,629,632
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 245 Henderson, TX (AMBAC Insd).................................. 9.125% 05/15/04 $ 309,362
2,505 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA Insd)............. * 03/01/15 1,118,032
1,000 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA Insd)............. * 03/01/16 416,790
1,305 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA Insd)............. * 03/01/17 515,579
5,000 North Cent, TX Hlth Fac Dev TX Hlth Res Sys Ser B (MBIA
Insd)....................................................... 5.375 02/15/26 5,193,850
1,000 San Antonio, TX Indpt Sch Dist Pub Fac Corp Lease Rev (AMBAC
Insd)....................................................... 5.850 10/15/10 1,117,610
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev Ser B (FGIC
Insd)....................................................... 5.000 09/01/15 1,766,275
--------------
72,799,198
--------------
UTAH 3.0%
21,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B Rfdg (MBIA
Insd)....................................................... 5.750 07/01/19 23,108,400
2,085 Payson City, UT Cnty UT Elec Pwr Rev (BIGI Insd)............ 8.000 08/15/03 2,150,615
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC Insd)............. 10.375 09/15/15 1,128,772
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Inverse Fltg)
(AMBAC Insd)................................................ 9.768 05/15/20 4,147,500
7,385 Utah St Muni Fin Co-op Local Govt Rev Pool Cap Salt Lake
(FSA Insd).................................................. * 03/01/09 4,716,504
3,115 West Jordan, UT Multi-Family Rev Broadmoor Vlg Apts Proj Ser
A Rfdg (FSA Insd)........................................... 6.800 01/01/15 3,377,813
4,540 West Valley City, UT Muni Bldg Lease Ser A Rfdg (AMBAC Insd)
(a)......................................................... 4.750 04/15/19 4,593,708
--------------
43,223,312
--------------
VIRGINIA 0.6%
2,500 Chesapeake Bay Bridge & Tunnel VA Genl Resolution Rfdg
(AMBAC Insd) (a)............................................ 5.500 07/01/25 2,792,300
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)...................... 6.800 03/01/14 4,543,240
750 University of VA Hosp Rev Ser C Rfdg (Prerefunded @
06/01/00) (AMBAC Insd)...................................... 9.375 06/01/07 826,568
--------------
8,162,108
--------------
WASHINGTON 1.6%
1,250 Franklin Cnty, WA Pub Util Dist No 1 Elec Rev (Prerefunded @
09/01/01) (AMBAC Insd)...................................... 7.100 09/01/08 1,368,138
2,995 Grant Cnty, WA Pub Util Dist No 2 Priest Rapids Hydro Elec
Rev Second Ser C Rfdg (AMBAC Insd).......................... 6.000 01/01/13 3,321,245
2,335 Grant Cnty, WA Pub Util Dist No 2 Priest Rapids Hydro Elec
Rev Second Ser C Rfdg (AMBAC Insd).......................... 6.000 01/01/17 2,587,647
1,315 Grant Cnty, WA Pub Util Dist No 2 Wanapum Hydro Elec Rev
Second Ser C Rfdg (AMBAC Insd).............................. 6.000 01/01/13 1,458,243
1,025 Grant Cnty, WA Pub Util Dist No 2 Wanapum Hydro Elec Rev
Second Ser C Rfdg (AMBAC Insd).............................. 6.000 01/01/17 1,135,905
350 Pierce Cnty, WA Swr Rev Ser A (MBIA Insd)................... 9.000 02/01/05 425,901
1,000 Snohomish Cnty, WA Solid Waste Rev (Prerefunded @ 12/01/01)
(MBIA Insd)................................................. 7.000 12/01/10 1,116,790
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev (AMBAC Insd)...... 6.250 12/01/11 5,489,200
160 University of WA Univ Rev (MBIA Insd)....................... 7.000 12/01/21 176,739
3,090 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev Ser A
Rfdg (AMBAC Insd)........................................... 5.700 07/01/09 3,402,832
3,015 Washington St Pub Pwr Supply Sys Nuclear Proj No 2 Rev Ser C
Rfdg (MBIA Insd)............................................ * 07/01/04 2,383,177
--------------
22,865,817
--------------
WISCONSIN 1.1%
12,490 Wisconsin St Hlth & Edl Fac Auth Rev Aurora Med Group Inc
Proj (FSA Insd)............................................. 5.750 11/15/25 13,450,114
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med College of WI Inc
Proj (MBIA Insd)............................................ 5.500 03/01/17 1,054,730
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med College of WI Inc
Proj (MBIA Insd)............................................ 5.750 03/01/27 1,101,770
--------------
15,606,614
--------------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC Insd)........ 6.700 05/01/12 2,218,400
--------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO 0.2%
$ 3,000 Puerto Rico Indl Tourist Edl Med & Environmental Ctl Fac
Hosp Aux (MBIA Insd)........................................ 6.250% 07/01/16 $ 3,390,900
--------------
TOTAL LONG-TERM INVESTMENTS 97.8%
(Cost $1,257,575,348).................................................................. 1,400,723,524
SHORT-TERM INVESTMENTS 2.1%
(Cost $29,900,000)..................................................................... 29,900,000
--------------
TOTAL INVESTMENTS 99.9%
(Cost $1,287,475,348).................................................................. 1,430,623,524
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%.............................................. 1,960,061
--------------
NET ASSETS 100.0%....................................................................... $1,432,583,585
==============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,287,475,348)..................... $1,430,623,524
Cash........................................................ 15,577
Receivables:
Fund Shares Sold.......................................... 20,472,576
Interest.................................................. 18,122,691
Investments Sold.......................................... 7,470,295
Other....................................................... 26,238
--------------
Total Assets.......................................... 1,476,730,901
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 40,154,755
Income Distributions...................................... 1,820,094
Distributor and Affiliates................................ 619,887
Investment Advisory Fee................................... 574,690
Fund Shares Repurchased................................... 420,946
Accrued Expenses............................................ 391,563
Trustees' Deferred Compensation and Retirement Plans........ 165,381
--------------
Total Liabilities..................................... 44,147,316
--------------
NET ASSETS.................................................. $1,432,583,585
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,274,724,790
Net Unrealized Appreciation................................. 143,148,176
Accumulated Net Realized Gain............................... 15,232,609
Accumulated Distributions in Excess of Net Investment
Income.................................................... (521,990)
--------------
NET ASSETS.................................................. $1,432,583,585
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,353,881,347 and 67,843,044 shares of
beneficial interest issued and outstanding)............. $ 19.96
Maximum sales charge (4.75%* of offering price)......... 1.00
--------------
Maximum offering price to public........................ $ 20.96
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $71,867,314 and 3,601,092 shares of
beneficial interest issued and outstanding)............. $ 19.96
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $6,834,924 and 342,562 shares of
beneficial interest issued and outstanding)............. $ 19.95
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and
the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................... $ 58,756,607 $ 81,024,876
------------ ------------
EXPENSES:
Investment Advisory Fee..................................... 5,135,396 6,799,897
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $2,311,926, $533,506 and $44,183,
respectively, for the nine months ended 9/30/98 and
$2,889,918, $693,713 and $49,687, respectively, for the
year ended 12/31/97)...................................... 2,889,615 3,633,318
Shareholder Services........................................ 920,617 1,437,336
Insurance................................................... 55,985 44,844
Legal....................................................... 54,600 110,242
Trustees' Fees and Expenses................................. 46,939 36,865
Custody..................................................... 40,950 119,050
Other....................................................... 493,029 805,717
------------ ------------
Total Operating Expenses................................ 9,637,131 12,987,269
------------ ------------
Interest Expense........................................ 8,938 -0-
------------ ------------
NET INVESTMENT INCOME....................................... $ 49,110,538 $ 68,037,607
============ ============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 17,320,858 $ 12,503,696
Options................................................... -0- (847,958)
Futures................................................... (2,243,546) (3,130,732)
------------ ------------
Net Realized Gain........................................... 15,077,312 8,525,006
------------ ------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 131,036,118 99,934,215
End of the Period:
Investments............................................. 143,148,176 131,207,289
Futures................................................. -0- (171,171)
------------ ------------
143,148,176 131,036,118
------------ ------------
Net Unrealized Appreciation During the Period............... 12,112,058 31,101,903
------------ ------------
NET REALIZED AND UNREALIZED GAIN............................ $ 27,189,370 $ 39,626,909
============ ============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 76,299,908 $107,664,516
============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998
and the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 49,110,538 $ 68,037,607 $ 70,583,949
Net Realized Gain........................................... 15,077,312 8,525,006 10,645,588
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 12,112,058 31,101,903 (32,868,974)
------------- ------------- -------------
Change in Net Assets from Operations........................ 76,299,908 107,664,516 48,360,563
------------- ------------- -------------
Distributions from Net Investment Income.................... (49,274,568) (67,785,067) (70,583,949)
Distributions in Excess of Net Investment Income............ (521,990) -0- (467,897)
------------- ------------- -------------
Distributions from and in Excess of Net Investment
Income*................................................... (49,796,558) (67,785,067) (71,051,846)
Distributions from Net Realized Gain*....................... (2,401,285) (11,111,608) -0-
------------- ------------- -------------
Total Distributions....................................... (52,197,843) (78,896,675) (71,051,846)
------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 24,102,065 28,767,841 (22,691,283)
------------- ------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 505,859,955 631,717,458 579,040,170
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 35,644,233 54,493,315 48,357,526
Cost of Shares Repurchased.................................. (492,241,941) (716,001,683) (690,249,529)
------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 49,262,247 (29,790,910) (62,851,833)
------------- ------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 73,364,312 (1,023,069) (85,543,116)
NET ASSETS:
Beginning of the Period..................................... 1,359,219,273 1,360,242,342 1,445,785,458
------------- ------------- -------------
End of the Period (Including accumulated undistributed
net investment income of $(521,990), $164,030 and
($88,510), respectively).................................. $1,432,583,585 $1,359,219,273 $1,360,242,342
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares............................................ $(47,397,474) $(64,607,170) $(67,667,425)
Class B Shares............................................ (2,215,435) (2,965,479) (3,178,918)
Class C Shares............................................ (183,649) (212,418) (205,503)
------------ ------------ ------------
$(49,796,558) $(67,785,067) $(71,051,846)
============ ============ ============
Distributions from Net Realized Gain:
Class A Shares............................................ $ (2,262,642) $(10,489,973) $ -0-
Class B Shares............................................ (128,797) (580,452) -0-
Class C Shares............................................ (9,846) (41,183) -0-
------------ ------------ ------------
$ (2,401,285) $(11,111,608) $ -0-
============ ============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended ----------------------------------------------------
Class A Shares September 30, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............ $19.631 $ 19.238 $ 19.549 $ 17.572 $ 19.857 $ 18.721
------- -------- -------- -------- -------- --------
Net Investment Income............................. .710 .974 .980 1.021 1.051 1.107
Net Realized and Unrealized Gain/Loss............. .371 .551 (.304) 1.982 (2.280) 1.145
------- -------- -------- -------- -------- --------
Total from Investment Operations.................... 1.081 1.525 .676 3.003 (1.229) 2.252
------- -------- -------- -------- -------- --------
Less:
Distributions from and in Excess of Net Investment
Income.......................................... .720 .971 .987 1.026 1.056 1.116
Distributions from Net Realized Gain.............. .036 .161 -0- -0- -0- -0-
------- -------- -------- -------- -------- --------
Total Distributions................................. .756 1.132 .987 1.026 1.056 1.116
------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period.................. $19.956 $ 19.631 $ 19.238 $ 19.549 $ 17.572 $ 19.857
======= ======== ======== ======== ======== ========
Total Return (a).................................... 5.61%* 8.19% 3.65% 17.49% (6.31%) 12.32%
Net Assets at End of the Period (In millions)....... $1,353.9 $1,283.5 $1,283.7 $1,365.4 $1,110.2 $1,230.0
Ratio of Expenses to Average Net Assets (b)......... .90% .92% .95% .88% .88% .84%
Ratio of Net Investment Income to Average
Net Assets (b).................................... 4.85% 5.07% 5.11% 5.44% 5.70% 5.69%
Portfolio Turnover.................................. 62%* 82% 92% 70% 48% 79%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
22
<PAGE> 24
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 1, 1993
Year Ended December 31, (Commencement of
Nine Months Ended ------------------------------------- Distribution) to
Class B Shares September 30, 1998 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $ 19.634 $19.240 $19.549 $17.563 $19.824 $ 19.320
-------- ------- ------- ------- ------- --------
Net Investment Income........................ .598 .826 .832 .890 .899 .619
Net Realized and Unrealized Gain/Loss........ .370 .551 (.304) 1.978 (2.276) .513
-------- ------- ------- ------- ------- --------
Total from Investment Operations............... .968 1.377 .528 2.868 (1.377) 1.132
-------- ------- ------- ------- ------- --------
Less:
Distributions from and in Excess of Net
Investment Income.......................... .609 .822 .837 .882 .884 .628
Distributions from Net Realized Gain......... .036 .161 -0- -0- -0- -0-
-------- ------- ------- ------- ------- --------
Total Distributions............................ .645 .983 .837 .882 .884 .628
-------- ------- ------- ------- ------- --------
Net Asset Value, End of the Period............. $ 19.957 $19.634 $19.240 $19.549 $17.563 $ 19.824
======== ======= ======= ======= ======= ========
Total Return (a)............................... 5.07%* 7.36% 2.83% 16.67% (7.03%) 5.92%*
Net Assets at End of the Period (In
millions).................................... $71.9 $70.1 $71.6 $75.3 $30.0 $20.8
Ratio of Expenses to Average Net Assets (b).... 1.66% 1.69% 1.74% 1.67% 1.71% 1.68%
Ratio of Net Investment Income to Average
Net Assets (b)............................... 4.08% 4.29% 4.38% 4.69% 4.88% 4.25%
Portfolio Turnover............................. 62%* 82% 92% 70% 48% 79%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sale charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
23
<PAGE> 25
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended December 31, (Commencement of
Nine Months Ended ------------------------------------- Distribution) to
Class C Shares September 30, 1998 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $19.630 $19.239 $19.548 $17.568 $19.823 $19.650
------- ------- ------- ------- ------- -------
Net Investment Income........................ .594 .822 .830 .883 .908 .350
Net Realized and Unrealized Gain/Loss........ .373 .552 (.302) 1.979 (2.279) .181
------- ------- ------- ------- ------- -------
Total from Investment Operations............... .967 1.374 .528 2.862 (1.371) .531
------- ------- ------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income.......................... .609 .822 .837 .882 .884 .358
Distributions from Net Realized Gain......... .036 .161 -0- -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions............................ .645 .983 .837 .882 .884 .358
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period............. $19.952 $19.630 $19.239 $19.548 $17.568 $19.823
======= ======= ======= ======= ======= =======
Total Return (a)............................... 5.02%* 7.36% 2.83% 16.60% (6.98%) 2.70%*
Net Assets at End of the Period (In
millions).................................... $6.8 $5.6 $4.9 $5.1 $3.5 $5.0
Ratio of Expenses to Average Net Assets (b).... 1.66% 1.69% 1.74% 1.67% 1.70% 1.68%
Ratio of Net Investment Income to Average Net
Assets (b)................................... 4.06% 4.29% 4.37% 4.68% 4.89% 4.21%
Portfolio Turnover............................. 62%* 82% 92% 70% 48% 79%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Insured Tax Free Income Fund (the "Fund") is organized as a series of
Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors with a high level of current income exempt from federal
income taxes, with liquidity and safety of principal, primarily through an
investment in a diversified portfolio of insured municipal securities. The Fund
commenced the distribution of its Class B and Class C shares on May 1, 1993 and
August 13, 1993, respectively. In July, 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from December 31 to September
30. As a result, this financial report reflects the nine-month period commencing
on January 1, 1998, and ending on September 30, 1998.
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral for tax purposes of losses
resulting from wash sales at September 30, 1998.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $1,287,479,675; the aggregate gross unrealized
appreciation is $143,202,817 and the aggregate gross unrealized depreciation is
$58,968, resulting in net unrealized appreciation of $143,143,849.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
For the nine months ended September 30, 1998, 99.9% of the income
distributions made by the Fund were exempt from federal income taxes.
Additionally, during the period the Fund designated and paid $1,034,912 as a 20%
rate gain distribution. In January, 1999, the Fund will provide tax information
to shareholders for the 1998 calendar year.
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
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
% PER
AVERAGE NET ASSETS ANNUM
- -------------------------------------------------------------------------
<S> <C>
First $500 million.......................................... .525 of 1%
Next $500 million........................................... .500 of 1%
Next $500 million........................................... .475 of 1%
Over $1.5 billion........................................... .450 of 1%
</TABLE>
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $29,000 and $52,500,
respectively, representing legal expenses provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $296,500 and $259,600,
respectively, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Fund recognized
expenses of approximately $625,000 and $921,500, respectively. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 September 30, 1998, capital aggregated $1,199,841,126, $68,091,721 and
$6,791,943 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 24,717,457 $ 483,526,778
Class B.................................................. 517,918 10,164,399
Class C.................................................. 621,935 12,168,778
----------- -------------
Total Sales................................................ 25,857,310 $ 505,859,955
=========== =============
Dividend Reinvestment:
Class A.................................................. 1,747,169 $ 34,263,263
Class B.................................................. 63,858 1,252,254
Class C.................................................. 6,563 128,716
----------- -------------
Total Dividend Reinvestment................................ 1,817,590 $ 35,644,233
=========== =============
Repurchases:
Class A.................................................. (24,001,702) $(470,222,851)
Class B.................................................. (552,971) (10,848,637)
Class C.................................................. (570,061) (11,170,453)
----------- -------------
Total Repurchases.......................................... (25,124,734) $(492,241,941)
=========== =============
</TABLE>
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $1,152,273,936, $67,523,705 and
$5,664,902 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 32,247,420 $ 617,534,974
Class B.................................................. 410,394 7,887,393
Class C.................................................. 324,754 6,295,091
----------- -------------
Total Sales................................................ 32,982,568 $ 631,717,458
=========== =============
Dividend Reinvestment:
Class A.................................................. 2,721,901 $ 52,405,367
Class B.................................................. 99,148 1,908,983
Class C.................................................. 9,300 178,965
----------- -------------
Total Dividend Reinvestment................................ 2,830,349 $ 54,493,315
=========== =============
Repurchases:
Class A.................................................. (36,316,268) $(697,389,583)
Class B.................................................. (660,311) (12,665,655)
Class C.................................................. (306,866) (5,946,445)
----------- -------------
Total Repurchases.......................................... (37,283,445) $(716,001,683)
=========== =============
</TABLE>
At December 31, 1996, capital aggregated $1,179,723,178, $70,392,984 and
$5,137,291 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 29,859,557 $ 567,772,788
Class B.................................................. 504,537 9,594,322
Class C.................................................. 88,189 1,673,061
----------- -------------
Total Sales................................................ 30,452,283 $ 579,040,171
=========== =============
Dividend Reinvestment:
Class A.................................................. 2,446,455 $ 46,553,726
Class B.................................................. 86,458 1,644,731
Class C.................................................. 8,358 159,069
----------- -------------
Total Dividend Reinvestment................................ 2,541,271 $ 48,357,526
=========== =============
Repurchases:
Class A.................................................. (35,424,716) $(674,636,862)
Class B.................................................. (718,709) (13,659,358)
Class C.................................................. (101,870) (1,953,309)
----------- -------------
Total Repurchases.......................................... (36,245,295) $(690,249,529)
=========== =============
</TABLE>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Class B and C shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ----------------------------------------------------------------------------------
<S> <C> <C>
First....................................................... 4.00% 1.00%
Second...................................................... 3.75% None
Third....................................................... 3.50% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth....................................................... 1.00% None
Seventh and Thereafter...................................... None None
</TABLE>
For the nine months ended September 30, 1998 and the year ended December
31, 1997, Van Kampen as Distributor for the Fund, received commissions on sales
of the Fund's Class A shares of approximately $98,900 and $260,200, respectively
and CDSC on redeemed shares of approximately $86,900 and $161,700, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments were $837,637,183
and $842,866,230, respectively. For the year ended December 31, 1997, the cost
of purchases and proceeds from sales of investments, excluding short-term
investments were $1,100,209,993 and $1,137,330,157, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as
to attempt to protect the Fund against possible changes in the market value of
its portfolio and to manage the portfolio's effective yield, maturity and
duration. All of the Fund's portfolio holdings, including derivative
instruments, are marked to market each day with the change in value reflected in
the unrealized appreciation/depreciation. Upon disposition, a realized gain or
loss is recognized accordingly, except when exercising a call option contract or
taking delivery of a security underlying a futures contract. In these instances,
the recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
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.
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in options for the year ended December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996............................ -0- $ -0-
Option Written and Purchased (Net).......................... 2,500 (1,492,056)
Options Terminated in Closing Transactions (Net)............ (2,500) 1,492,056
--- -----------
Outstanding at December 31, 1997............................ -0- $ -0-
===== ===========
</TABLE>
There were no transactions in options for the nine months ended September
30, 1998.
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).
Transactions in futures contracts for the year ended December 31, 1997
and the nine months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996............................ 100
Futures Opened.............................................. 23,821
Futures Closed..............................................(23,621)
---
Outstanding at December 31, 1997............................ 300
Futures Opened.............................................. 7,227
Futures Closed.............................................. (7,527)
---
Outstanding at September 30, 1998........................... -0-
=====
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the 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.
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended September 30, 1998 and the year ended December 31,
1997, are payments retained by Van Kampen of approximately $615,800 and
$736,900, respectively.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its net assets. The Fund, in combination with two other
funds in the fund complex, has entered into a $100 million revolving credit
agreement which expires September 27, 1999. The maximum amount available to any
single fund is $75 million. Interest is charged under the agreement at a rate of
.45% above the federal funds rate. An annual facility fee of .06% is charged on
the unused portion of the credit facility.
The average daily balance of bank borrowings for the nine months ended
September 30, 1998 was approximate $199,100 with an average interest rate of
5.99%. At September 30, 1998, the Fund did not have any outstanding borrowings
under the agreement.
8. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
31
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Insured Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Insured Tax Free Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1998, and the related statement of operations
for the nine-month period ended September 30, 1998 and the year ended December
31, 1997, the statement of changes in net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Insured Tax Free Income Fund as of September 30, 1998, the results of its
operations for the nine-month period ended September 30, 1998 and the year ended
December 31, 1997, the changes in its net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 5, 1998
32
<PAGE> 34
VAN KAMPEN INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc. 1998 All rights reserved.
(SM)denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
33
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
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
Report of Independent Accountants................ 34
</TABLE>
TFHI ANR 11/98
<PAGE> 36
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic
and highly unusual times for global
financial markets. However, the United
States has been relatively unscathed by
the turmoil in many overseas markets.
In fact, the U.S. fixed-income markets
benefited as many investors moved
assets from stocks into more
conservative fixed-income investments. [PHOT0]
The volatility also forced yield
spreads to widen between Treasuries and
high-yield securities, corporate bonds, DENNIS J. MCDONNELL AND DON G. POWELL
and mortgage-backed securities.
We expect that volatility will
remain high until the situation
overseas stabilizes. In this
environment, it is important to stay
focused on long-term investment goals. As we explain elsewhere in this letter,
the U.S. economy remains among the healthiest in the world, and Federal Reserve
policymakers have demonstrated an ability to make prudent decisions with regard
to monetary policy. These factors bode well for investors during the months
ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as
fallout from the global financial crisis finally began to hit home. Weak demand
for American goods in Asia and Latin America caused the U.S. trade deficit to
hit a record $56.5 billion during the second quarter, undermining corporate
profits. Weak earnings, in turn, caused job growth to slow and unemployment to
increase modestly from the 28-year low set earlier this year. Manufacturing
activity fell in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent
Continued on page 2
1
<PAGE> 37
for the first time since 1977. Total returns in the U.S. bond market were
uneven, however, as investors displayed a preference for quality amid the raging
global economic storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer
section with your portfolio management team, are provided in this report. As
always, we are pleased to have the opportunity to share with you the progress of
your investment.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 38
PERFORMANCE RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
VAN KAMPEN TAX FREE HIGH INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on NAV(1).................... 6.00% 5.35% 5.35%
Nine-month total return(2)................................. .96% 1.35% 4.35%
One-year total return based on NAV(1)...................... 8.45% 7.59% 7.59%
One-year total return(2)................................... 3.33% 3.59% 6.59%
Five-year average annual total return(2)................... 5.24% 5.19% 5.39%
Ten-year average annual total return(2).................... 6.23% N/A N/A
Life-of-Fund average annual total return(2)................ 7.68% 6.31% 5.92%
Commencement date.......................................... 06/28/85 05/01/93 08/13/93
DISTRIBUTION RATES
Distribution rate(3)....................................... 5.23% 4.78% 4.78%
Taxable equivalent distribution rate(4).................... 8.17% 7.47% 7.47%
SEC Yield(5)............................................... 4.11% 3.55% 3.53%
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1998.
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.
An investment in medium- and lower-grade securities involves the risk of
potentially greater sensitivity to an economic downturn which would affect the
issuer's ability to make timely payment of principal and interest.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from December 31 to September 30. As a result, this financial report
reflects the 9-month transition period commencing on January 1, 1998 and ending
on September 30, 1998.
3
<PAGE> 39
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time. The index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Tax Free High Income Fund vs. the Lehman Brothers Municipal Bond
Index (September 30, 1988 through September 30, 1998)
Investment Performance Chart
<TABLE>
<CAPTION>
Measurement Period Van Kampen Tax Free High Lehman Brothers Municipal
(Fiscal Year Covered) Income Fund Bond Index
September 30,
<S> <C> <C>
1988 9527.00 10000.00
9657.00 10176.00
9645.00 10082.40
9804.00 10185.20
9850.00 10396.10
9801.00 10277.50
9856.00 10252.90
9955.00 10495.90
10160.00 10714.20
10379.00 10859.90
10460.00 11007.60
10492.00 10899.70
1989 10498.00 10867.00
10594.00 10999.60
10684.00 11192.10
10755.00 11283.90
10791.00 11230.80
10821.00 11330.80
10851.00 11334.20
10807.00 11252.60
10885.00 11497.90
10922.00 11599.10
11001.00 11769.60
10942.00 11598.90
1990 11008.00 11605.90
10998.00 11815.90
11071.00 12053.40
11103.00 12106.50
11156.00 12268.70
11224.00 12375.40
11235.00 12380.40
11315.00 12545.00
11380.00 12656.70
11424.00 12644.00
11528.00 12798.30
11654.00 12967.20
1991 11789.00 13135.80
11842.00 13254.00
11910.00 13291.10
12047.00 13576.90
12093.00 13608.10
12070.00 13612.20
12000.00 13617.70
12047.00 13738.90
12158.00 13901.00
12205.00 14134.50
12269.00 14558.50
12088.00 14415.90
1992 12060.00 14509.60
11869.00 14367.40
12004.00 14624.60
12057.00 14773.70
12128.00 14945.10
12216.00 15486.10
12371.00 15322.00
12494.00 15476.70
12617.00 15563.40
12827.00 15823.30
12974.00 15843.90
13373.00 16173.40
1993 13495.00 16357.80
13574.00 16388.90
13636.00 16244.60
13965.00 16587.40
14112.00 16776.50
13829.00 16342.00
13184.00 15676.90
13243.00 15810.10
13329.00 15947.70
13279.00 15850.40
13478.00 16140.50
13557.00 16197.00
1994 13459.00 15958.90
13247.00 15674.80
12977.00 15391.10
13277.00 15729.70
13622.00 16179.50
13950.00 16650.40
14086.00 16841.90
14076.00 16862.10
14380.00 17400.00
14311.00 17248.60
14430.00 17412.40
14589.00 17633.60
1995 14689.00 17744.70
14901.00 18002.00
15174.00 18300.80
15337.00 18476.50
15389.00 18616.90
15244.00 18490.30
15037.00 18253.60
14975.00 18202.50
15059.00 18195.30
15175.00 18393.60
15270.00 18561.00
15280.00 18557.20
1996 15473.00 18817.00
15645.00 19029.70
15851.00 19377.90
15829.00 19296.50
15846.00 19333.20
15974.00 19511.10
15903.00 19251.60
16010.00 19413.30
16173.00 19704.50
16337.00 19915.30
16795.00 20467.00
16685.00 20274.60
1997 16871.00 20515.90
17012.00 20647.20
17027.00 20769.00
17262.00 21072.20
17417.00 21289.20
17467.00 21295.60
17513.00 21314.80
17441.00 21218.90
17665.00 21554.10
17759.00 21638.20
17818.00 21692.30
18093.00 22028.50
1998 18297.00 22303.90
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 40
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because
it is assumed that the issuer will redeem the bond at its call date, rather
than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways
and schools.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
5
<PAGE> 41
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
6
<PAGE> 42
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN TAX FREE HIGH INCOME FUND
We recently spoke with the management team of the Van Kampen Tax Free High
Income Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes David C. Johnson, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE CONDITIONS IN THE BOND MARKET DURING THE
PAST NINE MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent.
At the end of the reporting period, the yield on AAA-rated 30-year general
obligation municipal bonds was just slightly less than the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A We continued to pursue a portfolio structure that concentrates assets at
both ends of the quality spectrum. We allocated a significant portion of
the Fund's assets to higher-yielding, lower-rated securities to support
the Fund's income potential. As a result, about 46 percent of the Fund's
long-term investments were either nonrated or noninvestment grade (rated below
BBB/Baa). With the remainder of the Fund's assets, we focused on higher-rated
issues to help provide a degree of stability and total return, with over 34
percent of the Fund's long-term investments rated AAA or AA.
We maintained broad diversification among industry sectors--we believe this
strategy is critical for a fund that invests a large portion of its assets in
lower-rated securities. Although we may invest up to 25 percent of the Fund's
assets in one industry, we currently have just 15 percent in our top
sector--industrial revenue, which includes airplane and airport bonds. Our
second-largest weighting is in health care. The industrial revenue and health
care sectors don't offer a large number of insured bonds, so our credit research
and analysis are especially critical in selecting securities from these
industries. We constantly look for opportunities to use Van Kampen's extensive
resources in our credit research. For additional Fund portfolio highlights,
please refer to page 9.
Q WHAT KIND OF SECURITIES DID YOU PURCHASE?
A We purchased some noncallable bonds and long-call bonds to help protect
the Fund's dividend in the event of continued low interest rates. These
bonds yield slightly less than callable bonds, but we feel the small
sacrifice in yield is worthwhile. When interest rates are low, bond issuers
often call their bonds, because they can save money by issuing new bonds at
lower rates. If a bond in the portfolio is called, we must use those assets to
purchase new securities at prevailing interest rates. We were faced with this
situation during the reporting period, when a number of bonds we purchased ten
years ago were called by the issuers. Losing some of our higher-yielding bonds
and having to replace them with lower-yielding bonds can put pressure on the
Fund's dividend. By purchasing noncallable bonds, however, we might help protect
the Fund's future dividend.
7
<PAGE> 43
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A As of September 30, year-to-date total return was 6.00 percent(1) (Class A
shares at net asset value). By comparison, the Lehman Brothers Municipal
Bond Index produced a total return of 5.84 percent for the same period.
This broad-based index of municipal bonds does not include any commissions or
sales charges that would be paid by an investor purchasing the securities or
investments it represents.
The Fund's tax-exempt distribution rate for Class A shares was 5.23
percent,(3) based on a monthly dividend of $0.0690 and a maximum public offering
price of $15.83. For investors in the 36 percent federal income tax bracket, the
Fund's taxable-equivalent distribution rate was 8.17 percent.(4) Please refer to
the chart on page 3 for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE BOND MARKETS AND FOR THE FUND?
Q The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a supportive
environment for bonds. (Editor's note: After the reporting period ended,
the Fed reduced interest rates again by 0.25 percent.) The supply of municipal
bond issues looks like it will remain heavy, as low interest rates spark further
refunding of outstanding bond issues and bring new municipal bonds into the
marketplace. As more investors recognize the value available in the municipal
market, demand is likely to increase and municipal bonds could see favorable
returns in coming months.
With municipal bonds trading at attractive levels relative to Treasuries,
the Fund offers value across a variety of industry sectors in the municipal
market. A continuation of low interest rates, however, could make the Fund's
higher-yielding bonds vulnerable to calls, thereby pressuring the Fund's
dividend. To help protect the Fund, we will seek to purchase bonds with
attractive call features, while balancing these higher-rated issues with
higher-yielding securities. In addition, we will look to purchase discount
bonds, which have the potential to appreciate faster than par or premium bonds
during periods of falling interest rates.
[SIG]
David C. Johnson
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 44
PORTFOLIO HIGHLIGHTS
VAN KAMPEN TAX FREE HIGH INCOME FUND
TOP TEN STATES AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Florida .................................................... 11.2%
Illinois ................................................... 8.9%
Pennsylvania ............................................... 7.3%
California ................................................. 6.4%
Texas ...................................................... 6.3%
Colorado ................................................... 6.3%
New York ................................................... 5.6%
Georgia .................................................... 5.2%
Michigan ................................................... 4.6%
Ohio ....................................................... 4.5%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA......... 31.0% AAA......... 28.9%
AA.......... 3.8% AA.......... 3.8%
A........... 6.6% [PIE CHART] A........... 2.9% [PIE CHART]
BBB......... 12.8% BBB......... 21.3%
BB.......... 3.0% BB.......... 2.6%
NON-RATED... 42.8% NON-RATED... 40.5%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Industrial Revenue ................... 15.3% Industrial Revenue ................... 17.5%
Health Care .......................... 14.8% Health Care .......................... 16.5%
Multi-Family Housing ................. 10.5% Other Care ........................... 9.5%
Other Care ........................... 10.0% Multi-Family Housing ................. 9.0%
General Purpose ...................... 9.6% General Purpose ...................... 7.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration.. 7.80 years 7.47 years
</TABLE>
(1)Unaudited
9
<PAGE> 45
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 100.1%
ALABAMA 0.7%
$ 250 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy
Svcs Co Proj Rfdg........................................... 6.950% 01/01/20 $ 130,000
2,150 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem Hosp Ser
A........................................................... 5.650 11/01/22 2,186,216
1,395 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem Hosp Ser
A........................................................... 5.600 11/01/16 1,430,255
1,000 West Jefferson Cnty, AL Amusement & Pub Park Auth........... 7.500 12/01/08 1,078,300
3,000 West Jefferson Cnty, AL Amusement & Pub Park Auth........... 8.000 12/01/26 3,245,910
--------------
8,070,681
--------------
ALASKA 0.2%
2,250 Seward, AK Rev AK Sealife Cent Proj......................... 7.650 10/01/16 2,442,330
--------------
ARIZONA 1.9%
6,250 Chandler, AZ Indl Dev Auth Rev Chandler Finl Cent Proj Ser
1986 (c) (g)................................................ 7.125 12/01/16 5,312,329
4,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family Hsg Rev........ 6.625 07/01/33 4,061,280
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr Living Fac Rev........... 7.750 04/01/15 2,834,683
2,700 Maricopa Cnty, AZ Uni Sch Dist No 41 Gilbert Rfdg (FGIC
Insd)....................................................... * 01/01/08 1,829,655
2,160 Pima Cnty, AZ Indl Dev Auth Multi-Family Rev................ 6.625 10/01/28 2,206,634
2,420 Pima Cnty, AZ Indl Dev Auth Sr Living Facs Catilina Vlg Ser
A Rev....................................................... 6.500 07/01/29 2,460,463
580 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A.................. 11.000 07/01/00 629,822
2,000 Red Hawk Canyon Cmnty Facs Dist No 2 AZ Dist Assmt Rev...... 6.500 12/01/12 2,030,340
--------------
21,365,206
--------------
CALIFORNIA 6.4%
2,000 Abag Fin Auth For Nonprofit Corps CA Ctfs Partn............. 6.375 11/15/28 2,016,620
33,150 Anaheim, CA Pub Fin Auth Lease Cap Apprec Sub Pub Impts Proj
Ser C (FSA Insd)............................................ * 09/01/36 5,030,181
12,800 Anaheim, CA Pub Fing Auth Lease Cap Apprec Sub Pub Impts
Proj Ser C (FSA Insd)....................................... * 09/01/29 2,757,504
11,280 Anaheim, CA Pub Fing Auth Lease Cap Apprec Sub Pub Impts
Proj Ser C (FSA Insd)....................................... * 09/01/30 2,308,113
16,080 Anaheim, CA Pub Fing Auth Lease Cap Apprec Sub Pub Impts
Proj Ser C (FSA Insd)....................................... * 03/01/37 2,380,001
1,310 California Edl Fac Auth Rev Univ of La Verne................ 6.375 04/01/13 1,409,128
1,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist Spl Tax
(Prerefunded @ 09/01/17).................................... 7.100 09/01/21 1,241,310
1,500 Colton, CA Pub Fin Auth Rev Elec Sys Impts (Prerefunded @
10/01/03)................................................... 7.500 10/01/20 1,767,630
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA
Insd)....................................................... * 09/01/17 2,041,900
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser C.............. 8.375 07/01/11 2,862,300
2,000 Culver City, CA Redev Fin Auth Rev Tax Alloc Rfdg (AMBAC
Insd) (b)................................................... 5.500 11/01/14 2,233,220
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the
Arts (AMBAC Insd)........................................... * 09/01/15 1,316,735
3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA Cent for the
Arts (AMBAC Insd)........................................... * 09/01/18 1,074,972
990 Indio, CA Pub Fin Auth Rev Tax Increment.................... 6.500 08/15/27 1,044,965
1,450 Irwindale, CA Pub Fin Auth Spl Cmnty Facs Dist No 1 Rfdg.... 6.000 11/01/20 1,488,178
2,000 Lake Elsinore, CA Pub Fin Auth Local Agy Rev................ 7.100 09/01/20 2,182,740
1,500 Millbrae, CA Residential Fac Rev Magnolia of Millbrae Proj
Ser A....................................................... 7.375 09/01/27 1,602,465
6,350 Riverside Cnty, CA Air Force Vlg West Inc Ser A Rfdg (b).... 8.125 06/15/20 7,057,390
5,500 Riverside Cnty, CA Asset Leasing Corp Leasehold Rev (MBIA
Insd)....................................................... * 06/01/22 1,695,100
8,255 Riverside Cnty, CA Asset Leasing Corp Leasehold Rev (MBIA
Insd)....................................................... * 06/01/26 2,068,455
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC Insd) (b).............. 5.500 08/15/10 2,227,980
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC Insd).................. 5.500 08/15/11 2,107,024
7,625 San Francisco, CA City & Cnty Redev Agy Lease Rev Gains
(Crossover Rfdg @ 07/01/04) (h)............................. 0/8.500 07/01/14 6,947,519
3,300 San Francisco, CA City & Cnty Redev Fin Auth Tax Alloc
Rev......................................................... 5.250 08/01/21 3,347,982
1,000 San Luis Obispo, CA Ctfs Partn Vista Hosp Sys Inc........... 8.375 07/01/29 1,121,710
3,000 Santa Ana, CA Cmnty Redev Agy Tax Alloc Ser B Rfdg.......... 7.500 09/01/16 3,117,540
1,500 Simi Valley, CA Cmnty Dev Agy Coml Sycamore Plaza II Rfdg... 6.000 09/01/12 1,524,000
</TABLE>
See Notes to Financial Statements
10
<PAGE> 46
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,000 Ventura, CA Port Dist Ctfs Partn............................ 6.375% 08/01/28 $ 2,036,400
3,000 Westminster, CA Redev Agy Tax Alloc Rev Coml Redev Proj No 1
(Prerefunded @ 08/01/02).................................... 6.200 08/01/23 3,343,410
--------------
71,352,472
--------------
COLORADO 6.3%
11,920 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy (Prerefunded @
08/31/05)................................................... * 08/31/10 6,432,270
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser
C (Prerefunded @ 08/31/05).................................. * 08/31/26 2,993,830
66 Arapahoe Cnty, CO Centennial Downs Metro Dist Cash Payment
Deficiency Bond (g)......................................... 8.090 12/01/34 66,488
378 Arapahoe Cnty, CO Centennial Downs Metro Dist Int Ctf (e)
(g)......................................................... 5.700 12/01/34 302,184
650 Arapahoe Cnty, CO Centennial Downs Metro Dist Ltd Tax Bond
Ser 1993 Rfdg (g)........................................... 8.090 12/01/34 652,528
1,000 Bowles Metro Dist CO........................................ 7.750 12/01/15 1,067,380
2,000 Colorado Hlth Fac Auth Rev Baptist Home Assn Ser A.......... 6.375 08/15/24 2,131,520
1,590 Colorado Hlth Fac Auth Rev Christian Living Campus Proj..... 6.850 01/01/15 1,734,213
1,060 Colorado Hlth Fac Auth Rev Christian Living Campus Proj..... 7.050 01/01/19 1,166,329
6,200 Colorado Hlth Fac Auth Rev Christian Living Campus Proj
(b)......................................................... 9.000 01/01/25 7,415,200
6,310 Colorado Hlth Fac Auth Rev Christian Living Campus Proj
(Prerefunded @ 01/01/99) (b)................................ 10.500 01/01/19 6,610,608
1,000 Denver, CO City & Cnty Arpt Rev Ser A (b)................... 6.900 11/15/98 1,003,940
1,175 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.400 11/15/98 1,181,768
2,205 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.875 11/15/12 2,540,733
865 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @
11/15/00)................................................... 8.500 11/15/23 966,335
795 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @
11/15/01)................................................... 8.875 11/15/12 929,745
2,500 Denver, CO City & Cnty Arpt Rev Ser D....................... 7.750 11/15/13 3,215,825
795 East River Regl Santn Dist CO Var Rfdg (Var Rate Cpn) (g)... 4.000 12/01/97 568,544
5,715 Greeley, CO Multi-Family Rev Hsg Mtg Creek Stone (FHA
Gtd)........................................................ 6.050 07/01/37 5,967,374
2,616 Gunnison Cnty, CO Indl Rev Bond Crested Butte Mtn Resort
Inc......................................................... 9.250 10/01/07 2,670,858
4,163 Himalaya Wtr & Santn Dist Adams Cnty, CO Genl Oblig Ltd Tax
Bond Ser 1995 (d) (g)....................................... 9.500 12/01/24 2,997,241
2,130 Lafayette, CO Indl Dev Rev Rocky Medium Term Note Instr Proj
A........................................................... 7.000 10/01/18 2,137,881
2,000 Northern Metro Dist CO Adams Cnty Rfdg...................... 6.500 12/01/16 2,172,900
4,605 Skyland Metro Dist CO Gunnison Cnty Rfdg (Var Rate Cpn)
(g)......................................................... 4.000 12/01/97 3,295,052
13,868 Tower Metro Dist Adams Cnty, CO Genl Oblig Ltd Tax Bond Ser
1995 (d) (g)................................................ 9.500 12/01/24 9,985,000
--------------
70,205,746
--------------
CONNECTICUT 2.1%
3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing Home Pgm
AHF/Windsor Proj (b)........................................ 7.125 11/01/24 4,370,115
2,980 Mashantucket Western Pequot Tribe CT Spl Rev Ser A, 144A
(Prerefunded @ 09/01/07) (f)................................ 6.400 09/01/11 3,533,130
12,000 Mashantucket Western Pequot Tribe CT Spl Rev Ser B, 144A
(f)......................................................... 5.750 09/01/27 12,630,960
3,020 Mashantucket Western Pequot Tribe CT Spl Rev Ser B, 144A
(f)......................................................... 6.400 09/01/11 3,349,980
--------------
23,884,185
--------------
DISTRICT OF COLUMBIA 0.4%
2,000 Dist of Columbia Ser E (FSA Insd) (b)....................... 6.000 06/01/11 2,198,800
1,615 District of Columbia A-1 Rfdg (MBIA Insd)................... 6.500 06/01/10 1,914,518
85 District of Columbia Prerefunded A-1 Rfdg (MBIA Insd)....... 6.500 06/01/10 102,229
--------------
4,215,547
--------------
FLORIDA 11.2%
2,700 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC Insd) (b)........ 5.100 07/01/07 2,920,455
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg
(MBIA Insd) (b)............................................. * 02/01/18 9,740,920
4,780 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Cent (g)
(b)......................................................... 10.250 07/01/11 4,541,000
2,010 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev Cent Ser A
(g)......................................................... 10.250 07/01/11 2,010,000
1,135 Fishhawk Cmnty, FL Dev Dist Spl Assmt Rev................... 7.625 05/01/18 1,235,947
3,000 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apts Ser C......... 6.610 07/01/38 3,058,560
4,000 Florida Hsg Fin Corp Rev Hsg Cypress Trace Apts Ser G....... 6.600 07/01/38 4,074,800
4,000 Florida Hsg Fin Corp Rev Hsg Westchase Apts Ser B........... 6.610 07/01/38 4,078,080
</TABLE>
See Notes to Financial Statements
11
<PAGE> 47
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,000 Heritage Harbor Cmnty Dev Dist Spl Assmt Ser A.............. 6.700% 05/01/19 $ 1,027,300
1,300 Heritage Harbor Cmnty Dev Dist FL Rev Rectl................. 7.750 05/01/19 1,320,475
5,000 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj Rfdg.......... 5.750 04/01/18 5,222,400
980 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt Rev......... 7.875 05/01/17 1,058,351
3,000 Leon Cnty, FL Edl Facs Auth Rev Southgate Residence Hall Ser
A Rfdg...................................................... 6.750 09/01/28 3,072,960
28,500 Miami Dade Cnty, FL Sch Brd Ctfs Partn Ser B (AMBAC Insd)... 4.875 08/01/27 28,215,000
5,500 Miramar, FL Wastewater Impt Assmt Rev (FGIC Insd) (b)....... 6.750 10/01/25 6,402,605
3,760 Monroe Cnty, FL Indl Dev Auth First Mtg Med Fac Rev Kennedy
Dr Invt Ltd Proj Rfdg (g)................................... 11.000 11/01/12 3,759,323
1,250 North Springs, FL Impt Dist Spl Assmt Rev................... 6.250 05/01/05 1,289,450
2,425 Northern Palm Beach Cnty Impt Dist FL Wtr Ctl & Impt Unit
Dev 5A Rfdg................................................. 6.000 08/01/10 2,494,161
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr......................................................... 8.750 07/01/26 1,790,850
1,300 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr Rfdg.................................................... 8.625 07/01/20 1,544,777
2,395 Pinellas Cnty, FL Edl Fac Auth Rev College Harbor Proj Ser
A........................................................... 8.250 12/01/21 2,663,743
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac Sunnyside Prty
(b)......................................................... 6.700 07/01/25 6,408,780
5,175 Seminole Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA Insd)...... 4.875 07/01/15 5,252,573
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt Ser A (d)
(g)......................................................... 10.000 12/15/11 6,426,000
10,000 Sunrise, FL Utility Sys Rev Rfdg (AMBAC Insd)............... 5.000 10/01/28 10,300,900
880 Tampa Palms, FL Open Space & Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj............................................ 8.500 05/01/17 978,965
1,870 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg....... 7.500 11/01/16 2,087,294
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj Rfdg....... 7.625 11/01/26 2,247,620
--------------
125,223,289
--------------
GEORGIA 5.2%
1,000 Atlanta, GA Urban Residential Fin Auth Multi-family Rev..... 6.750 07/01/30 1,022,670
19,000 Class A Ctfs relating to Atlanta, GA Urban Residential Fin
Auth Multi-Family Hsg Renaissance on Peachtree Apts Proj Ser
85 (g)...................................................... 8.500 04/01/26 21,712,820
4,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg Rev............... 6.500 02/01/28 4,076,680
32,000 Georgia Local Govt Ctfs Partn Grantor Trust Ser A (MBIA
Insd)....................................................... 4.750 06/01/28 31,606,400
--------------
58,418,570
--------------
IDAHO 1.3%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg (Inverse Fltg)
(b)......................................................... 8.450 02/15/21 9,933,840
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev Envirosafe
Services of ID Inc.......................................... 8.250 11/01/02 4,570,599
--------------
14,504,439
--------------
ILLINOIS 8.9%
1,850 Bridgeview, IL Tax Increment Rev Rfdg....................... 9.000 01/01/11 2,160,985
7,560 Chicago, IL O'Hare Intl Arpt Spl Fac Rev (b)................ 6.450 05/01/18 8,083,303
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev American Airls Inc
Proj Ser A (b).............................................. 7.875 11/01/25 3,250,830
23,470 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc
Proj Ser 84A (b)............................................ 8.850 05/01/18 26,141,355
2,625 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc
Ser B (b)................................................... 8.950 05/01/18 2,924,486
3,875 Chicago, IL Rev Chatham Ridge Tax Increment................. 10.250 01/01/07 4,006,905
1,000 Chicago, IL Tax Increment................................... 7.250 01/01/14 1,095,120
300 Crestwood, IL Tax Increment Rev Bank Qualified Rfdg......... 6.000 12/01/99 306,738
1,015 Du Page Cnty, IL Sch Dist Cap Apprec (FGIC Insd)............ * 02/01/14 494,823
1,000 Du Page Cnty, IL Sch Dist Cap Apprec (FGIC Insd)............ * 02/01/18 392,170
2,000 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A.... 8.500 12/01/15 2,357,620
3,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co Proj Ser A
Rfdg (MBIA Insd)............................................ 5.400 03/01/28 3,068,550
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj..... 8.000 11/15/16 1,580,709
7,100 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj Rfdg
(Prerefunded @ 08/01/04) (b)................................ 7.000 08/01/24 8,182,963
1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries Proj......... 7.500 08/15/26 1,112,850
3,730 Illinois Edl Fac Auth Rev Trinity Med Cent (FSA Insd)....... 6.000 07/01/28 4,100,128
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group Ser A
Rfdg........................................................ 7.400 08/15/23 3,377,640
</TABLE>
See Notes to Financial Statements
12
<PAGE> 48
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 4,550 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (b)...... 9.500% 11/15/15 $ 5,182,723
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig Group Ser B
(Prerefunded @ 02/15/05).................................... 8.000 02/15/25 1,225,900
4,905 Illinois Hlth Fac Auth Rev Midwest Physician Group Ltd Proj
(Prerefunded @ 11/15/04) (b)................................ 8.100 11/15/14 6,072,145
1,135 Mill Creek Wtr Reclamation Dist IL Sewage Rev............... 8.000 03/01/10 1,315,624
685 Mill Creek Wtr Reclamation Dist IL Wtrwks Rev............... 8.000 03/01/10 794,011
1,500 Palatine, IL Tax Increment Rev Rand/Dundee Cent Proj........ 7.750 01/01/17 1,833,210
1,800 Peoria, IL Spl Tax Weaver Ridge Spl Svc Area................ 8.050 02/01/17 2,010,744
2,095 Regional Tran Auth IL Ser B (AMBAC Insd).................... 8.000 06/01/17 2,949,467
7,000 Robbins, IL Res Recovery Rev................................ 8.375 10/15/16 5,600,000
--------------
99,620,999
--------------
INDIANA 0.7%
825 Crawfordsville, IN Redev Comm Redev Dist Tax Increment
Rev......................................................... 7.000 02/01/12 862,867
2,000 East Chicago, IN Exempt Fac Inland Steel Co Proj No 14...... 6.700 11/01/12 2,193,800
3,190 Kokomo, IN School Bldg Corp First Mtg (AMBAC Insd).......... 4.125 07/15/17 2,941,946
1,500 Marion Cnty, IN Convention & Recnl Facs Auth Excise Tax Rev
(MBIA Insd)................................................. 5.000 06/01/27 1,498,755
--------------
7,497,368
--------------
IOWA 0.1%
1,500 Cedar Rapids, IA Rev First Mtg Cottage Grove................ 5.875 07/01/28 1,508,700
--------------
KANSAS 0.2%
760 Kansas City, KS Crawford Cnty Leavenworth Single Family Mtg
Rev (AMBAC Insd) (b)........................................ * 04/01/16 118,492
1,000 Lawrence, KS Coml Dev Rev Holiday Inn Sr Ser A.............. 8.000 07/01/16 1,123,740
1,000 Manhattan, KS Coml Dev Rev Holiday Inn Sr Ser A Rfdg........ 8.000 07/01/16 1,123,740
--------------
2,365,972
--------------
KENTUCKY 0.3%
2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj (Inverse
Fltg) (MBIA Insd) (b)....................................... 8.566 10/09/08 3,236,625
--------------
LOUISIANA 0.7%
4,000 Louisiana Hsg Fin Agy Rev Multi-Family Hsg Plantation Ser
A........................................................... 7.125 01/01/28 4,041,000
1,910 Louisiana Pub Fac Auth Rev Student Ln SubSer A3 (b)......... 7.000 09/01/06 2,035,315
1,435 Webster Parish, LA Pollutn Ctl Rev Intl Paper Co Proj Ser B
Rfdg........................................................ 5.200 03/01/13 1,508,702
--------------
7,585,017
--------------
MAINE 0.1%
1,225 Maine Hlth & Higher Edl Facs Auth Rev Ser B (Prerefunded @
07/01/04) (FSA Insd)........................................ 7.000 07/01/24 1,441,653
25 Maine Hlth & Higher Edl Facs Auth Rev Ser B (FSA Insd)...... 7.000 07/01/24 28,943
--------------
1,470,596
--------------
MARYLAND 0.9%
1,440 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Multi-Family Hsg Rev Ser A Rfdg............................. 8.300 05/15/17 1,459,872
1,725 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev Rev Single
Family Pgm Seventh Ser (b).................................. 7.300 04/01/25 1,866,364
3,000 Montgomery Cnty, MD Econ Dev Editorial Projs In Edl Ser A... 6.540 09/01/28 3,017,430
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt Woodview Ser
A........................................................... 8.000 07/01/26 3,261,870
--------------
9,605,536
--------------
MASSACHUSETTS 2.8%
7,000 Massachusetts St Hlth & Edl Fac Auth Rev New England Med
Cent Hosp Ser G (Embedded Swap) (MBIA Insd) (h)............. 3.1/5.0 07/01/13 6,971,790
1,670 Massachusetts St Hlth & Edl Fac Auth Rev Saint Anne's Hosp
Ser A....................................................... 9.375 07/01/14 1,676,212
2,099 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental Ser A Rfdg
(AMBAC Insd)................................................ 6.650 07/01/19 2,284,904
2,965 Massachusetts St Indl Fin Agy Greater Lynn Mental Hlth...... 6.375 06/01/18 3,022,136
1,360 Massachusetts St Indl Fin Agy Greater Lynn Mental Hlth...... 6.200 06/01/08 1,383,188
1,650 Massachusetts St Indl Fin Agy Rev Wentworth Inst
Technology.................................................. 5.750 10/01/28 1,731,031
4,000 Massachusetts St Indl Fin Agy Rev Cent For Autism........... 9.500 11/01/17 4,334,880
575 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent... 8.000 12/01/06 659,744
1,085 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent... 8.375 12/01/13 1,286,333
</TABLE>
See Notes to Financial Statements
13
<PAGE> 49
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 675 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty Hlth Cent... 8.500% 12/01/20 $ 803,662
6,400 Massachusetts St Indl Fin Agy Rev Swr Fac Res Ctl Composting
(g)......................................................... 9.250 06/01/10 6,655,296
--------------
30,809,176
--------------
MICHIGAN 4.6%
2,000 Battle Creek, MI Downtown Dev Auth Tax Increment Rev
(Prerefunded @ 05/01/04).................................... 7.600 05/01/16 2,392,000
2,000 Brandon Sch Dist, MI Rfdg (AMBAC Insd)...................... 5.000 05/01/22 2,003,680
6,000 Detroit, MI Downtown Dev Auth Dev Area No. 1 Projs A Rfdg
(MBIA Insd)................................................. 4.750 07/01/18 5,845,740
1,000 Detroit, MI Local Dev Fin Auth Ser C........................ 6.850 05/01/21 1,048,960
5,000 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC Insd)............. 5.000 07/01/23 5,007,600
2,000 Grosse Ile Twp, MI Sch Dist Rfdg (FGIC Insd)................ 5.000 05/01/22 2,003,680
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham
Hills Ser A................................................. 7.500 07/01/13 2,634,856
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev First Mtg Burcham
Hills Ser A................................................. 7.750 07/01/19 3,822,563
3,250 Michigan St Hosp Fin Auth Rev Detroit Med Cent Oblig Ser
A........................................................... 5.250 08/15/28 3,247,367
3,000 Michigan St Hosp Fin Auth Rev Detroit Med Cent Oblig Ser
A........................................................... 5.250 08/15/23 3,001,050
2,250 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl Med Rfdg
(ACA Insd).................................................. 5.500 10/01/18 2,306,970
9,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl Med Rfdg
(ACA Insd).................................................. 5.500 10/01/27 9,197,550
7,682 Michigan St Strategic Fd Ltd Oblig Rev Great Lakes Pulp &
Fiber Proj (e).............................................. 8.000 12/01/27 6,939,407
1,000 Michigan St Strategic Fd Res Recovery Ltd Oblig Rev Central
Wayne Energy Rec Ser A...................................... 7.000 07/01/27 1,018,370
615 Saint Clair Cnty, MI Econ Dev Corp Kmart Proj............... 9.500 02/01/06 622,331
--------------
51,092,124
--------------
MINNESOTA 1.5%
1,425 Columbia Heights, MN Multi-Family Crest View Corp Proj...... 6.000 03/01/33 1,452,631
5,490 Eden Prairie, MN Multi-Family Hsg Rev Sterling Ponds Proj
Ser A (g) (b)............................................... 10.000 01/15/20 5,710,259
495 Eden Prairie, MN Multi-Family Hsg Rev Sterling Ponds Proj
Ser B Cap Apprec (g)........................................ * 01/15/20 767,250
850 Little Canada, MN Fac Rev Hsg Alt Dev Co Proj Ser A......... 6.100 12/01/17 867,246
1,450 Little Canada, MN Fac Rev Hsg Alt Dev Co Proj Ser A......... 6.250 12/01/27 1,479,232
6,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A Rfdg (MBIA
Insd)....................................................... 4.750 01/01/16 6,000,720
--------------
16,277,338
--------------
MISSISSIPPI 0.1%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res Inc
Rfdg........................................................ 7.300 05/01/25 1,053,840
--------------
MISSOURI 0.7%
615 Ferguson, MO Tax Increment Rev Crossings At Halls Ferry
Proj........................................................ 7.250 04/01/07 630,178
3,095 Ferguson, MO Tax Increment Rev Crossings At Halls Ferry
Proj........................................................ 7.625 04/01/17 3,198,837
675 Ferguson, MO Tax Increment Rev Crossings At Halls Ferry
Proj........................................................ 7.625 04/01/18 697,646
955 Jefferson Cnty, MO Indl Dev Auth Indl Rev Cedars Hlthcare
Cent Proj Ser A Rfdg........................................ 8.250 12/01/15 1,080,621
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd) (b).................. 6.000 06/01/15 1,163,580
1,000 West Plains, MO Indl Dev Auth Hosp Rev Ozark Med Cent....... 5.600 11/15/17 1,024,480
--------------
7,795,342
--------------
NEBRASKA 0.4%
1,900 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 9.862 10/17/23 2,362,500
1,900 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 11.287 09/10/30 2,458,500
--------------
4,821,000
--------------
NEVADA 0.2%
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev Proj Ser E Rfdg
(Prerefunded @ 09/01/03).................................... 5.600 09/01/09 2,106,999
--------------
NEW HAMPSHIRE 1.3%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................................. 7.350 01/01/18 2,210,720
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights.................................. 7.450 01/01/25 2,222,440
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Hosp Catholic
Med Cent Rfdg (b)........................................... 8.250 07/01/13 4,171,440
</TABLE>
See Notes to Financial Statements
14
<PAGE> 50
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE (CONTINUED)
$ 3,390 New Hampshire Higher Edl & Hlth Fac Auth Rev Vly Regl
Hosp........................................................ 7.350% 04/01/23 $ 3,396,204
2,000 New Hampshire St Business Fin Auth Pollutn Ctl & Solid Waste
Disposal Rev................................................ 7.750 01/01/22 2,245,320
--------------
14,246,124
--------------
NEW JERSEY 2.3%
2,240 Camden Cnty, NJ Impt Auth Lease Rev Dockside Refrig......... 8.400 04/01/24 2,541,885
1,000 New Jersey Econ Dev Auth Econ Dev Rev....................... 6.375 04/01/18 1,004,930
4,000 New Jersey Econ Dev Auth Econ Dev Rev....................... 6.375 04/01/31 4,019,720
1,250 New Jersey Econ Dev Auth Rev First Mortgage Keswick Pines
Rfdg........................................................ 5.700 01/01/18 1,268,550
6,420 New Jersey Econ Dev Auth Rev First Mtg Gross Rev Oakridge
Manor Proj Rfdg............................................. 9.500 11/01/14 6,567,853
1,000 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens
Ser A....................................................... 8.500 11/01/16 1,135,070
1,500 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens
Ser A....................................................... 8.625 11/01/25 1,714,245
1,875 New Jersey Econ Dev Auth Rev Kullman Assoc Proj Ser A....... 6.125 06/01/18 1,907,062
3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen Proj Ser A... 8.750 05/15/26 3,592,050
1,275 New Jersey St Edl Fac Auth Rev Felician College of Lodi Ser
D........................................................... 7.375 11/01/22 1,397,285
--------------
25,148,650
--------------
NEW MEXICO 0.7%
2,250 Albuquerque, NM Retirement Fac Rev La Vida Liena Proj Ser A
Rfdg........................................................ 8.850 02/01/23 2,480,152
1,000 Bernalillo Cnty, NM Multi-Family Rev Hsg Topke
Commons/Arbors Proj Ser D................................... 7.700 04/01/27 1,043,890
3,600 Farmington, NM Pollutn Ctl Rev Pub Svc Co San Juan Proj D
Rfdg........................................................ 6.375 04/01/22 3,943,368
--------------
7,467,410
--------------
NEW YORK 5.6%
1,195 Clifton Springs, NY Hosp & Clinic Ser B Rfdg & Impt......... 7.000 01/01/05 1,270,452
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY Institute of
Technology Rfdg............................................. 7.500 03/01/26 1,680,210
1,000 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev Empire Sports Proj
Ser A....................................................... 6.250 03/01/28 1,011,740
1,500 New York City Indl Dev Agy Rev Visy Paper Inc Proj.......... 7.950 01/01/28 1,707,390
5,000 New York City Ser A (b)..................................... 7.000 08/01/07 5,960,000
3,000 New York City Ser D Rfdg (b)................................ 8.000 02/01/05 3,640,260
10,330 New York City Subser A1 (Embedded Swap)..................... 5.540 11/27/97 10,994,529
4,250 New York City Tran Auth Tran Fac Livingston Plaza Proj Rfdg
(FSA Insd) (b).............................................. 5.400 01/01/18 4,615,372
5,000 New York St Dorm Auth Rev City Univ Ser F (b)............... 5.500 07/01/12 5,262,750
3,000 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse
Fltg) (MBIA Insd)........................................... 7.000 07/08/26 3,232,500
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev (Inverse
Fltg)....................................................... 8.406 04/01/20 3,278,125
225 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Ser B........................... 5.500 04/01/00 230,850
1,000 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Ser B........................... 5.500 04/01/01 1,039,860
750 New York St Energy Resh & Dev Auth St Svc Contract Rev
Western NY Nuclear Svc Cent Ser B........................... 5.250 04/01/02 782,723
1,500 New York St Thruway Auth Hwy & Brdg Tr Fund Ser A
(Prerefunded @ 04/01/04).................................... 6.000 04/01/14 1,682,475
2,000 New York, NY City Indl Dev Agy Field Hotel Assoc Lp Jfk Rfdg
(a)......................................................... 6.000 11/01/28 2,030,640
3,000 New York, NY City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd) (b)............................. 6.250 11/15/06 3,406,890
1,500 New York, NY City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd) (b)............................. 6.375 11/15/07 1,717,935
2,000 New York, NY City Indl Dev Agy Civic Fac Rev USTA Natl
Tennis Cent Proj (FSA Insd) (b)............................. 6.500 11/15/09 2,304,060
6,775 Triborough Bridge & Tunnel Auth NY Rev Ser 1994A............ 4.750 01/01/19 6,657,725
--------------
62,506,486
--------------
NORTH CAROLINA 0.8%
7,510 Eastern Band Cherokee Indians NC Spl Oblig Rev Carolina
Mirror Co Proj (g).......................................... 10.250 09/01/09 7,510,000
1,000 North Carolina Muni Pwr Agy No 1 Catawba Electric Rev (MBIA
Insd)....................................................... 5.125 01/01/17 1,023,990
--------------
8,533,990
--------------
NORTH DAKOTA 0.2%
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square Proj............. 6.250 12/01/34 1,022,640
1,000 Grand Forks, ND Sr Hsg Rev Spl Term 4000 Vly Square Proj.... 6.375 12/01/34 1,048,680
--------------
2,071,320
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 51
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 4.5%
$ 6,400 Cleveland, OH Arpt Spl Rev Continental Airls Inc Proj....... 5.375% 09/15/27 $ 6,290,944
6,000 Cleveland, OH Arpt Spl Rev Continental Airls Inc Rfdg (a)... 5.700 12/01/19 6,042,360
1,500 Cuyahoga Cnty, OH Multi-Family Rev Hsg Park Lane Apts Proj
Ser A....................................................... 8.250 07/01/28 1,545,000
2,000 East Liverpool, OH Hosp Rev East Liverpool City Hosp Ser A
(Prerefunded @ 10/01/01).................................... 8.125 10/01/11 2,287,940
11,275 Hamilton Cnty, OH Hosp Facs Rev Childrens Hosp Med Cent Ser
G (MBIA Insd)............................................... 5.000 05/15/23 11,299,805
2,000 Hamilton Cnty, OH Sales Tax Hamilton Cnty Football Proj Ser
A (MBIA Insd)............................................... 4.750 12/01/27 1,960,860
2,000 Madison Cnty, OH Hosp Impt Rev Madison Cnty Hosp Proj
Rfdg........................................................ 6.400 08/01/28 2,036,540
5,900 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B (Inverse Fltg)
(GNMA Collateralized) (b)................................... 9.770 03/31/31 6,637,500
2,500 Ohio St Solid Waste Rev CSC Ltd Proj........................ 8.500 08/01/22 2,650,425
3,700 Ohio St Solid Waste Rev Republic Engineered Steels Proj..... 8.250 10/01/14 3,848,962
1,000 Ohio St Solid Waste Rev Republic Engineered Steels Proj..... 9.000 06/01/21 1,087,090
4,490 Reynoldsburg, OH Hlthcare Fac Rev Wesley Ridge Proj (GNMA
Collateralized)............................................. 6.150 10/20/38 4,958,936
--------------
50,646,362
--------------
OKLAHOMA 0.1%
1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa Proj Ser A Rfdg.... 7.000 04/01/25 1,058,700
--------------
OREGON 0.7%
1,245 Clatsop Care Cent Hlth Dist OR Rev Sr Hsg................... 6.000 08/01/14 1,267,696
2,145 Clatsop Care Cent Hlth Dist OR Rev Sr Hsg................... 6.875 08/01/28 2,182,259
4,000 Oregon St Hlth Hsg Edl & Cultural Facs Auth................. 7.250 06/01/28 4,075,080
--------------
7,525,035
--------------
PENNSYLVANIA 7.3%
5,255 Allegheny Cnty, PA Indl Dev Auth Rev Environmental Impt Usx
Proj Rfdg................................................... 6.100 01/15/18 5,645,131
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev Collateral
Toledo Edison Co Proj Ser A Rfdg (b)........................ 7.750 05/01/20 6,972,480
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg Inc Proj
Rfdg........................................................ 7.700 05/15/22 1,129,910
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev Bethlehem
Steel Corp Proj Rfdg........................................ 7.500 09/01/15 4,482,120
1,670 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion Hosp Proj
(Prerefunded @ 07/01/01).................................... 8.500 07/01/13 1,885,346
2,000 Cumberland Cnty, PA Auth Rev First Mtg Carlisle Hosp & Hlth
Rfdg........................................................ 6.800 11/15/14 2,202,840
3,000 Dauphin Cnty, PA Genl Auth Rev Office & Pkg Riverfront
Office...................................................... 6.000 01/01/25 3,040,560
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel & Conf Cent Hyatt
Regency..................................................... 6.200 01/01/29 5,047,500
1,500 Delaware Cnty, PA Auth First Mtg Rev Riddle Vlg Proj........ 7.000 06/01/21 1,598,070
2,890 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd)................ * 09/01/21 948,007
2,405 Harrisburg, PA Cap Apprec Rfdg Notes Ser F (AMBAC Insd)..... * 03/15/16 1,034,703
3,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg) (FGIC Insd)...... 7.520 01/08/98 4,038,125
2,000 Lehigh Cnty, PA Genl Purp Auth Rev Kidspeace Oblig Group.... 6.000 11/01/23 2,022,160
1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac Rev Lifepath Inc
Proj........................................................ 6.300 06/01/28 987,980
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp Proj
(Crossover Rfdg @ 10/01/00)................................. 8.875 10/01/20 2,227,960
8,100 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The
Meadowood Corp Proj Ser A (Prerefunded @ 12/01/00).......... 10.000 12/01/19 9,293,454
500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The
Meadowood Corp Rfdg......................................... 7.000 12/01/10 542,750
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The
Meadowood Corp Rfdg......................................... 7.250 12/01/15 2,734,575
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg The
Meadowood Corp Rfdg......................................... 7.400 12/01/20 6,567,000
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Wordsworth Academy.... 7.750 09/01/24 1,125,320
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev Colver Proj
Ser D (b)................................................... 7.050 12/01/10 3,361,890
5,000 Philadelphia, PA Auth For Indl Dev Rev Long-Term Care
Maplewood................................................... 8.000 01/01/24 5,590,400
5,170 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev (FSA
Insd)....................................................... 5.000 09/01/19 5,218,133
1,500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg........ 7.250 01/15/17 1,652,220
2,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Rfdg........ 7.350 01/15/22 2,215,940
--------------
81,564,574
--------------
RHODE ISLAND 0.2%
1,975 Providence, RI Redev Agy Ctfs Partn Ser A................... 8.000 09/01/24 2,191,006
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 52
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA 1.2%
$ 115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA Insd)............ 7.000% 06/01/19 $ 132,304
2,385 Charleston Cnty, SC Ctfs Partn Ser B (Prerefunded @
06/01/04) (MBIA Insd) (b)................................... 7.000 06/01/19 2,804,641
5,000 Florence Cnty, SC Hosp Rev Mcleod Regl Med Cent Proj Ser A
(MBIA Insd)................................................. 4.750 11/01/27 4,816,650
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc Ser 84 (Var
Rate Cpn)................................................... 6.335 06/15/04 1,000,000
4,000 South Carolina St Hsg Fin & Dev Auth Multi-Family Rev....... 6.750 05/01/28 4,109,720
--------------
12,863,315
--------------
SOUTH DAKOTA 0.2%
805 Keystone, SD Econ Dev Rev Wtr Quality Mgmt Corp Ser A....... 5.500 12/15/08 824,191
1,810 Keystone, SD Econ Dev Rev Wtr Quality Mgmt Corp Ser A....... 6.000 12/15/18 1,856,517
--------------
2,680,708
--------------
TENNESSEE 3.6%
2,750 Chattanooga, TN Hlth Edl & Hsg Fac Brd Rev.................. 5.000 12/01/18 2,767,958
10,000 Chattanooga, TN Hlth Edl & Hsg Fac Brd Rev.................. 5.000 12/01/28 9,991,600
3,000 SCA Tax Exempt Trust Multi-Family Mtg Memphis Hlth Edl Rev
Bond Receipt Ser A6 (FSA Insd).............................. 7.350 01/01/30 3,373,380
4,485 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR Open Arms
Dev Cent Ser A (Prerefunded @ 08/01/99)..................... 9.750 08/01/19 4,848,285
4,545 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev ICF/MR Open Arms
Dev Cent Ser C (Prerefunded @ 08/01/99)..................... 9.750 08/01/19 4,913,145
2,000 Springfield, TN Hlth & Edl Fac Brd Hosp Rev Jesse Holman
Jones Hosp Proj (Prerefunded @ 04/01/06).................... 8.250 04/01/12 2,577,640
6,185 Sullivan Cnty, TN Hlth Edl & Hsg Facs Brd Rev............... 8.410 11/01/19 7,210,287
3,240 Trenton, TN Hlth & Edl Facs Brd Rev Rha/Trenton Mr Inc Proj
Ser A....................................................... 10.000 11/01/19 3,821,612
1,160 Trenton, TN Hlth & Edl Facs Brd Rev Rha/Trenton Mr Inc Proj
Ser B (d)................................................... 10.000 11/01/20 150,800
--------------
39,654,707
--------------
TEXAS 6.3%
1,500 Abilene, TX Hlth Facs Dev Sears Methodist Retirement Ser
A........................................................... 5.875 11/15/18 1,506,990
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains Baptist Hosp
(Inverse Fltg) (FSA Insd) (b)............................... 8.987 01/01/22 2,337,500
2,000 Bell Cnty, TX Indl Dev Corp Solid Waste Disposal Rev........ 7.600 12/01/17 2,045,140
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg Baptist Hlth Sys
Ser A (MBIA Insd)........................................... 6.000 11/15/12 1,152,650
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg Baptist Hlth Sys
Ser A (MBIA Insd)........................................... 6.000 11/15/13 2,738,440
5,000 Brazos River Auth TX Rev Houston Inds Inc Proj D Rfdg....... 4.900 10/01/15 5,136,900
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/00 580,651
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/01 943,510
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/02 251,870
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... * 08/01/11 670,487
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... 8.750 08/01/11 799,753
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg.................... 8.750 08/01/12 2,755,280
1,635 Garland, TX Independent Sch Dist............................ 4.000 02/15/15 1,500,832
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil Proj Ser 84
Rfdg (Var Rate Cpn)......................................... 5.3625 04/01/04 2,502,550
2,500 Houston, TX Arpt Sys Rev Spl Fac Continental Airl Term Impt
Ser B....................................................... 6.125 07/15/27 2,628,875
1,880 Laredo, TX Ctfs Oblig Ser B (MBIA Insd)..................... 4.500 02/15/17 1,817,133
2,655 Leander, TX Indpt Sch Dist Cap Apprec Rfdg.................. * 08/15/18 934,746
4,820 Leander, TX Indpt Sch Dist Cap Apprec Rfdg.................. * 08/15/21 1,434,769
3,990 Leander, TX Indpt Sch Dist Rfdg............................. 4.750 08/15/12 4,018,289
5,000 Lower Neches Vly Auth TX Indl Dev Corp Rev.................. 5.550 03/01/33 5,253,100
2,000 Matagorda Cnty, TX Nav Dist No 1 Rev (MBIA Insd)............ 5.150 11/01/29 2,029,600
1,070 Mc Allen, TX Dev Corp Inc Sales Tax Rev (FSA Insd).......... 5.250 02/15/18 1,081,374
1,000 Nacogdoches, TX Indl Dev Auth Inc Pollutn Ctl Rev........... 5.300 12/01/11 1,060,450
1,180 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg................ * 08/15/17 444,211
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg................ * 08/15/20 372,264
</TABLE>
See Notes to Financial Statements
17
<PAGE> 53
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg................ * 08/15/23 $ 312,985
6,000 Rockwall, TX Indpt Sch Dist Cap Apprec Rfdg................. * 08/15/18 2,145,120
2,533 Texas Genl Svcs Comm Partn Int Lease Purch Ctfs............. 7.250% 08/15/11 2,593,023
8,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev (GNMA
Collateralized)............................................. 6.900 07/02/24 9,191,600
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison Arpt Toll
Tunnel Proj (FGIC Insd)..................................... 6.750 01/01/15 2,344,240
2,000 Texas St Tpk Auth Dallas North Thruway Rev Addison Arpt Toll
Tunnel Proj (FGIC Insd) (b)................................. 6.600 01/01/23 2,327,740
5,000 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union
Carbide Chem & Plastics (b)................................. 8.200 03/15/21 5,511,150
--------------
70,423,222
--------------
UTAH 1.7%
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 7.800 09/01/15 1,070,930
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 8.000 09/01/20 1,262,814
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 7.800 09/01/25 1,069,700
4,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B Rfdg (MBIA
Insd)....................................................... 5.750 07/01/19 4,401,600
2,500 Intermountain Pwr Agy UT Rev Ser A Rfdg (a)................. 5.000 07/01/19 2,472,225
250 Saint George, UT Indl Dev Rev Kmart Corp Ser 1984A.......... 10.750 10/15/08 256,250
3,270 Salt Lake Cnty, UT Hsg Auth Multi-Family Hsg Rev (FHA
Gtd)........................................................ 6.375 11/01/33 3,525,812
2,500 Tooele Cnty, UT Pollutn Ctl Rev Rfdg Laidlaw Environmental
Ser A....................................................... 7.550 07/01/27 2,802,550
1,395 Utah St Hsg Fin Agy Single Family Mtg Mezz A1 (AMBAC Insd)
(b)......................................................... 6.100 07/01/13 1,495,691
--------------
18,357,572
--------------
VIRGINIA 1.5%
5,000 Alexandria, VA Redev & Hsg Auth 3001 Park Cent Apts Ser A
Rfdg........................................................ 6.375 04/01/34 5,049,500
5,000 Chesapeake Bay Bridge & Tunnel VA Genl Resolution Rfdg (MBIA
Insd) (a)................................................... 5.500 07/01/25 5,584,600
1,000 Dulles Town Cent Cmnty Dev Auth Dulles Town Cent Proj....... 6.250 03/01/26 1,030,400
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev..................... 6.625 07/15/20 2,883,120
1,500 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt Fac Ser A.... 7.450 01/01/09 1,670,970
--------------
16,218,590
--------------
WASHINGTON 0.8%
3,500 Spokane Cnty, WA Indl Dev Corp Solid Waste Disp Rev......... 7.600 03/01/27 3,910,725
2,000 Tacoma, WA Hsg Auth Rev Hsg Wedgewood Homes Proj (a)........ 6.000 04/01/28 1,982,500
525 Washington St Hlth Care Facs Auth Rev Multicare Hlth Sys
(MBIA Insd)................................................. 5.000 08/15/18 526,601
5,500 Washington St Pub Pwr Supply Comp Interest Ser C Rfdg (MBIA
Insd)....................................................... * 07/01/17 2,174,535
--------------
8,594,361
--------------
WISCONSIN 1.9%
800 Baldwin, WI Hosp Rev Mtg Ser A.............................. 6.125 12/01/18 817,640
2,590 Baldwin, WI Hosp Rev Mtg Ser A.............................. 6.375 12/01/28 2,646,488
1,000 Oconto Falls, WI Cmnty Dev Oconto Falls Tissue Inc Proj..... 7.750 12/01/22 1,075,230
4,455 Southeast WI Prof Baseball Prk Ser A Rfdg................... 5.500 12/15/21 4,931,462
4,105 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa Vly Hosp Ser F
Rfdg (b).................................................... 9.500 11/15/12 4,810,567
2,070 Wisconsin St Hlth & Edl Fac Auth Rev Eau Claire Manor....... 9.625 06/01/13 2,097,614
1,500 Wisconsin St Hlth & Edl Facs Auth Rev Franciscan Sisters
Christian Ser A............................................. 5.500 02/15/28 1,537,530
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home Proj........ 7.500 07/01/26 3,340,020
--------------
21,256,551
--------------
GUAM 0.3%
3,500 Guam Arpt Auth Rev Ser B.................................... 6.700 10/01/23 3,866,800
--------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 54
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO 1.0%
$ 1,647 Centro de Recaudaciones de Ingresos Muni Ctfs Partn PR...... 6.850% 10/17/03 $ 1,723,588
10,000 Puerto Rico Comwlth Hwy & Tran Auth Tran Rev Ser A.......... 4.750 07/01/38 9,815,100
--------------
11,538,688
--------------
TOTAL LONG-TERM INVESTMENTS 100.1%
(Cost $1,045,752,590)................................................................... 1,114,943,268
SHORT-TERM INVESTMENTS 0.2%
(Cost $3,178,570)....................................................................... 2,750,000
--------------
TOTAL INVESTMENTS 100.3%
(Cost $1,048,931,160)................................................................... 1,117,693,268
LIABILITIES IN EXCESS OF OTHER ASSETS (0.3%)............................................. (3,486,337)
--------------
NET ASSETS 100.0%........................................................................ $1,114,206,931
------------
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) Interest is accruing at less than the stated coupon.
(d) Non-Income producing security.
(e) Currently is a payment-in-kind security which will convert to a cash paying
security with a higher coupon at a predetermined date.
(f) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(g) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(h) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
See Notes to Financial Statements
19
<PAGE> 55
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,048,931,160)..................... $1,117,693,268
Receivables:
Interest.................................................. 20,721,508
Investments Sold.......................................... 14,850,004
Fund Shares Sold.......................................... 4,337,899
Other....................................................... 38,608
--------------
Total Assets.......................................... 1,157,641,287
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 20,696,273
Bank Borrowings........................................... 17,046,644
Income Distributions...................................... 2,694,815
Fund Shares Repurchased................................... 1,048,265
Distributor and Affiliates................................ 697,150
Investment Advisory Fee................................... 426,230
Variation Margin on Futures............................... 118,750
Accrued Expenses............................................ 345,858
Options at Market Value (Net premiums received of $9,550)... 203,125
Trustees' Deferred Compensation and Retirement Plans........ 157,246
--------------
Total Liabilities..................................... 43,434,356
--------------
NET ASSETS.................................................. $1,114,206,931
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,150,498,956
Net Unrealized Appreciation................................. 68,326,173
Accumulated Distributions in Excess of Net Investment
Income.................................................... (9,019,837)
Accumulated Net Realized Loss............................... (95,598,361)
--------------
NET ASSETS.................................................. $1,114,206,931
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $771,367,472 and 51,164,482 shares of
beneficial interest issued and outstanding)............ $ 15.08
Maximum sales charge (4.75%* of offering price)......... .75
--------------
Maximum offering price to public........................ $ 15.83
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $279,631,431 and 18,554,723 shares of
beneficial interest issued and outstanding)............ $ 15.07
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $63,208,028 and 4,194,703 shares of
beneficial interest issued and outstanding)............ $ 15.07
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
20
<PAGE> 56
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................... $51,036,492 $63,584,303
----------- -----------
EXPENSES:
Investment Advisory Fee..................................... 3,672,538 4,318,581
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,313,887, $1,907,516 and $381,087,
respectively, for the nine months ended 9/30/98 and
$1,563,986, $1,983,980 and $263,926, respectively, for the
year ended 12/31/97)...................................... 3,602,490 3,811,892
Shareholder Services........................................ 570,794 970,151
Legal....................................................... 178,222 350,742
Custody..................................................... 101,721 84,770
Trustees' Fees and Expenses................................. 28,855 50,600
Other....................................................... 594,746 661,264
----------- -----------
Total Operating Expenses................................ 8,749,366 10,248,000
Interest Expense........................................ 132,020 -0-
----------- -----------
NET INVESTMENT INCOME....................................... $42,155,106 $53,336,303
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $46,545 and $275,074, respectively)............ $ 1,335,890 $ 6,836,534
Options................................................... (3,171) 98,094
Futures................................................... (2,193,972) (6,543,274)
----------- -----------
Net Realized Gain/Loss...................................... (861,253) 391,354
----------- -----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 50,697,747 26,675,438
----------- -----------
End of the Period:
Investments............................................. 68,762,108 50,876,144
Options................................................. (193,575) -0-
Futures................................................. (242,360) (178,397)
----------- -----------
68,326,173 50,697,747
----------- -----------
Net Unrealized Appreciation During the Period............... 17,628,426 24,022,309
----------- -----------
NET REALIZED AND UNREALIZED GAIN............................ $16,767,173 $24,413,663
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $58,922,279 $77,749,966
=========== ===========
</TABLE>
See Notes to Financial Statements
21
<PAGE> 57
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998 and
the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 42,155,106 $53,336,303 $53,036,530
Net Realized Gain/Loss...................................... (861,253) 391,354 (15,209,862)
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 17,628,426 24,022,309 (12,362,837)
-------------- ------------ ------------
Change in Net Assets from Operations........................ 58,922,279 77,749,966 25,463,831
-------------- ------------ ------------
Distributions from Net Investment Income.................... (42,128,701) (53,336,303) (53,036,530)
Distributions in Excess of Net Investment Income............ -0- (664,960) (228,957)
-------------- ------------ ------------
Total Distributions from and in Excess of Net Investment
Income*................................................. (42,128,701) (54,001,263) (53,265,487)
-------------- ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 16,793,578 23,748,703 (27,801,656)
-------------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 205,313,493 198,765,477 164,096,198
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 18,455,824 23,168,036 22,996,285
Cost of Shares Repurchased.................................. (100,827,970) (135,758,091) (108,010,178)
-------------- ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... 122,941,347 86,175,422 79,082,305
-------------- ------------ ------------
TOTAL INCREASE IN NET ASSETS................................ 139,734,925 109,924,125 51,280,649
NET ASSETS:
Beginning of the Period..................................... 974,472,006 864,547,881 813,267,232
-------------- ------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $9,019,837, $9,046,242
and $8,821,755, respectively)............................. $1,114,206,931 $974,472,006 $864,547,881
============== =========== ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares............................................ $(30,895,725) $ (41,926,549) $(43,633,838)
Class B Shares............................................ (9,369,462) (10,667,625) (8,865,546)
Class C Shares............................................ (1,863,514) (1,407,089) (766,103)
------------ ------------ ------------
$(42,128,701) $(54,001,263) $(53,265,487)
============ ============ ============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 58
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended December 31,
Ended -----------------------------------------------
Class A Shares September 30, 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............... $14.845 $14.474 $14.984 $13.848 $15.629 $14.529
------- ------- ------- ------- ------- -------
Net Investment Income................................ .643 .895 .963 1.024 .956 1.052
Net Realized and Unrealized Gain/Loss................ .217 .376 (.513) 1.072 (1.717) 1.158
------- ------- ------- ------- ------- -------
Total from Investment Operations....................... .860 1.271 .450 2.096 (.761) 2.210
Less Distributions from and in Excess of Net Investment
Income............................................... .629 .900 .960 .960 1.020 1.110
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period..................... $15.076 $14.845 $14.474 $14.984 $13.848 $15.629
======= ======= ======= ======= ======= =======
Total Return (a)....................................... 6.00%* 9.05% 3.21% 15.52% (4.93%) 15.82%
Net Assets at End of the Period (In millions).......... $771.4 $706.3 $ 671.9 $665.8 $603.0 $636.2
Ratio of Expenses to Average Net Assets (b)............ .92% .94% .99% .95% .87% 1.03%
Ratio of Net Investment Income to Average Net Assets
(b).................................................. 5.66% 6.09% 6.60% 7.05% 6.48% 6.95%
Portfolio Turnover..................................... 66%* 63% 59% 59% 101% 91%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
23
<PAGE> 59
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 1, 1993
Nine Months Year Ended December 31, (Commencement
Ended ------------------------------------- of Distributions) to
Class B Shares September 30, 1998 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $14.844 $14.474 $14.983 $13.850 $15.621 $14.670
------- ------- ------- ------- ------- -------
Net Investment Income..................... .545 .774 .843 .908 .841 .656
Net Realized and Unrealized Gain/Loss..... .229 .384 (.506) 1.071 (1.718) .945
------- ------- ------- ------- ------- -------
Total from Investment Operations............ .774 1.158 .337 1.979 (.877) 1.601
Less Distributions from and in Excess of Net
Investment Income......................... .547 .788 .846 .846 .894 .650
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period.......... $15.071 $14.844 $14.474 $14.983 $13.850 $15.621
======= ======= ======= ======= ======= =======
Total Return (a)............................ 5.35%* 8.23% 2.40% 14.62% (5.69%) 11.12%*
Net Assets at End of the Period (In
millions)................................. $ 279.6 $ 229.6 $ 173.8 $ 137.9 $ 112.4 $ 56.6
Ratio of Expenses to Average Net Assets
(b)....................................... 1.68% 1.71% 1.75% 1.70% 1.64% 1.74%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 4.90% 5.30% 5.84% 6.25% 5.70% 5.95%
Portfolio Turnover.......................... 66%* 63% 59% 59% 101% 91%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
24
<PAGE> 60
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Nine Months Year Ended December 31, (Commencement
Ended ------------------------------------- of Distributions) to
Class C Shares September 30, 1998 1997 1996 1995 1994 December 31, 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $14.842 $14.474 $14.987 $13.846 $15.610 $15.030
------- ------- ------- ------- ------- -------
Net Investment Income..................... .549 .778 .851 .910 .824 .369
Net Realized and Unrealized Gain/Loss..... .225 .378 (.518) 1.077 (1.694) .580
------- ------- ------- ------- ------- -------
Total from Investment Operations............ .774 1.156 .333 1.987 (.870) .949
Less Distributions from and in Excess of Net
Investment Income......................... .547 .788 .846 .846 .894 .369
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period.......... $15.069 $14.842 $14.474 $14.987 $13.846 $15.610
======= ======= ======= ======= ======= =======
Total Return (a)............................ 5.35%* 8.23% 2.33% 14.70% (5.62%) 6.37%*
Net Assets at End of the Period (In
millions)................................. $ 63.2 $ 38.6 $ 18.8 $ 9.5 $ 7.6 $ 5.2
Ratio of Expenses to Average Net
Assets (b)................................ 1.68% 1.71% 1.75% 1.69% 1.64% 1.82%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 4.90% 5.24% 5.84% 6.19% 5.71% 5.21%
Portfolio Turnover.......................... 66%* 63% 59% 59% 101% 91%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
25
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Tax Free High Income Fund (the "Fund") is organized as a series of
the Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income taxes primarily
through investment in a diversified portfolio of medium and lower grade
municipal securities. The Fund commenced investment operations on June 28, 1985.
The distribution of the Fund's Class B and Class C shares commenced on May 1,
1993 and August 13, 1993, respectively. In July, 1998, the Fund's Board of
Trustees approved a change in the Fund's fiscal year end from December 31 to
September 30. As a result, this financial report reflects the nine month period
commencing on January 1, 1998, and ending on September 30, 1998.
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws
which allow it to carry a realized capital loss forward for eight years
following the year of the loss and offset such losses against any future
realized capital gains. At September 30, 1998, the Fund had an accumulated
capital loss carryforward for tax purposes of $93,730,196 which expires between
September 30, 1999 and September 30, 2006. Of this amount, $1,295,852 will
expire on September 30, 1999. Net realized gains or losses may differ for
financial reporting and tax
26
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
purposes primarily as a result of the capitalization of reorganization and
restructuring costs for tax purposes, and gains and losses recognized for tax
purposes on open options and futures positions at September 30, 1998.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $1,050,605,522, the aggregate gross unrealized
appreciation is $88,005,962 and the aggregate gross unrealized depreciation is
$20,918,216, resulting in net unrealized appreciation on long- and short-term
investments of $67,087,746.
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. At December 31, 1997, permanent book and tax differences
totaling ($440,473) were reclassified from accumulated distributions in excess
of net investment income to capital.
For the nine months ended September 30, 1998, 99.6% of the income
distributions made by the Fund were exempt from federal income taxes. In
January, 1999, the Fund will provide tax information to shareholders for the
1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
% PER
AVERAGE NET ASSETS ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $500 million.......................................... .50 of 1%
Over $500 million........................................... .45 of 1%
</TABLE>
For the nine months ended September 30, 1998, and the year ended December
31, 1997, the Fund recognized expenses of approximately $22,900 and $35,100,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $222,800 and $188,700,
respectively, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Fund recognized
expenses of approximately $415,300 and $644,000, respectively. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their
27
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
compensation to a later date. Benefits under the retirement plan are payable for
a ten-year period and are based upon each trustee's years of service to the
Fund. The maximum annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 September 30, 1998, capital aggregated $814,716,102, $273,821,581 and
$61,961,273 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 7,418,156 $ 110,301,687
Class B.................................................. 4,566,294 67,862,636
Class C.................................................. 1,827,970 27,149,170
---------- -------------
Total Sales................................................ 13,812,420 $ 205,313,493
========== =============
Dividend Reinvestment:
Class A.................................................. 923,639 $ 13,739,535
Class B.................................................. 245,550 3,652,560
Class C.................................................. 71,508 1,063,729
---------- -------------
Total Dividend Reinvestment................................ 1,240,697 $ 18,455,824
========== =============
Repurchases:
Class A.................................................. (4,753,839) $ (70,664,021)
Class B.................................................. (1,723,537) (25,610,245)
Class C.................................................. (306,853) (4,553,704)
---------- -------------
Total Repurchases.......................................... (6,784,229) $(100,827,970)
========== =============
</TABLE>
28
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $761,338,901, $227,916,630 and
$38,302,078 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 6,584,725 $ 95,897,790
Class B.................................................. 5,414,821 78,851,895
Class C.................................................. 1,645,028 24,015,792
---------- -------------
Total Sales................................................ 13,644,574 $ 198,765,477
========== =============
Dividend Reinvestment:
Class A.................................................. 1,260,959 $ 18,367,805
Class B.................................................. 276,853 4,036,121
Class C.................................................. 52,358 764,110
---------- -------------
Total Dividend Reinvestment................................ 1,590,170 $ 23,168,036
========== =============
Repurchases:
Class A.................................................. (6,688,927) $ (97,347,533)
Class B.................................................. (2,235,801) (32,600,924)
Class C.................................................. (397,427) (5,809,634)
---------- -------------
Total Repurchases.......................................... (9,322,155) $(135,758,091)
========== =============
</TABLE>
At December 31, 1996, capital aggregated $744,740,084, $177,733,309 and
$19,349,267 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 6,370,895 $ 92,301,711
Class B.................................................. 4,180,416 60,439,439
Class C.................................................. 787,103 11,355,048
---------- -------------
Total Sales................................................ 11,338,414 $ 164,096,198
========== =============
Dividend Reinvestment:
Class A.................................................. 1,326,707 $ 19,189,337
Class B.................................................. 229,488 3,317,782
Class C.................................................. 33,851 489,166
---------- -------------
Total Dividend Reinvestment................................ 1,590,046 $ 22,996,285
========== =============
Repurchases:
Class A.................................................. (5,711,728) $ (82,614,355)
Class B.................................................. (1,605,061) (23,186,460)
Class C.................................................. (153,484) (2,209,363)
---------- -------------
Total Repurchases.......................................... (7,470,273) $(108,010,178)
========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year
29
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
following purchase. The CDSC will be imposed on most redemptions made within six
years of the purchase for Class B and one year of the purchase for Class C as
detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------------
<S> <C> <C>
First....................................................... 4.00% 1.00%
Second...................................................... 3.75% None
Third....................................................... 3.50% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth....................................................... 1.00% None
Seventh and Thereafter...................................... None None
</TABLE>
For the nine months ended September 30, 1998 and the year ended December
31, 1997, Van Kampen, as distributor for the Fund, received commissions on sales
of the Fund's Class A shares of approximately $294,400 and $315,200,
respectively, and CDSC on redeemed shares of approximately $470,000 and
$520,700, respectively. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $823,883,011
and $687,842,578, respectively. For the year ended December 31, 1997, the cost
of purchases and proceeds from sales of investments, excluding short-term
investments, were $653,314,161 and $564,013,425, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as
to attempt to protect the Fund against possible changes in the market value of
its portfolio and to manage the portfolio's effective yield, maturity and
duration. All of the Fund's portfolio holdings, including derivative
instruments, are marked to market each day with the change in value reflected in
unrealized appreciation/depreciation. Upon disposition, a realized gain or loss
is recognized accordingly, except when exercising a call option contract or
taking delivery of a security underlying a futures contract. In these instances,
the recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial
instruments used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
30
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in options for the nine months ended September 30, 1998, and
the year ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996............................ -0- $ -0-
Options Written and Purchased (Net)......................... 29,222 (899,313)
Options Terminated in Closing Transactions (Net)............ (15,576) (687,585)
Options Exercised (Net)..................................... (500) 519,660
Options Expired (Net)....................................... (13,146) 1,067,238
------ -----------
Outstanding at December 31, 1997............................ -0- -0-
Options Written and Purchased (Net)......................... 11,650 (157,409)
Options Terminated in Closing Transactions (Net)............ (5,050) (274,812)
Options Expired (Net)....................................... (5,850) 441,771
------ -----------
Outstanding at September 30, 1998........................... 750 $ 9,550
====== ===========
</TABLE>
The description and market values of the option contracts outstanding as
of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
MARKET
EXP. MONTH/ VALUE
DESCRIPTION CONTRACTS STRIKE PRICE OF OPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BOND FUTURES
November 1998- Written Call........................ 500 Nov/132 $(492,188)
November 1998- Purchased Call...................... 250 Nov/131 289,063
--- ---------
750 $(203,125)
=== =========
</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 potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
31
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the nine months ended September 30,
1998, and the year ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996............................ 426
Futures Opened.............................................. 7,884
Futures Closed.............................................. (7,862)
-------
Outstanding at December 31, 1997............................ 448
Futures Opened.............................................. 8,900
Futures Closed.............................................. (8,748)
-------
Outstanding at September 30, 1998........................... 600
=======
</TABLE>
The futures contracts outstanding as of September 30, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS (DEPRECIATION)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- U.S. Treasury Bond Futures Dec. 1998
(Current notional value $131,469 per contract)............ 200 $ 392,130
Short Contracts -- Municipal Bond Futures Dec. 1998 (Current
notional value $128,375 per contract)..................... 400 ( 634,490)
--- ---------
600 ($242,360)
=== =========
</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 net assets and
1.00% each for Class B and Class C net assets are accrued daily. Included in
these fees for the nine months ended September 30, 1998 and the year ended
December 31, 1997 are payments retained by Van Kampen of approximately
$1,677,200 and $1,751,600, respectively.
32
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its net assets. The Fund, in combination with two other
funds in the fund complex, has entered into a $100 million revolving credit
agreement which expires September 27, 1999. The maximum amount available to any
single fund is $75 million. Interest is charged under the agreement at a rate of
.45% above the federal funds rate. The interest rate in effect at September 30,
1998 was 6.20%. An annual facility fee of .06% is charged on the unused portion
of the credit facility.
The average daily balance of bank borrowings for the nine months ended
September 30, 1998 was approximately $3,003,400 with an average interest rate of
5.98%. At September 30, 1998, borrowings under this agreement represented 1.5%
of the Fund's net assets.
8. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Trust, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Trust with service at current levels. In
addition, it is possible that the securities markets in which the Trust invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
33
<PAGE> 69
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Tax Free High Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Tax Free High Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1998, and the related statement of operations
for the nine-month period ended September 30, 1998 and the year ended December
31, 1997, the statement of changes in net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Tax Free High Income Fund as of September 30, 1998, the results of its
operations for the nine-month period ended September 30, 1998 and the year ended
December 31, 1997, the changes in its net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 5, 1998
34
<PAGE> 70
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
35
<PAGE> 71
VAN KAMPEN TAX FREE HIGH INCOME FUND
OFFICERS AND TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP G. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
36
<PAGE> 72
VAN KAMPEN TAX FREE HIGH INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
37
<PAGE> 73
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 21
Report of Independent Accountants................ 30
</TABLE>
CAI ANR 11/98
<PAGE> 74
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. However, the
United States has been relatively
unscathed by the turmoil in many
overseas markets. In fact, the U.S.
fixed-income markets benefited as [PHOTO]
many investors moved assets from
stocks into more conservative DENNIS J. MCDONNELL AND DON G. POWELL
fixed-income investments. The
volatility also forced yield spreads
to widen between Treasuries and
high-yield securities, corporate bonds, and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals. As we explain elsewhere in this letter, the U.S. economy
remains among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC REVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
Continued on page 2
1
<PAGE> 75
MARKET REVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 76
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Nine-month total return based on
NAV(1)................................ 6.38% 5.76% 5.70%
Nine-month total return(2).............. 2.95% 2.76% 4.70%
One-year total return based on NAV(1)... 9.57% 8.73% 8.67%
One-year total return(2)................ 6.03% 5.73% 7.67%
Five-year average annual total
return(2)............................. 4.90% 4.77% 4.77%
Ten-year average annual total
return(2)............................. 7.83% N/A N/A
Life-of-Fund average annual total
return(2)............................. 8.01% 5.68% 5.20%
Commencement date....................... 12/13/85 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................... 4.55% 4.00% 4.00%
Taxable equivalent distribution rate(4). 7.84% 6.90% 6.90%
SEC Yield(5)............................ 3.46% 2.81% 2.83%
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 42%, which takes into consideration the deductibility of individual
state taxes paid.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1998.
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.
No representation is made as to any insurer's ability to meet its commitments.
The insurance does not remove market risk since it does not apply to the value
of the securities in the Fund's portfolio, and the Fund's net asset value may
fluctuate depending on changes in interest rates and other factors affecting the
municipal credit market.
Market forecasts provided in this report may not necessarily come to pass.
- --------------------------------------------------------------------------------
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from December 31 to September 30. As a result, this financial report
reflects the 9-month transition period commencing on January 1, 1998 and ending
on September 30, 1998.
- --------------------------------------------------------------------------------
3
<PAGE> 77
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time. The index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen California Insured Tax Free Fund vs. the Lehman Brothers
Municipal Bond Index (September 30, 1988 through September 30, 1998)
[GRAPH]
<TABLE>
<CAPTION>
Van Kampen
Measurement Period California Insured Tax Lehman Brothers
(Fiscal Year Covered) Free Fund Municipal Bond Index
<S> <C> <C>
Sep-88 9678 10000
10015 10176
9815 10082.4
10016 10185.2
10186 10396.1
10068 10277.5
10010 10252.9
10312 10495.9
10589 10714.2
10678 10859.9
10775 11007.6
10653 10899.7
Sep-89 10579 10867
10670 10999.6
10845 11192.1
10940 11283.9
10816 11230.8
10986 11330.8
10988 11334.2
10840 11252.6
11093 11497.9
11159 11599.1
11335 11769.6
11148 11598.9
Sep-90 11127 11605.9
11335 11815.9
11618 12053.4
11754 12106.5
11800 12268.7
11922 12375.4
11894 12380.4
12071 12545
12187 12656.7
12097 12644
12276 12798.3
12495 12967.2
Sep-91 12629 13135.8
12710 13254
12743 13291.1
12927 13576.9
13001 13608.1
13003 13612.2
13061 13617.6
13184 13738.9
13332 13901
13513 14134.5
13999 14558.5
13902 14415.9
Sep-92 13921 14509.6
13682 14367.4
14035 14624.6
14230 14773.7
14409 14945.1
15175 15486.1
14930 15322
15112 15476.7
15191 15563.4
15522 15823.3
15455 15843.9
15963 16173.4
Sep-93 16190 16357.8
16146 16388.9
15837 16244.6
16308 16587.4
16527 16776.5
15942 16342
15066 15676.9
15053 15810.1
15213 15947.7
15127 15850.4
15407 16140.5
15440 16197
Sep-94 15150 15958.9
14831 15674.8
14529 15391.1
14881 15729.7
15412 16179.5
15899 16650.4
16017 16841.8
16020 16862.1
16571 17400
16295 17248.6
16415 17412.4
16613 17633.6
Sep-95 16705 17744.7
17013 18002
17381 18300.8
17602 18476.5
17772 18616.9
17633 18490.3
17244 18253.6
17185 18202.5
17206 18195.2
17359 18393.6
17592 18561
17582 18557.2
Sep-96 17837 18817
18074 19029.7
18445 19377.9
18341 19296.5
18288 19333.2
18434 19511.1
18182 19251.6
18350 19413.3
18658 19704.5
18871 19915.3
19480 20467
19150 20274.6
Sep-97 19398 20515.8
19518 20647.2
19638 20769
19979 21072.2
20190 21289.2
20161 21295.6
20187 21314.8
20014 21218.9
20407 21554.1
20500 21638.2
20560 21692.3
20912 22028.5
Sep-98 21254 22303.9
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 78
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load").
Generally, there is no redemption fee (Contingent Deferred Sales Charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
REFUNDING: Retiring an outstanding bond issue at maturity using money from the
sale of a new offering.
5
<PAGE> 79
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
6
<PAGE> 80
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
We recently spoke with the management team of the Van Kampen California Insured
Tax Free Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes Joseph A. Piraro, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT DURING THE PAST NINE MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent as Treasuries.
At the end of the reporting period, the yield on AAA-rated 30-year general
obligation municipal bonds was just slightly less than the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
Q HOW HAVE THESE CONDITIONS AFFECTED THE WAY YOU MANAGE THE FUND?
A Insured bonds continue to be the preferred structure for California retail
investors in light of Orange County's 1994 credit problems. Through the
end of the second quarter, 55 percent of all California bond issues were
insured. This heavy supply of insured bonds benefited the Fund, because there
were plenty of quality bond issues from which to choose, enabling us to keep the
portfolio well diversified.
Because the Fund is diversified across numerous industry sectors, we are
always watchful for signs that would indicate a change in a sector's relative
value. The portfolio was not radically altered during the reporting period, as
you can see by our top five allocations by sector as of September 30, 1998: tax
district (16 percent), public education (12 percent), public building (12
percent), general purpose (10 percent), and water and sewer (8 percent). For
additional Fund portfolio highlights, please refer to page 9.
7
<PAGE> 81
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund's total return during the first nine months of 1998 was 6.38
percent(1) (Class A shares at net asset value), while its distribution
rate was 4.55 percent(3) as of September 30, 1998. By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 5.84 percent for
the same period. This index is a broad-based index of municipal bonds and does
not reflect any commissions that would be paid by an investor purchasing the
securities it represents. The Fund's distribution rate translates into a
taxable-equivalent rate of 7.84 percent(4) for an investor in the 42 percent
combined federal and state income tax bracket. The Fund's dividend remained
unchanged at $0.0735 per share during the period. Please refer to the chart on
page 3 for additional Fund performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a favorable
environment for bonds. (Editor's note: After the reporting period ended,
the Fed reduced interest rates again by 0.25 percent.) The supply of municipal
bond issues looks like it will remain strong, as low interest rates spark
further refunding of outstanding bond issues and bring new municipal bonds into
the marketplace. As more investors recognize the value available in the
municipal market, demand is likely to increase and municipal bonds could see
favorable returns in coming months.
California's economy remains robust, and the state's fiscal situation is
healthy. Although it appears that the Asian economic crisis has had a limited
effect on the state's economy and there are no obvious signs of trouble on the
horizon, we remain cautious. It is unclear whether California will continue to
remain insulated from Asia's economic problems or from those in Latin America,
given the state's close economic ties to Mexico. If the state encounters
economic difficulties, bond issuers--particularly the smaller
municipalities--might be forced to increase the number of insured bonds in
response to a heightened demand for quality. Similarly, if interest rates remain
where they are or continue to decline, we could see a record number of municipal
bond issues.
[SIG]
Joseph A. Piraro
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 82
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TOP TEN HOLDINGS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
San Joaquin Hills, CA Transportation Corridor
Agency Toll Road Revenue ...................... 4.4%
South Orange County, CA Public Finance Authority
Special Tax Revenue Senior Lien ............... 4.4%
Bakersfield, CA Certificates of Participation
Convention Center Expansion Project ........... 3.8%
San Jose, CA Finance Authority Revenue Convention
Project ....................................... 3.3%
Corona, CA Redevelopment Agency Tax Allocation
Redevelopment Project Area A .................. 3.1%
Grossmont, CA Union High School District
Certificates of Participation ................. 2.4%
Chino, CA Unified School District Certificates
Participation Master Lease Program ............ 2.3%
California Housing Finance Agency Revenue Home
Mortgage ...................................... 2.2%
Modesto, CA Irrigation District Financing
Authority Revenue Domestic Water Project ...... 2.2%
Hayward, CA Certificates of Participation Civic
Center Project ................................ 2.2%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<S> <C>
AAA ...................... 100%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Tax District .......... 16.1%
Public Education ...... 11.9%
Public Building ....... 11.5% [PIE CHART]
General Purpose ....... 9.6%
Water & Sewer ......... 8.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Tax District ......... 20.5%
Public Education ..... 17.0%
General Purpose ...... 15.0% [PIE CHART]
Public Building ...... 14.6%
Health Care .......... 7.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 7.72 years 8.08 years
</TABLE>
(1)Unaudited
9
<PAGE> 83
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 97.7%
$ 2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)................................ 9.070% 12/28/18 $ 2,652,500
1,000 Antioch Area Pub Fac Fin Agy CA Spl Tax Cmnty Fac
Dist (FGIC Insd)................................. 5.000 08/01/18 1,012,290
3,675 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)....................... 5.800 04/01/17 4,033,790
3,000 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)....................... 5.875 04/01/22 3,313,140
1,000 Banning, CA Ctfs Partn Administration Bldg Proj
Ser A Rfdg (MBIA Insd)........................... 5.500 11/01/20 1,068,910
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Ser A2 (FSA Insd)........................... 6.400 12/15/14 3,441,750
1,000 Brawley, CA Ctfs Partn Wtr Sys Impt Proj Rfdg
(MBIA Insd)...................................... 5.000 12/01/24 1,006,740
1,000 Brea & Olinda, CA Uni Sch Dist Ctfs Partn Sr High
Sch Pgm Ser A Rfdg (FSA Insd).................... 6.000 08/01/09 1,091,210
1,000 California Edl Fac Auth Rev Loyola Marymount Univ
Rfdg (MBIA Insd)................................. 5.000 10/01/17 1,031,180
1,625 California Hlth Fac Fin Auth Rev Insd Sutter Hlth
Ser A Rfdg (FSA Insd)............................ 5.250 08/15/27 1,666,210
2,000 California Hlth Fac Fin Auth Rev Adventist Hlth
Ser A Rfdg (MBIA Insd)........................... 6.500 03/01/14 2,151,400
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)...................... 5.550 08/15/25 2,065,360
4,000 California Hsg Fin Agy Rev Home Mtg Ser A (MBIA
Insd)............................................ 5.850 08/01/16 4,294,920
15 California Hsg Fin Agy Rev Hsg Ser B (MBIA
Insd)............................................ 8.625 08/01/15 15,801
1,135 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (BIGI Insd)................................ 8.100 03/01/18 1,162,002
1,050 California Spl Dist Assn Fin Corp Ctfs Partn Spl
Dists Fin Pgm Ser DD (FSA Insd).................. 5.625 01/01/27 1,132,205
1,250 California St (FGIC Insd)........................ 6.250 09/01/12 1,504,000
240 California St (MBIA Insd)........................ 6.000 10/01/14 263,798
1,000 California St Univ Fresno Assn Inc Rev Auxiliary
Residence Student Proj (MBIA Insd)............... 6.250 02/01/17 1,128,060
1,000 California Statewide Cmntys Dev Auth Ctfs Partn
San Diego St Univ Fndtn Rfdg (AMBAC Insd)........ 5.250 03/01/22 1,024,560
1,570 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Insd Children's Hosps Rfdg (MBIA Insd)..... 6.000 06/01/10 1,826,114
1,300 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Student Residence Ser A (MBIA Insd)........ 5.000 06/01/29 1,306,851
2,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist Spl
Tax (MBIA Insd).................................. 5.000 09/01/18 2,051,440
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt
Proj Ser A Rfdg (MBIA Insd)...................... 7.000 08/01/12 2,535,680
</TABLE>
See Notes to Financial Statements
10
<PAGE> 84
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 1,000 Central Vly Sch Dists Fin Auth CA Cap Apprec Sch
Dist G O A Rfdg (MBIA Insd)...................... * 08/01/10 $ 595,690
1,205 Channel Islands Beach CA Cmnty Svcs Dist Ctfs
Partn (FSA Insd)................................. 5.700% 09/01/21 1,322,403
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)....... 6.200 09/01/18 1,233,622
2,350 Chino, CA Uni Sch Dist Ctfs Partn Master Lease
Pgm (FSA Insd)................................... 6.250 03/01/09 2,667,837
1,500 Chino, CA Uni Sch Dist Ctfs Partn Master Lease
Pgm (FSA Insd)................................... 6.000 03/01/14 1,672,530
1,000 Clovis, CA Pub Landfill Impt Proj Rfdg (AMBAC
Insd)............................................ 5.000 09/01/18 1,024,910
290 Colton, CA Jt Uni Sch Dist Cmnty Fac Dist Spl Tax
Southridge Vlg Rfdg (FSA Insd)................... 5.900 09/01/14 290,612
2,000 Colton, CA Pub Fin Auth Rev Tax Alloc Ser A (MBIA
Insd)............................................ 5.000 08/01/18 2,051,120
20 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd)..................... 8.000 07/01/18 20,620
1,000 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)...................... 7.800 06/01/06 1,049,190
500 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)...................... 7.800 06/01/07 524,595
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev Ser A
Rfdg (FGIC Insd)................................. 5.750 10/01/14 1,680,975
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj Area A
Ser A Rfdg (FGIC Insd)........................... 6.250 09/01/13 5,866,872
1,150 El Centro, CA Redev Agy Tax El Centro Redev Proj
Rfdg (MBIA Insd)................................. 5.500 11/01/26 1,227,464
1,000 Emeryville, CA Pub Fin Auth Shellmound Park Redev
& Hsg Proj B (MBIA Insd)......................... 5.000 09/01/19 1,016,380
2,000 Fairfield Suisun, CA Swr Dist Swr Rev Ser A Rfdg
(MBIA Insd)...................................... 6.250 05/01/16 2,158,140
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd).... 6.000 10/01/12 1,093,290
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd).... 6.000 10/01/19 1,534,442
2,000 Folsom, CA Spl Tax Cmnty Fac Dist No 2 Rfdg
(Connie Lee Insd)................................ 5.250 12/01/19 2,043,120
1,745 Gilroy, CA Uni Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd)............................ 5.875 09/01/06 1,968,657
1,810 Gilroy, CA Uni Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd)............................ 6.250 09/01/12 2,045,698
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)...................................... * 11/15/21 4,625,800
4,000 Hayward, CA Ctfs Partn Civic Cent Proj (MBIA
Insd)............................................ 5.250 08/01/26 4,118,960
1,250 Hemet, CA Uni Sch Dist Ctfs Partn Nutrition Cent
Proj (FSA Insd).................................. 5.875 04/01/27 1,388,100
1,545 Imperial, CA Irrig Dist Elec Rev Sys Rfdg (MBIA
Insd)............................................ 5.000 11/01/18 1,582,621
1,000 Kern, CA Cmnty College Dist Ctfs Partn Rfdg (MBIA
Insd)............................................ 5.000 01/01/18 1,022,890
1,225 Lincoln, CA Uni Sch Dist (MBIA Insd)............. 5.600 09/01/26 1,317,096
1,835 Local Govt Fin Auth CA Rev Cap Apprec San
Francisco Redev (Prerefunded @ 08/01/04) (MBIA
Insd)............................................ * 08/01/08 1,148,196
</TABLE>
See Notes to Financial Statements
11
<PAGE> 85
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 850 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent
Proj B Rfdg (AMBAC Insd)......................... 7.000% 12/01/15 $ 897,634
1,535 Long Beach, CA Redev Agy Tax Alloc Sub Redev Proj
Rfdg (AMBAC Insd)................................ 5.125 04/01/20 1,553,328
662 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR
Lease Ltd (FSA Insd)............................. 7.375 12/15/06 727,094
2,380 Los Angeles, CA Mtg Rev FHA Security 8 Asstd Proj
Ser A Rfdg (MBIA Insd)........................... 6.100 07/01/25 2,496,311
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser E
(MBIA Insd)...................................... 6.000 07/01/22 526,520
2,000 Madera Cnty, CA Ctfs Partn Vly Childrens Hosp
Proj (MBIA Insd)................................. 5.000 03/15/23 2,006,020
4,095 Modesto, CA Irrigation Dist Fin Auth Rev Domestic
Wtr Proj Ser D Rfdg (AMBAC Insd)................. 5.000 09/01/17 4,215,393
1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)................................ 5.750 09/01/15 1,387,025
1,640 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)................................ 6.000 09/01/19 1,824,779
500 Northern CA Pwr Agy Pub Pwr Rev Combustion
Turbine Proj 1 Ser A Rfdg (MBIA Insd)............ 6.000 08/15/10 510,865
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec Proj 1
Ser A Rfdg (Prerefunded @ 07/01/21) (AMBAC
Insd)............................................ 7.500 07/01/23 537,088
2,760 Oakland, CA Uni Sch Dist Alameda Cnty Cap Apprec
Ser A (Prerefunded @ 08/01/06) (FGIC Insd)....... * 08/01/13 1,321,764
3,475 Oakland, CA Uni Sch Dist Alameda Cnty Cap Apprec
Ser A (Prerefunded @ 08/01/06) (FGIC Insd)....... * 08/01/14 1,558,051
1,220 Oceanside, CA Cmnty Dev Mtg FHA North River Club
Ser A Rfdg (MBIA Insd)........................... 5.850 07/01/16 1,292,309
1,000 Pajaro Vly, CA Unified Sch Dist Ctfs Partn Sch
Fac Brdg Fdg Pgm (FSA Insd)...................... 5.850 09/01/32 1,112,240
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)................................ 8.855 04/01/22 3,577,500
1,000 Palmdale, CA Wtr Dist Rev Ctfs Parn Rfdg (FGIC
Insd)............................................ 5.000 10/01/18 1,022,210
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA Insd)... 6.100 03/01/16 1,110,360
1,000 Pinole, CA Redev Agy Tax Alloc Pinole Vista Redev
Proj A Rfdg (MBIA Insd).......................... 5.000 08/01/17 1,027,320
1,945 Pittsburg, CA Uni Sch Dist Ctfs Partn (AMBAC
Insd)............................................ 6.300 09/01/15 2,174,452
2,000 Placer Cnty, CA Ctfs Partn Juvenile Detention Fac
Rfdg (MBIA Insd)................................. 5.000 07/01/25 2,012,260
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm Rfdg
(MBIA Insd)...................................... 6.000 04/01/19 1,590,058
</TABLE>
See Notes to Financial Statements
12
<PAGE> 86
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 1,000 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd)........................... 7.125% 09/01/19 $ 1,051,510
1,235 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd)........................... 6.750 09/01/20 1,294,119
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac Dist 883
Ser A Rfdg (AMBAC Insd).......................... 6.000 09/01/17 1,871,654
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse
Fltg) (MBIA Insd)................................ 8.803 07/08/22 1,376,250
2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1 Rfdg (FSA
Insd)............................................ 5.625 09/01/18 2,164,220
3,000 Riverside Cnty, CA Ctfs Partn Historic Courthouse
Proj (MBIA Insd)................................. 5.875 11/01/27 3,348,840
1,070 Riverside, CA Elec Rev Rfdg (AMBAC Insd)......... 5.000 10/01/18 1,078,656
1,000 Roseville, CA Fin Auth Local Agy Rev Northeast
Cfd Bond Refng Ser A Rfdg (FSA Insd)............. 5.000 09/01/21 1,015,410
1,000 Sacramento Cnty, CA Airport Sys Rev Pfc Sub Ser B
Rfdg (FGIC Insd)................................. 5.000 07/01/18 1,021,790
1,000 Sacramento, CA Cogeneration Auth Cogeneration
Proj Rev Rfdg (MBIA Insd)........................ 5.000 07/01/16 1,025,420
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser A Rfdg
(MBIA Insd)...................................... 5.750 08/15/13 2,138,820
1,000 Salinas, CA Santn Swr Sys Rev (FGIC Insd)........ 5.000 08/01/20 1,007,430
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)...................... 7.000 07/01/16 2,748,075
2,000 San Diego, CA Convention Cent Expansion Fin Auth
Lease Rev Ser A (AMBAC Insd)..................... 4.750 04/01/28 1,967,240
1,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (MBIA Insd)................................ 6.400 09/01/18 1,108,940
1,000 San Dimas, CA Redev Agy Tax Alloc Creative Growth
Ser A (FSA Insd)................................. 5.000 09/01/16 1,038,680
1,110 San Francisco, CA St Bldg Auth Lease Rev (AMBAC
Insd)............................................ 5.250 12/01/16 1,179,597
1,000 San Gabriel, CA Uni Sch Dist Ctfs Partn (FSA
Insd)............................................ 6.000 09/01/15 1,102,050
7,050 San Joaquin Hills, CA Tran Corridor Agy Toll Rd
Rev Ser A Rfdg (MBIA Insd)....................... 5.375 01/15/29 7,401,936
5,000 San Joaquin Hills, CA Trns Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd)............ * 01/15/30 1,069,800
5,750 San Jose, CA Fin Auth Rev Convention Proj Ser C
(FSA Insd)....................................... 6.375 09/01/13 6,274,227
2,000 Santa Ana, CA Uni Sch Dist Ctfs Part Fin Proj Ser
A (FSA Insd)..................................... 5.000 04/01/18 2,050,160
1,000 Santa Clara Cnty, CA Fin Auth Lease Rev VMC Fac
Replacement Proj Ser A (Prerefunded @ 11/15/04)
(AMBAC Insd)..................................... 6.875 11/15/14 1,192,770
1,000 Santa Clara, CA Redev Agy Tax Alloc (AMBAC
Insd)............................................ 7.000 07/01/10 1,250,660
</TABLE>
See Notes to Financial Statements
13
<PAGE> 87
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$ 1,000 Santa Fe Springs, CA Cmnty Dev Commn Tax Alloc
Cons Redev Proj Ser A Rfdg (MBIA Insd)........... 5.000% 09/01/17 $ 1,027,510
1,000 Shasta Lake, CA Ctfs Partn (FSA Insd)............ 6.000 04/01/16 1,106,800
1,990 South Cnty, CA Regl Wastewtr Auth Rev Regl
Wastewtr Fac Proj Ser A (FGIC Insd).............. 6.000 08/01/14 2,181,120
3,735 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev Sr
Lien Ser A Rfdg (MBIA Insd)...................... 7.000 09/01/08 4,657,059
3,000 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev Sr
Lien Ser A Rfdg (MBIA Insd)...................... 7.000 09/01/09 3,767,070
1,050 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (Prerefunded @ 09/01/04)
(FGIC Insd)...................................... 6.400 09/01/07 1,220,919
1,015 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (Prerefunded @ 09/01/04)
(FGIC Insd)...................................... 6.500 09/01/08 1,185,581
1,100 Sunnyvale, CA Ctfs Partn Parking Fac Ser A Rfdg
(AMBAC Insd)..................................... 5.000 10/01/17 1,125,443
570 Temecula Vly, CA Uni Sch Dist Ctfs Partn Rfdg
(FSA Insd)....................................... 6.000 09/01/18 634,627
2,000 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd)...................................... 6.750 01/01/12 2,016,080
------------
TOTAL LONG-TERM INVESTMENTS 97.7%
(Cost $172,213,797)........................................................ 191,252,785
SHORT-TERM INVESTMENTS 1.4%
(Cost $2,800,000).......................................................... 2,800,000
------------
TOTAL INVESTMENTS 99.1%
(Cost $175,013,797)........................................................ 194,052,785
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%.................................. 1,841,348
------------
NET ASSETS 100.0%........................................................... $195,894,133
============
</TABLE>
* Zero coupon bond
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
14
<PAGE> 88
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $175,013,797)....................... $194,052,785
Cash........................................................ 189,076
Receivables:
Interest.................................................. 1,988,426
Fund Shares Sold.......................................... 402,072
Other....................................................... 19,046
------------
Total Assets.......................................... 196,651,405
------------
LIABILITIES:
Payables:
Income Distributions...................................... 288,861
Distributor and Affiliates................................ 123,213
Investment Advisory Fee................................... 74,865
Fund Shares Repurchased................................... 41,727
Trustees' Deferred Compensation and Retirement Plans........ 150,007
Accrued Expenses............................................ 78,599
------------
Total Liabilities..................................... 757,272
------------
NET ASSETS.................................................. $195,894,133
============
NET ASSETS CONSIST OF:
Capital..................................................... $178,790,697
Net Unrealized Appreciation................................. 19,038,988
Accumulated Undistributed Net Investment Income............. 252,535
Accumulated Net Realized Loss............................... (2,188,087)
------------
NET ASSETS.................................................. $195,894,133
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $150,959,105 and 8,043,260 shares of
beneficial interest issued and outstanding)............. $ 18.77
Maximum sales charge (3.25%* of offering price)......... .63
------------
Maximum offering price to public........................ $ 19.40
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $40,153,059 and 2,140,606 shares of
beneficial interest issued and outstanding)............. $ 18.76
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,781,969 and 254,972 shares of
beneficial interest issued and outstanding)............. $ 18.75
============
*On sales of $25,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
15
<PAGE> 89
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest........................................... $ 7,517,715 $ 10,042,391
------------------ -----------------
EXPENSES:
Investment Advisory Fee............................ 648,214 814,437
Distribution (12b-1) and Service Fees (Attributed
to Classes A, B and C of $258,828, $256,685 and
$32,011, respectively, for the nine months ended
9/30/98 and $332,822, $294,905 and $27,556,
respectively, for the year ended 12/31/97)....... 547,524 655,283
Shareholder Services............................... 73,876 189,171
Trustees' Fees and Expenses........................ 27,906 40,111
Custody............................................ 11,466 22,085
Legal.............................................. 7,425 26,280
Insurance.......................................... 2,398 3,624
Other.............................................. 91,961 119,773
------------------ -----------------
Total Expenses................................. 1,410,770 1,870,764
------------------ -----------------
NET INVESTMENT INCOME.............................. $ 6,106,945 $ 8,171,627
================== =================
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments...................................... $ 1,824,072 $ 1,292,756
Futures.......................................... (128,677) (106,018)
------------------ -----------------
Net Realized Gain.................................. 1,695,395 1,186,738
------------------ -----------------
Unrealized Appreciation/Depreciation:
Beginning of the Period.......................... 15,629,825 10,633,466
End of the Period:
Investments.................................... 19,038,988 15,629,825
------------------ -----------------
Net Unrealized Appreciation During the Period...... 3,409,163 4,996,359
------------------ -----------------
NET REALIZED AND UNREALIZED GAIN................... $ 5,104,558 $ 6,183,097
================== =================
NET INCREASE IN NET ASSETS FROM OPERATIONS......... $ 11,211,503 $ 14,354,724
================== =================
</TABLE>
See Notes to Financial Statements
16
<PAGE> 90
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998 and
the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........... $ 6,106,945 $ 8,171,627 $ 8,319,890
Net Realized Gain............... 1,695,395 1,186,738 2,275,283
Net Unrealized
Appreciation/Depreciation
During the Period............. 3,409,163 4,996,359 (3,715,835)
------------ ------------ -----------
Change in Net Assets from
Operations.................... 11,211,503 14,354,724 6,879,338
------------ ------------ -----------
Distributions from Net
Investment Income:
Class A Shares................ (5,158,867) (6,593,552) (7,012,876)
Class B Shares................ (1,050,450) (1,190,355) (1,094,958)
Class C Shares................ (131,241) (110,912) (79,245)
------------ ------------ -----------
Total Distributions............. (6,340,558) (7,894,819) (8,187,079)
------------ ------------ -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES......... 4,870,945 6,459,905 (1,307,741)
------------ ------------ -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....... 29,485,437 21,168,004 25,623,230
Net Asset Value of Shares Issued
Through Dividend
Reinvestment.................. 3,827,238 4,809,591 4,933,967
Cost of Shares Repurchased...... (17,753,835) (30,260,768) (29,969,162)
------------ ------------ -----------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS.......... 15,558,840 (4,283,173) 588,035
------------ ------------ -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS........................ 20,429,785 2,176,732 (719,706)
NET ASSETS:
Beginning of the Period......... 175,464,348 173,287,616 174,007,322
------------ ------------ -----------
End of the Period (Including
accumulated undistributed net
investment income of $252,535,
$486,148 and $209,340,
respectively)................. $195,894,133 $175,464,348 $173,287,616
============ ============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 91
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
Nine Months Ended -----------------------------------------------
Class A Shares September 30, 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $18.294 $17.605 $17.736 $15.802 $18.286 $16.858
------- ------- ------- ------- ------- -------
Net Investment Income.............. .638 .880 .857 .884 .912 .967
Net Realized and Unrealized
Gain/Loss........................ .498 .658 (.145) 1.938 (2.484) 1.441
------- ------- ------- ------- ------- -------
Total from Investment Operations... 1.136 1.538 .712 2.822 (1.572) 2.408
Less Distributions from Investment
Income........................... .662 .849 .843 .888 .912 .980
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $18.768 $18.294 $17.605 $17.736 $15.802 $18.286
======= ======= ======= ======= ======= =======
Total Return* (a).................. 6.38%** 8.93% 4.20% 18.28% (8.75%) 14.54%
Net Assets at End of the Period (In
millions)........................ $151.0 $140.7 $142.5 $147.6 $130.3 $151.1
Ratio of Expenses to Average Net
Assets*.......................... .88% .96% 1.02% .89% .78% .69%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.66% 4.96% 4.94% 5.23% 5.46% 5.37%
Portfolio Turnover................. 21%** 46% 35% 42% 56% 36%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets........................... N/A N/A 1.03% 1.05% 1.08% 1.01%
Ratio of Net Investment Income to
Average Net Assets............... N/A N/A 4.94% 5.07% 5.16% 5.05%
</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
18
<PAGE> 92
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From May 1, 1993
Year Ended December 31, (Commencement of
Nine Months Ended ------------------------------------- Distribution) to
Class B Shares September 30, 1998 1997 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $18.289 $17.603 $17.736 $15.805 $18.266 $17.570
------- ------- ------- ------- ------- -------
Net Investment Income....... .526 .741 .720 .766 .785 .549
Net Realized and Unrealized
Gain/Loss................. .506 .662 (.142) 1.926 (2.482) .705
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ 1.032 1.403 .578 2.692 (1.697) 1.254
Less Distributions from Net
Investment Income......... .563 .717 .711 .761 .764 .558
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $18.758 $18.289 $17.603 $17.736 $15.805 $18.266
======= ======= ======= ======= ======= =======
Total Return* (a)........... 5.76%** 8.19% 3.35% 17.33% (9.39%) 7.25%**
Net Assets at End of the
Period (In millions)...... $40.1 $31.0 $28.6 $24.6 $17.1 $15.3
Ratio of Expenses to Average
Net Assets*............... 1.64% 1.72% 1.79% 1.61% 1.52% 1.45%
Ratio of Net Investment
Income to Average Net
Assets*................... 3.89% 4.18% 4.17% 4.51% 4.71% 4.06%
Portfolio Turnover.......... 21%** 46% 35% 42% 56% 36%
* If certain expenses had not been reimbursed by Van Kampen, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average
Net Assets................ N/A N/A 1.79% 1.77% 1.82% 1.77%
Ratio of Net Investment
Income to Average Net
Assets.................... N/A N/A 4.16% 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 contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
19
<PAGE> 93
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
From
August 13, 1993
Year Ended December 31, (Commencement of
Nine Months Ended ------------------------------------- Distribution) to
Class C Shares September 30, 1998 1997 1996 1995 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $18.286 $17.602 $17.736 $15.798 $18.257 $18.010
------- ------- ------- ------- ------- -------
Net Investment Income....... .529 .727 .722 .758 .773 .307
Net Realized and Unrealized
Gain/Loss................. .502 .674 (.145) 1.941 (2.468) .258
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ 1.031 1.401 .577 2.699 (1.695) .565
Less Distributions from Net
Investment Income......... .563 .717 .711 .761 .764 .318
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $18.754 $18.286 $17.602 $17.736 $15.798 $18.257
======= ======= ======= ======= ======= =======
Total Return* (a)........... 5.70** 8.19% 3.35% 17.40% (9.40%) 3.17%**
Net Assets at End of the
Period (In millions)...... $4.8 $3.8 $2.2 $1.8 $2.8 $4.0
Ratio of Expenses to Average
Net Assets*............... 1.63% 1.71% 1.79% 1.60% 1.51% 1.45%
Ratio of Net Investment
Income to Average Net
Assets*................... 3.87% 4.15% 4.16% 4.50% 4.71% 3.82%
Portfolio Turnover.......... 21%** 46% 35% 42% 56% 36%
*If certain expenses had not been reimbursed by Van Kampen, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average
Net Assets................ N/A N/A 1.80% 1.75% 1.82% 1.76%
Ratio of Net Investment
Income to Average Net
Assets.................... N/A N/A 4.16% 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 contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
20
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen California Insured Tax Free Fund (the "Fund"), is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide California investors with a high level of current income exempt from
federal and California income taxes, with liquidity and safety of principal,
primarily through investment in a diversified portfolio of insured California
municipal securities. The Fund commenced investment operations on December 13,
1985. The distribution of the Fund's Class B shares and Class C shares commenced
on May 1, 1993 and August 13, 1993, respectively. In July, 1998, the Fund's
Board of Trustees approved a change in the Fund's fiscal year end from December
31 to September 30. As a result, this financial report reflects the nine-month
period commencing on January 1, 1998, and ending on September 30, 1998.
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At September 30, 1998, there were no
when issued or delayed delivery purchase commitments.
21
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the Federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $2,188,087, which will expire between September
30, 2002 and September 30, 2003.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $175,013,797; the aggregate gross unrealized
appreciation is $19,038,988 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation of $19,038,988.
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.
For the nine months ended September 30, 1998, 100% of the income
distributions made by the Fund were exempt from federal income taxes. In
January, 1999, the Fund will provide tax information to shareholders for the
1998 calendar year.
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.
22
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $100 million...................................... .500 of 1%
Next $150 million....................................... .450 of 1%
Next $250 million....................................... .425 of 1%
Over $500 million....................................... .400 of 1%
</TABLE>
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $5,900 and $10,600,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $64,000 and $79,300,
respectively, representing Van Kampen Inc.'s or its affiliates' (collectively
"Van Kampen") cost of providing accounting and legal services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Fund recognized
expenses of approximately $50,200 and $112,100, respectively. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Additionally, for the year ended December 31, 1997, the Fund reimbursed Van
Kampen approximately $12,800 related to the direct cost of consolidating the Van
Kampen open-end Fund complex. Payment was contingent upon the realization by the
Fund of cost efficiencies in certain expense categories resulting from the
consolidation.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
23
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 September 30, 1998, capital aggregated $135,566,795, $38,277,053 and
$4,946,849 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 896,618 $ 16,459,740
Class B.......................................... 595,781 10,920,471
Class C.......................................... 114,887 2,105,226
---------- ------------
Total Sales........................................ 1,607,286 $ 29,485,437
========= ============
Dividend Reinvestment:
Class A.......................................... 167,488 $ 3,075,115
Class B.......................................... 37,047 680,216
Class C.......................................... 3,916 71,907
---------- ------------
Total Dividend Reinvestment........................ 208,451 $ 3,827,238
========== ============
Repurchases:
Class A.......................................... (709,317) $(13,003,362)
Class B.......................................... (188,629) (3,456,135)
Class C.......................................... (70,739) (1,294,338)
---------- ------------
Total Repurchases.................................. (968,685) $(17,753,835)
=========== ============
</TABLE>
24
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $129,035,302, $30,132,501 and
$4,064,054 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 692,287 $ 12,283,098
Class B.......................................... 403,552 7,140,419
Class C.......................................... 97,375 1,744,487
---------- ------------
Total Sales........................................ 1,193,214 $ 21,168,004
========== ============
Dividend Reinvestment:
Class A.......................................... 224,209 $ 3,981,636
Class B.......................................... 43,062 765,183
Class C.......................................... 3,529 62,772
---------- ------------
Total Dividend Reinvestment........................ 270,800 $ 4,809,591
========== ============
Repurchases:
Class A.......................................... (1,319,813) $(23,254,943)
Class B.......................................... (375,548) (6,651,902)
Class C.......................................... (20,021) (353,923)
---------- ------------
Total Repurchases.................................. (1,715,382) $(30,260,768)
========== ============
</TABLE>
25
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1996, capital aggregated $136,025,511, $28,878,801 and
$2,610,718 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 986,895 $ 17,165,507
Class B.......................................... 439,621 7,596,970
Class C.......................................... 49,675 860,753
---------- ------------
Total Sales........................................ 1,476,191 $ 25,623,230
========== ============
Dividend Reinvestment:
Class A.......................................... 242,651 $ 4,210,865
Class B.......................................... 38,588 669,630
Class C.......................................... 3,082 53,472
---------- ------------
Total Dividend Reinvestment........................ 284,321 $ 4,933,967
========== ============
Repurchases:
Class A.......................................... (1,457,342) $(25,258,344)
Class B.......................................... (240,656) (4,180,690)
Class C.......................................... (30,329) (530,128)
---------- ------------
Total Repurchases.................................. (1,728,327) $(29,969,162)
========== ============
</TABLE>
Classes B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the sixth year following purchase.
The CDSC will be imposed on most redemptions made within four years of the
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 3.00% 1.00%
Second............................................. 2.50% None
Third.............................................. 2.00% None
Fourth............................................. 1.00% None
Fifth and Thereafter............................... None None
</TABLE>
26
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
For the nine months ended September 30, 1998 and the year ended December 31,
1997, Van Kampen, as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $19,900 and $24,400, respectively,
and CDSC on redeemed shares of approximately $32,500 and $64,300, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $48,986,116
and $38,024,164, respectively. For the year ended December 31, 1997, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments, were $77,597,970 and $78,268,248, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures contract. In this instance the recognition of gain or loss is postponed
until the disposal of the security underlying the futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, 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).
27
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1997 and
the nine months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... -0-
Futures Opened............................................. 4,100
Futures Closed............................................. (4,100)
------
Outstanding at December 31, 1997........................... -0-
Futures Opened............................................. 1,024
Futures Closed............................................. (1,024)
------
Outstanding at September 30, 1998.......................... -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 net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended September 30, 1998 and the year ended December 31,
1997, are payments retained by Van Kampen of approximately $219,900 and
$226,300, respectively.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third
28
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
parties. In 1996 Van Kampen initiated a CountDown 2000 Project to review both
the internal systems and external vendor connections. The goal of this project
is to position its business to continue unaffected as a result of the century
change. At this time, there can be no assurance that the steps taken will be
sufficient to avoid any adverse impact to the Fund, but Van Kampen does not
anticipate that the move to Year 2000 will have a material impact on its ability
to continue to provide the Fund with service at current levels. In addition, it
is possible that the securities markets in which the Fund invests may be
detrimentally affected by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning trading systems may
result in settlement problems and liquidity issues.
29
<PAGE> 103
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen California Insured Tax Free Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen California Insured Tax Free Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1998, and the related statement of operations
for the nine-month period ended September 30, 1998 and the year ended December
31, 1997, the statement of changes in net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen California Insured Tax Free Fund as of September 30, 1998, the results of
its operations for the nine-month period ended September 30, 1998 and the year
ended December 31, 1997, the changes in its net assets for the nine-month period
ended September 30, 1998 and for each of the two years in the period ended
December 31, 1997, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 6, 1998
30
<PAGE> 104
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
31
<PAGE> 105
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc., 1998 All rights reserved.
SM denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
32
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 22
Statement of Operations.......................... 23
Statement of Changes in Net Assets............... 24
Financial Highlights............................. 25
Notes to Financial Statements.................... 28
Report of Independent Accountants................ 36
</TABLE>
MIF ANR 11/98
<PAGE> 107
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic
and highly unusual times for global
financial markets. However, the United
States has been relatively unscathed by
the turmoil in many overseas markets.
In fact, the U.S. fixed-income markets
benefited as many investors moved
assets from stocks into more [PHOTO]
conservative fixed-income investments.
The volatility also forced yield
spreads to widen between Treasuries and
high-yield securities, corporate bonds, DENNIS J. MCDONNELL AND DON G. POWELL
and mortgage-backed securities.
We expect that volatility will
remain high until the situation
overseas stabilizes. In this
environment, it is important to stay
focused on long-term investment goals. As we explain elsewhere in this letter,
the U.S. economy remains among the healthiest in the world, and Federal Reserve
policymakers have demonstrated an ability to make prudent decisions with regard
to monetary policy. These factors bode well for investors during the months
ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as
fallout from the global financial crisis finally began to hit home. Weak demand
for American goods in Asia and Latin America caused the U.S. trade deficit to
hit a record $56.5 billion during the second quarter, undermining corporate
profits. Weak earnings, in turn, caused job growth to slow and unemployment to
increase modestly from the 28-year low set earlier this year. Manufacturing
activity fell in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
Continued on page 2
1
<PAGE> 108
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer
section with your portfolio management team, are provided in this report. As
always, we are pleased to have the opportunity to share with you the progress of
your investment.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 109
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on NAV(1)..................... 5.62% 5.05% 4.99%
Nine-month total return(2).................................. 0.58% 1.05% 3.99%
One-year total return based on NAV(1)....................... 8.57% 7.79% 7.73%
One-year total return(2).................................... 3.37% 3.79% 6.73%
Five-year average annual total return(2).................... 4.64% 4.66% 4.88%
Life-of-Fund average annual total return(2)................. 7.31% 5.95% 5.08%
Commencement date........................................... 08/01/90 08/24/92 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)........................................ 5.04% 4.58% 4.58%
Taxable-equivalent distribution rate(4)..................... 7.88% 7.16% 7.16%
SEC Yield(5)................................................ 3.94% 3.34% 3.31%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1998.
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.
Investments in lower-rated, higher-yielding municipal securities involve a
higher degree of risk. Investments in derivative securities will subject the
Fund to greater risk.
Market forecasts provided in this report may not necessarily come to pass.
- --------------------------------------------------------------------------------
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's
fiscal year end from December 31 to September 30. As a result, this
financial report reflects the 9-month transition period commencing on
January 1, 1998 and ending on September 30, 1998.
- --------------------------------------------------------------------------------
3
<PAGE> 110
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges\.
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time. The index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Municipal Income Fund vs. the Lehman Brothers Municipal Bond
Index
(August 1, 1990 through September 30, 1998)
[GRAPH]
<TABLE>
<CAPTION>
Measurement Period Van Kampen Municipal Lehman Brothers Municipal
(Fiscal Year Covered) Income Fund Bond Index
<S> <C> <C>
Aug-90 10000.00 10000.00
Sep-90 9454.00 10006.00
9489.00 10187.10
9674.00 10391.90
9771.00 10437.60
9868.00 10577.50
9974.00 10669.50
9996.00 10673.80
10152.00 10815.70
10301.00 10912.00
10303.00 10901.10
10476.00 11034.00
10605.00 11179.70
Sep-91 10771.00 11325.00
10865.00 11427.00
10931.00 11459.00
11137.00 11705.30
11203.00 11732.20
11218.00 11735.80
11300.00 11740.50
11418.00 11845.00
11566.00 11984.70
11768.00 12186.10
12247.00 12551.60
11960.00 12428.60
Sep-92 12018.00 12509.40
11829.00 12386.80
12068.00 12608.60
12215.00 12737.20
12324.00 12884.90
12818.00 13351.40
12702.00 13209.80
12833.00 13343.20
12933.00 13418.00
13123.00 13642.00
13121.00 13659.80
13376.00 13943.90
Sep-93 13508.00 14102.90
13540.00 14129.70
13362.00 14005.30
13706.00 14300.80
13862.00 14463.90
13498.00 14089.20
12765.00 13515.80
12794.00 13630.70
13004.00 13749.30
12929.00 13665.40
13107.00 13915.50
13154.00 13964.20
Sep-94 12981.00 13758.90
12771.00 13514.00
12489.00 13269.40
12833.00 13561.30
13214.00 13949.20
13597.00 14355.10
13736.00 14520.20
13666.00 14537.60
13936.00 15001.40
13856.00 14870.90
13887.00 15012.10
14076.00 15202.80
Sep-95 14136.00 15298.60
14337.00 15520.40
14614.00 15778.00
14836.00 15929.50
14896.00 16050.60
14804.00 15941.40
14605.00 15737.40
14550.00 15693.30
14631.00 15687.00
14723.00 15858.00
14834.00 16002.30
14877.00 15999.10
Sep-96 15079.00 16223.10
15262.00 16406.40
15516.00 16706.70
15439.00 16636.50
15453.00 16668.10
15578.00 16821.50
15436.00 16597.70
15559.00 16737.20
15735.00 16988.20
15953.00 17170.00
16421.00 17645.60
16192.00 17479.70
Sep-97 16392.00 17687.70
16519.00 17800.90
16594.00 17906.00
16849.00 18167.40
16978.00 18354.50
17011.00 18360.00
17033.00 18376.50
16893.00 18293.80
17187.00 18582.90
17264.00 18655.40
17298.00 18702.00
17596.00 18991.90
Sep-98 17796.00 19229.30
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 111
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because
it is assumed that the issuer will redeem the bond at its call date, rather
than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways
and schools.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
5
<PAGE> 112
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
6
<PAGE> 113
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN MUNICIPAL INCOME FUND
We recently spoke with the management team of the Van Kampen Municipal Income
Fund about the key events and economic forces that shaped the markets during the
reporting period. The team includes David C. Johnson, portfolio manager, and
Peter W. Hegel, chief investment officer for fixed-income investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE CONDITIONS IN THE BOND MARKET DURING THE PAST NINE
MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent.
At the end of the reporting period, the yield on AAA-rated 30-year general
obligation municipal bonds was just slightly less than the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A The Fund represents a cross-section of the municipal market, both in
credit quality and industry sectors. We maximized the Fund's permitted
allocation to higher-yielding, noninvestment grade securities in order to
support the Fund's income potential. As a result, about 23 percent of the Fund's
assets were either nonrated or below investment grade (rated below BBB/Baa).
With the remainder of the Fund's assets, we focused on higher-rated issues to
help provide a degree of stability and total return, with nearly 50 percent of
the Fund's assets rated AAA or AA.
We maintained broad diversification among industry sectors--we believe this
strategy is important for a fund that invests in lower-rated securities.
Although we may invest up to 25 percent of the Fund's assets in one industry, we
currently have just 16 percent in our top sector--health care. Our
second-largest weighting is industrial revenue, which includes airplane and
airport bonds. The health care and industrial revenue sectors don't offer a
large number of insured bonds, so our credit research and analysis are
especially critical in selecting securities from these industries. We constantly
look for opportunities to use Van Kampen's extensive resources in our credit
research. For additional Fund portfolio highlights, please refer to page 9.
Q WHAT KIND OF SECURITIES DID YOU PURCHASE DURING THE REPORTING PERIOD?
A We purchased some noncallable bonds and bonds with long call dates to
protect the Fund's dividend in the event of continued low interest rates.
These bonds yield slightly less than callable bonds, but we feel the small
sacrifice in yield is worthwhile. When interest rates are low, bond issuers
often call their bonds, because they can save money by issuing new bonds at
lower rates. If a bond in the portfolio is called, we must use those assets to
purchase new securities at prevailing interest rates. Losing some of our
higher-yielding bonds and having to replace them with lower-yielding bonds can
put pressure on the Fund's dividend. By purchasing noncallable bonds, we can
help protect the Fund's future dividend. We are pleased to report that the
Fund's monthly dividend of $0.0705 for Class A shares was unchanged during the
reporting period.
7
<PAGE> 114
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A The Fund has performed well in 1998, with a year-to-date total return of
5.62 percent(1) (Class A shares at net asset value). By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 5.84
percent for the same period. This broad-based index of municipal bonds does not
include any commissions or sales charges that would be paid by an investor
purchasing the securities or investments it represents.
The Fund's tax-exempt distribution rate for Class A shares was 5.04
percent,(3) based on a monthly dividend of $0.0705 and a maximum public offering
price of $16.79. For investors in the 36 percent federal income tax bracket, the
Fund's taxable-equivalent distribution rate was 7.88 percent.(4) Please refer to
the chart on page 3 for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET AND THE FUND?
A The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a supportive
environment for bonds. (Editor's note: After the reporting period ended,
the Fed reduced interest rates again by 0.25 percent.) The supply of municipal
bond issues looks like it will remain heavy, as low interest rates spark further
refunding of outstanding bond issues and bring new municipal bonds into the
marketplace. As more investors recognize the value available in the municipal
market, demand is likely to increase and municipal bonds could see favorable
returns in coming months.
With municipal bonds trading at attractive levels relative to Treasuries,
the Fund offers value across a variety of credit and industry sectors in the
municipal market. A continuation of low interest rates, however, could make the
Fund's higher-yielding bonds vulnerable to calls, thereby pressuring the Fund's
dividend. To help protect the Fund, we will seek to purchase bonds with
attractive call features, while balancing these higher-rated issues with
higher-yielding securities.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
David C. Johnson
Portfolio Manager
Please see footnotes on page 3
8
<PAGE> 115
PORTFOLIO HIGHLIGHTS
VAN KAMPEN MUNICIPAL INCOME FUND
TOP TEN STATES/TERRITORIES AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois.................................................... 9.6%
New York.................................................... 9.0%
Florida..................................................... 7.2%
Texas....................................................... 6.5%
California.................................................. 6.3%
Michigan.................................................... 4.9%
Colorado.................................................... 4.8%
Puerto Rico................................................. 3.6%
Pennsylvania................................................ 3.6%
Georgia..................................................... 3.5%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA............ 44.4% AAA............ 42.1%
AA............. 5.4% AA............. 7.0%
A.............. 13.0% [PIE CHART] A.............. 10.3% [PIE CHART]
BBB............ 14.4% BBB............ 18.0%
BB............. 0.7% BB............. 1.1%
Non-Rated...... 22.1% Non-Rated...... 21.5%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Health Care........................... 15.7%
Industrial Revenue.................... 11.6%
Public Building....................... 11.2%
General Purpose....................... 9.4%
Transportation........................ 7.8%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Health Care........................... 16.2%
Industrial Revenue.................... 14.0%
General Purpose....................... 7.7%
Public Building....................... 7.6%
Tax District.......................... 6.9%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 7.85 years 7.51 years
</TABLE>
(1) Unaudited
9
<PAGE> 116
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 104.0%
ALABAMA 2.0%
$ 2,100 Alabama St Indl Dev Auth Rev UNR-ROHN Inc Expansion
Proj........................................................ 7.500% 09/15/11 $ 2,380,264
3,045 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser A (AMBAC
Insd)....................................................... 4.750 08/15/17 3,039,184
2,000 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser A (AMBAC
Insd)....................................................... 4.750 08/15/18 1,983,380
2,930 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln Ser A (AMBAC
Insd) (b)................................................... 6.750 08/15/17 3,344,742
525 Bessemer, AL Indl Dev Brd ROHN Inc Proj..................... 9.000 09/15/01 570,953
1,750 Bessemer, AL Indl Dev Brd ROHN Inc Proj..................... 9.500 09/15/11 2,251,638
250 Mobile, AL Indl Dev Brd Solid Waste Disp Rev Mobile Energy
Svcs Co Proj Rfdg........................................... 6.950 01/01/20 130,000
1,000 Montgomery, AL Med Clinic Brd Jackson Hosp & Clinic (AMBAC
Insd)....................................................... 5.875 03/01/16 1,089,970
5,150 West Jefferson Cnty, AL Amusement & Pub Pk Auth First Mtg
Visionland Proj............................................. 8.000 12/01/26 5,572,145
--------------
20,362,276
--------------
ALASKA 2.0%
2,500 Alaska Energy Auth Pwr Rev Bradley Lake Proj Ser 1 (BIGI
Insd) (b)................................................... 6.250 07/01/21 2,547,950
1,250 Alaska Indl Dev & Expt Auth Pwr Rev Snettisham Hydroelec
First Ser (AMBAC Insd)...................................... 5.500 01/01/16 1,324,137
1,260 Alaska Indl Dev & Expt Auth Pwr Rev Snettisham Hydroelec
First Ser (AMBAC Insd)...................................... 5.500 01/01/17 1,331,581
5,000 Alaska Indl Dev & Expt Auth Pwr Rev Snettisham Hydroelec
First Ser (AMBAC Insd)...................................... 5.375 01/01/34 5,139,800
1,000 Alaska Indl Dev and Expt Auth Pwr Rev Upper Lynn Canal Regl
Pwr......................................................... 5.700 01/01/12 1,014,510
1,800 Alaska Indl Dev and Expt Auth Pwr Rev Upper Lynn Canal Regl
Pwr......................................................... 5.875 01/01/32 1,832,598
6,500 North Slope Borough, AK Cap Apprec Ser A (MBIA Insd)........ * 06/30/09 4,071,145
3,265 North Slope Borough, AK Cap Apprec Ser A (MBIA Insd)........ * 06/30/10 1,935,525
1,000 Valdez, AK Marine Term Rev Sohio Pipeline Rfdg.............. 7.125 12/01/25 1,120,300
--------------
20,317,546
--------------
ARIZONA 2.1%
1,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family Hsg Rev Rfdg... 6.500 07/01/09 1,081,310
595 Pima Cnty, AZ Indl Dev Auth Single Family Mtg Rev (GNMA
Collateralized)............................................. 6.625 11/01/14 637,055
5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A (b).............. 9.500 07/01/10 5,817,116
500 Scottsdale, AZ Indl Dev Auth Rev First Mtg Westminster Vlg
Ser A Rfdg.................................................. 8.250 06/01/15 574,775
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)................................................ 6.000 09/01/12 2,090,925
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)................................................ 6.125 09/01/17 1,946,927
1,500 Sedona, AZ Wastewtr Muni Ppty Corp Excise Tax Rev Rfdg (MBIA
Insd)....................................................... * 07/01/21 496,155
1,000 Sedona, AZ Wastewtr Muni Ppty Corp Excise Tax Rev Rfdg (MBIA
Insd)....................................................... * 07/01/23 299,540
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev Lockheed Aermod Cent
Inc (b)..................................................... 8.700 09/01/19 7,728,280
--------------
20,672,083
--------------
ARKANSAS 0.9%
5,230 Dogwood Addition PRD Muni Ppty Owners Multi-Purp Impt Dist
No 8 AR Impt Ser A (d)(f)................................... 7.500 01/31/06 5,020,800
5,470 Dogwood Addition PRD Muni Ppty Owners Multi-Purp Impt Dist
No 8 AR Impt Ser B (d)(f)................................... 7.500 01/31/06 1,641,000
1,925 Jackson Cnty, AR Hlthcare Fac Brd First Mtg Hosp Rev Newport
Hosp & Clinic Inc........................................... 7.375 11/01/11 2,035,668
--------------
8,697,468
--------------
CALIFORNIA 6.6%
25,855 Anaheim, CA Pub Fin Auth Cap Apprec Sub Pub Impts Proj C
(FSA Insd).................................................. * 09/01/24 7,193,895
8,945 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Sub Pub Impts
Proj C (FSA Insd)........................................... * 09/01/21 2,897,643
10,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Sub Pub Impts
Proj C (FSA Insd)........................................... * 09/01/22 3,079,700
25,865 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Sub Pub Impts
Proj C (FSA Insd)........................................... * 09/01/23 7,571,720
5,000 Anaheim, CA Pub Fin Auth Lease Rev Cap Apprec Sub Pub Impts
Proj C (FSA Insd)........................................... * 09/01/25 1,322,100
5,105 California Edl Fac Auth Rev College of Osteopathic Med
Pacific (Prerefunded @ 06/01/03)............................ 7.500 06/01/18 5,870,035
2,880 California Edl Fac Auth Rev Univ of La Verne................ 6.300 04/01/09 3,108,730
4,285 Delano, CA Ctfs Partn Ser A (Prerefunded @ 01/01/03)........ 9.250 01/01/22 5,339,496
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd)....... * 09/01/10 1,444,433
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd)....... * 09/01/11 2,965,171
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd)....... * 09/01/13 1,700,086
</TABLE>
See Notes to Financial Statements
10
<PAGE> 117
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC Insd)....... * 09/01/14 $ 2,207,838
3,500 Escondido, CA Union High Sch Dist Cap Apprec (MBIA Insd).... * 11/01/19 1,259,825
5,000 Escondido, CA Union High Sch Dist Cap Apprec (MBIA Insd).... * 11/01/20 1,711,650
900 Fairfield, CA Hsg Auth Mtg Rev Creekside Estates Proj
Rfdg........................................................ 7.875% 02/01/15 942,759
1,000 Madera Cnty, CA Ctfs Partn Vly Children's Hosp (MBIA
Insd)....................................................... 6.125 03/15/23 1,154,880
2,825 Midpeninsula Regl Dist CA Fin Auth Rev (AMBAC Insd)......... * 09/01/15 1,258,820
1,155 Midpeninsula Regl Open Space CA (AMBAC Insd)................ * 09/01/19 415,708
1,265 Midpeninsula Regl Open Space CA (AMBAC Insd)................ * 09/01/22 389,582
1,380 Midpeninsula Regl Open Space CA (AMBAC Insd)................ * 09/01/25 364,900
900 Monterey, CA Regl Wastewtr Fin Auth Wastewtr Contract Rev
(FSA Insd).................................................. * 06/01/10 521,919
800 Monterey, CA Regl Wastewtr Fin Auth Wastewtr Contract Rev
(FSA Insd).................................................. * 06/01/11 434,664
700 Monterey, CA Regl Wastewtr Fin Auth Wastewtr Contract Rev
(FSA Insd).................................................. * 06/01/12 357,385
700 Monterey, CA Regl Wastewtr Fin Auth Wastewtr Contract Rev
(FSA Insd).................................................. * 06/01/13 334,733
700 Monterey, CA Regl Wastewtr Fin Auth Wastewtr Contract Rev
(FSA Insd).................................................. * 06/01/14 315,259
2,865 Paramount, CA Uni Sch Dist Cap Apprec Ser A (FSA Insd)...... * 09/01/22 890,585
4,000 Riverside Cnty, CA Air Force Vlg West Inc Ser A Rfdg........ 8.125 06/15/20 4,445,600
15,920 San Joaquin Hills, CA Tran Corridor Agy Toll Rd Rev Cap
Apprec Rfdg Ser A (MBIA Insd)............................... * 01/15/25 4,391,532
2,000 Santa Ana, CA Cmnty Redev Agy Tax Alloc Ser B Rfdg.......... 7.500 09/01/16 2,078,360
--------------
65,969,008
--------------
COLORADO 5.0%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A.................. 8.875 08/01/11 4,005,110
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A.................. 8.875 08/01/12 5,774,624
10,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser
C (Prerefunded @ 08/31/05).................................. * 08/31/26 1,654,485
500 Berry Creek Metro Dist CO Rfdg & Impt....................... 8.250 12/01/11 547,845
1,000 Bowles Metro Dist CO........................................ 7.750 12/01/15 1,067,380
2,000 Denver, CO City & Cnty Arpt Rev Ser A (b)................... 7.000 11/15/99 2,070,220
7,810 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.500 11/15/23 8,632,549
4,570 Denver, CO City & Cnty Arpt Rev Ser A....................... 8.000 11/15/25 4,995,513
740 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @
11/15/00)................................................... 8.500 11/15/23 826,691
430 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @
11/15/00)................................................... 8.000 11/15/25 476,019
2,200 Denver, CO City & Cnty Spl Fac Arpt Rev United Airls Proj
Ser A....................................................... 6.875 10/01/32 2,392,456
1,000 Edgewater, CO Redev Auth Tax Increment Rev.................. 6.750 12/01/08 1,100,650
1,320 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (MBIA
Insd)....................................................... * 12/15/14 568,141
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (MBIA
Insd)....................................................... * 12/15/15 574,077
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (MBIA
Insd)....................................................... * 12/15/16 535,965
1,330 El Paso Cnty, CO Sch Dist No 003 Widefield Ser A (MBIA
Insd)....................................................... * 12/15/18 439,844
3,690 Jefferson Cnty, CO Residential Mtg Rev...................... 11.500 09/01/12 6,348,350
5,000 Meridian Metro Dist CO Peninsular & Oriental Steam Navig Co
Rfdg (b).................................................... 7.500 12/01/11 5,484,250
2,000 Northern Metro Dist CO Adams Cnty Rfdg...................... 6.500 12/01/16 2,172,900
--------------
49,667,069
--------------
CONNECTICUT 1.8%
5,005 Connecticut St Hlth & Edl Fac Auth Rev Nursing Home Pgm
AHF/Hartford (b)............................................ 7.125 11/01/14 5,839,433
2,530 Mashantucket Western Pequot Tribe CT Spl Rev Ser A,
144A-Private Placement (a).................................. 6.400 09/01/11 2,825,150
495 Mashantucket Western Pequot Tribe CT Spl Rev Ser A,
144A-Private Placement (a).................................. 6.500 09/01/06 577,101
505 Mashantucket Western Pequot Tribe CT Spl Rev Ser A,
144A-Private Placement (a).................................. 6.500 09/01/06 579,245
2,470 Mashantucket Western Pequot Tribe CT Spl Rev Ser A,
144A-Private Placement (Prerefunded @ 09/01/07) (a)......... 6.400 09/01/11 2,908,944
4,000 Mashantucket Western Pequot Tribe CT Spl Rev Ser B,
144A-Private Placement (a).................................. 5.750 09/01/18 4,220,600
1,500 Mashantucket Western Pequot Tribe CT Spl Rev Ser B, 144-A
(a)......................................................... 5.750 09/01/27 1,578,870
--------------
18,529,343
--------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 118
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA 0.3%
$ 2,500 District of Columbia Rev Natl Pub Radio Ser A (b)........... 7.700% 01/01/23 $ 2,749,425
--------------
FLORIDA 7.4%
430 Atlantic Beach, FL Rev Fleet Landing Proj Ser A Rfdg &
Impt........................................................ 7.500 10/01/02 451,874
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A Rfdg &
Impt........................................................ 7.875 10/01/08 571,430
1,865 Boca Raton, FL Comm Redev Agy Mizner Park Proj Rfdg (FSA
Insd) (c)................................................... 4.500 03/01/12 1,865,709
1,500 Boca Raton, FL Comm Redev Agy Mizner Park Proj Rfdg (FSA
Insd) (c)................................................... 4.600 03/01/13 1,506,000
2,000 Boca Raton, FL Comm Redev Agy Mizner Park Proj Rfdg (FSA
Insd) (c)................................................... 4.625 03/01/14 1,997,740
1,565 Broward Cnty, FL Res Recovery Rev Waste Energy North Proj... 7.950 12/01/08 1,676,584
2,050 Broward Cnty, FL Res Recovery Rev Waste Energy South Proj... 7.950 12/01/08 2,196,165
24,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec Ser A Rfdg
(MBIA Insd)................................................. * 02/01/18 8,349,360
1,800 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apts Ser C......... 6.610 07/01/38 1,835,136
3,000 Florida Hsg Fin Corp Rev Hsg Cypress Trace Apts Ser G....... 6.600 07/01/38 3,056,100
2,000 Florida Hsg Fin Corp Rev Hsg Westchase Apts Ser B........... 6.610 07/01/38 2,039,040
560 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg............ 7.250 06/01/23 600,326
590 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg
(Prerefunded @ 06/01/00).................................... 7.250 06/01/23 636,291
5,000 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj Rfdg.......... 5.750 04/01/18 5,222,400
2,875 Martin Cnty, FL Indl Dev Auth Indl Dev Rev Indiantown
Cogeneration Proj A Rfdg (b)................................ 7.875 12/15/25 3,388,504
1,840 Northern Palm Beach Cnty Impt Dist FL Wtr Ctl & Impt Unit
Dev 5A Rfdg................................................. 6.000 08/01/10 1,892,477
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg Orlando Lutheran
Twr Rfdg.................................................... 8.750 07/01/26 1,790,850
595 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC Insd)............ 6.000 10/01/16 618,324
405 Orange Cnty, FL Tourist Dev Tax Rev (Prerefunded @ 10/01/00)
(AMBAC Insd)................................................ 6.000 10/01/16 424,100
5,000 Saint John's River Wtr Mgmt Dist FL Land Acquisition Rev
Rfdg (FSA Insd)............................................. 5.125 07/01/16 5,129,500
4,140 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Pk (Prerefunded @ 07/01/02) (b)............ 10.000 07/01/22 5,063,758
5,000 Sarasota Cnty, FL Public Hosp Brd Miles Sarasota Mem Hosp
Proj Ser A (MBIA Insd) (Embedded Cap)....................... * 10/01/21 4,700,000
17,045 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd).................. 5.000 10/01/28 17,557,884
1,000 Tampa Palms, FL Open Space & Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj............................................ 7.500 05/01/18 1,075,690
880 Tampa Palms, FL Open Space & Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj............................................ 8.500 05/01/17 978,965
--------------
74,624,207
--------------
GEORGIA 3.6%
3,000 Atlanta, GA Arpt Fac Rev.................................... 6.250 01/01/21 3,171,600
2,000 Atlanta, GA Urban Residential Fin Auth Multi-Family Rev..... 6.750 07/01/30 2,045,340
2,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg Rev............... 6.500 02/01/28 2,038,340
2,000 George L Smith II GA Wrld Congress Cent Auth Rev Domed
Stadium Proj Rfdg (MBIA Insd) (c)........................... 5.500 07/01/20 2,012,460
25,550 Georgia Local Govt Ctfs Partn Grantor Trust Ser A (MBIA
Insd)....................................................... 4.750 06/01/28 25,235,735
1,500 Georgia Muni Elec Auth Pwr Rev Ser X (MBIA Insd)............ 6.500 01/01/20 1,854,495
--------------
36,357,970
--------------
HAWAII 2.7%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA Insd)................ 6.350 07/01/07 4,528,746
14,100 Hawaii St Dept Budget & Fin Spl Purp Rev Hawaiian Elec Co
(MBIA Insd) (b)............................................. 6.550 12/01/22 15,565,695
2,350 Hawaii St Dept Tran Spl Fac Rev Continental Airls Inc....... 9.700 06/01/20 2,575,929
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd)................... 6.350 07/01/07 1,647,324
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd)................... 6.400 07/01/08 1,745,593
500 Hawaii St Harbor Cap Impt Rev (MBIA Insd)................... 7.000 07/01/17 534,655
--------------
26,597,942
--------------
ILLINOIS 10.0%
4,310 Bedford Park, IL Tax Increment Rev Sr Lien Bedford City Sq
Proj........................................................ 9.250 02/01/12 4,957,017
1,350 Bridgeview, IL Tax Increment Rev Rfdg....................... 9.000 01/01/11 1,576,935
6,590 Broadview, IL Tax Increment Rev Sr Lien..................... 8.250 07/01/13 7,545,748
1,000 Chicago, IL Gas Supply Rev Ser A............................ 8.100 05/01/20 1,080,940
</TABLE>
See Notes to Financial Statements
12
<PAGE> 119
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr Chicago.......... 7.000% 01/01/11 $ 1,241,450
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc... 8.500 05/01/18 4,313,360
4,765 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc
Ser B....................................................... 8.950 05/01/18 5,308,639
1,945 Chicago, IL Single Family Mtg Rev Ser A (GNMA
Collateralized)............................................. 7.000 09/01/27 2,189,662
490 Chicago, IL Tax Increment Alloc San Drain & Ship Canal Ser
A........................................................... 7.375 01/01/05 524,663
1,000 Chicago, IL Tax Increment Alloc San Drain & Ship Canal Ser
A........................................................... 7.750 01/01/14 1,104,120
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago Ctfs Partn
(FGIC Insd)................................................. 8.750 01/01/07 1,310,950
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak Park (FSA
Insd)....................................................... * 12/01/07 1,545,817
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak Park (FSA
Insd)....................................................... * 12/01/08 1,468,037
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak Park (FSA
Insd)....................................................... * 12/01/09 1,391,457
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak Park (FSA
Insd)....................................................... * 12/01/10 1,316,305
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak Park (FSA
Insd)....................................................... * 12/01/11 1,242,783
1,500 Cook Cnty, IL Ser A Rfdg.................................... 5.000 11/15/22 1,498,875
1,000 Crestwood, IL Tax Increment Rev Rfdg........................ 7.250 12/01/08 1,083,620
1,200 Hodgkins, IL Tax Increment.................................. 9.500 12/01/09 1,415,052
3,300 Hodgkins, IL Tax Increment (Prerefunded @ 12/01/01)......... 9.500 12/01/09 3,880,206
1,500 Hodgkins, IL Tax Increment Ser A Rfdg....................... 7.625 12/01/13 1,682,025
1,500 Huntley, IL Increment Alloc Rev Huntley Redev Proj Ser A.... 8.500 12/01/15 1,768,215
1,000 Illinois Dev Fin Auth Elderly Hsg Rev Libertyville Towers
Ser A....................................................... 6.500 09/01/09 1,066,910
605 Illinois Dev Fin Auth Rev Cmnty Fac Clinic Altgeld Proj..... 8.000 11/15/06 684,013
1,000 Illinois Edl Fac Auth Rev Lake Forest College (Prerefunded @
10/01/01) (FSA Insd)........................................ 6.750 10/01/21 1,105,500
2,575 Illinois Edl Fac Auth Rev Lewis Univ Rfdg................... 6.000 10/01/24 2,683,665
1,000 Illinois Edl Fac Auth Rev Northwestern Univ Ser 1985
(Prerefunded @ 12/01/01).................................... 6.900 12/01/21 1,113,950
1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries Proj......... 7.500 08/15/26 1,112,850
1,830 Illinois Hlth Fac Auth Rev Midwest Physician Grp Ltd Rfdg... 5.500 11/15/19 1,827,603
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig Group Proj A
(Prerefunded @ 10/01/02).................................... 9.500 10/01/22 5,014,423
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group Proj B
(Prerefunded @ 10/01/02).................................... 9.000 10/01/22 2,410,580
1,500 Illinois Hlth Fac Auth Rev Fairview Oblig Group Ser A
Rfdg........................................................ 7.400 08/15/23 1,688,820
505 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D.......... 9.500 11/15/15 575,225
425 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D
(Prerefunded @ 11/15/00).................................... 9.500 11/15/15 483,352
1,000 Illinois Hlth Fac Auth Rev Mem Hosp (Prerefunded @
05/01/02)................................................... 7.250 05/01/22 1,129,370
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem Hosp............ 6.750 08/15/11 1,091,200
2,600 Illinois Hlth Fac Auth Rev United Med Cent (Prerefunded @
07/01/03)................................................... 8.375 07/01/12 3,089,528
3,350 Illinois Hsg Dev Auth Residential Mtg Rev (Inverse Fltg).... 9.714 02/13/18 3,802,250
1,450 Mc Lean & Woodford Cntys, IL Cmty Unit Sch Dist No 005
Normal...................................................... 4.500 01/01/16 1,396,785
1,135 Mill Creek Wtr Reclamation Dist IL Sewage Rev............... 8.000 03/01/10 1,315,624
685 Mill Creek Wtr Reclamation Dist IL Wtrwrks Rev.............. 8.000 03/01/10 794,011
1,000 Palatine, IL Tax Increment Rev Rand/Dundee Cent Proj
(Prerefunded @ 01/01/07).................................... 7.750 01/01/17 1,222,140
2,800 Regional Tran Auth IL Ser A (AMBAC Insd) (b)................ 8.000 06/01/17 3,942,008
7,500 Robbins, IL Res Recovery Rev................................ 8.375 10/15/16 6,000,000
3,000 Robbins, IL Res Recovery Rev Recreation Robbins Res Partn
Ser B....................................................... 8.375 10/15/16 2,400,000
820 Round Lake Beach, IL Tax Increment Rev Rfdg................. 7.200 12/01/04 906,166
500 Round Lake Beach, IL Tax Increment Rev Rfdg................. 7.500 12/01/13 550,185
1,575 Saint Charles, IL Indl Dev Rev Tri-City Cent Proj........... 7.500 11/01/13 1,680,997
1,240 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A (MBIA Insd).... 5.800 04/01/10 1,345,995
--------------
99,879,026
--------------
INDIANA 2.5%
1,000 East Chicago, IN Exempt Fac Inland Steel Co Proj No 14...... 6.700 11/01/12 1,096,900
2,750 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl Hosp Inc........ 7.000 07/01/12 3,044,855
</TABLE>
See Notes to Financial Statements
13
<PAGE> 120
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIANA (CONTINUED)
$ 1,650 Indiana Bond Bank Spl Pgm Hendricks Redev Ser B............. 6.125% 02/01/17 $ 1,831,087
3,125 Indiana Bond Bank Spl Pgm Hendricks Redev Ser B............. 6.200 02/01/23 3,463,375
1,000 Indiana Hlth Fac Fin Auth Rev Ancilla Sys Inc Oblig Grp
(MBIA Insd)................................................. 5.250 07/01/17 1,035,250
7,920 Indiana St Dev Fin Auth Environmental USX Corp Proj Rfdg &
Impt........................................................ 6.250 07/15/30 8,633,196
1,500 Indiana Univ Rev Student Fee Ser L.......................... 5.000 08/01/17 1,516,620
550 Indianapolis, IN Loc Pub Impt Bond Bank Ser D............... 6.750 02/01/14 668,668
450 Indianapolis, IN Loc Pub Impt Bond Bank Ser D............... 6.500 02/01/22 450,950
1,000 Marion Cnty, IN Hosp Auth Hosp Fac Rev...................... 6.500 09/01/13 1,055,380
140 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/11 55,082
140 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/12 51,024
135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/13 45,619
130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/14 40,693
130 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/15 37,729
135 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/16 36,293
225 Saint Joseph Cnty, IN Redev Dist Tax Increment Rev Ser B.... * 06/30/17 56,034
1,500 Wells Cnty, IN Hosp Auth Rev Caylor-Nickel Med Cent Inc
Rfdg........................................................ 8.500 04/15/03 1,694,610
--------------
24,813,365
--------------
IOWA 0.7%
2,045 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA
Insd)....................................................... 6.000 07/01/07 2,308,130
2,500 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp Proj (FSA
Insd)....................................................... 5.750 07/01/17 2,720,500
2,000 Iowa Fin Auth Multi-Family Rev Hsg Hamlet Apts Proj A Rfdg
(GNMA Collateralized)....................................... 6.150 05/01/32 2,134,600
--------------
7,163,230
--------------
KANSAS 0.1%
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser A (Prerefunded
@ 11/15/04)................................................. 7.750 11/15/24 1,217,250
--------------
KENTUCKY 1.3%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds Inc Rfdg......... 6.550 03/01/09 1,070,270
10,950 Jefferson Cnty, KY Cap Projs Corp Rev Muni Multi-Lease Ser
A........................................................... * 08/15/14 3,691,902
4,000 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys Proj (Inverse
Fltg) (MBIA Insd)........................................... 8.699 10/09/08 4,795,000
1,250 Kentucky Econ Dev Fin Auth Med Cent Rev Ashland Hosp Corp
Ser A Rfdg & Impt (FSA Insd)................................ 6.125 02/01/12 1,373,912
1,275 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA Gtd)................ 7.450 01/01/23 1,360,527
1,000 Kentucky St Tpk Auth Toll Rd Rev Ser A...................... 5.500 07/01/07 1,003,730
--------------
13,295,341
--------------
LOUISIANA 0.7%
500 Hodge, LA Util Rev Stone Container Corp Ser 1990............ 9.000 03/01/10 533,870
1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev Advanced Polymer
Proj Ser 1985............................................... 10.000 11/15/04 2,505,549
1,000 Lake Charles, LA Harbor & Terminal Dist Port Fac Rev
Trunkline Rfdg.............................................. 7.750 08/15/22 1,151,400
405 Louisiana Pub Fac Auth Rev Indl Dev Beverly Enterprises Inc
Rfdg........................................................ 8.250 09/01/08 451,041
800 Port New Orleans, LA Indl Dev Rev Avondale Inds Inc Proj
Rfdg........................................................ 8.250 06/01/04 887,472
1,400 West Feliciana Parish, LA Pollutn Ctl Rev Gulf States Util
Co Proj Ser A............................................... 7.500 05/01/15 1,564,206
--------------
7,093,538
--------------
MARYLAND 0.2%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem Steel Corp Proj
Ser A Rfdg.................................................. 7.550 06/01/17 1,659,705
--------------
MASSACHUSETTS 2.1%
1,000 Boston, MA Rev Boston City Hosp Ser A (FHA Gtd) (Prerefunded
@ 08/15/00)................................................. 7.625 02/15/21 1,088,710
1,400 Massachusetts Edl Ln Auth Rev Edl Ln Rev Muni Forwards Issue
E Ser A (AMBAC Insd)........................................ 7.000 01/01/10 1,508,556
6,200 Massachusetts St Hlth & Edl Fac Auth Rev New England Med
Cent Hosp Ser G (Embedded Swap) (MBIA Insd)................. 3.100 07/01/13 6,175,014
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl Cent Inc Proj... 8.450 07/01/18 1,747,470
5,000 Massachusetts St Indl Fin Agy Rev First Mtg Reeds Landing
Proj........................................................ 8.625 10/01/23 5,716,150
970 Massachusetts St Indl Fin Agy Rev Gtr Lynn Mental Hlth Assoc
Proj........................................................ 8.800 06/01/14 1,173,787
</TABLE>
See Notes to Financial Statements
14
<PAGE> 121
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 1,000 Massachusetts St Indl Fin Agy Rev Wtr Treatment American
Hingham..................................................... 6.600% 12/01/15 $ 1,099,490
2,000 Plymouth Cnty, MA Ctfs Partn Ser A.......................... 7.000 04/01/22 2,251,260
--------------
20,760,437
--------------
MICHIGAN 5.1%
3,500 Detroit, MI Downtown Dev Auth Tax Increment Rev (Prerefunded
@ 07/01/06)................................................. 6.200 07/01/17 4,053,805
1,000 Detroit, MI Loc Dev Fin Auth Ser C.......................... 6.850 05/01/21 1,048,960
3,000 Grand Traverse Cnty, MI Hosp Munson Hlthcare Ser A Rfdg
(AMBAC Insd)................................................ 5.000 07/01/28 2,983,650
2,000 Grand Traverse Cnty, MI Hosp Fin Auth Hosp Rev Munson
Hlthcare Ser A Rfdg (AMBAC Insd)............................ 6.250 07/01/12 2,181,260
1,500 Grand Valley MI St Univ Rev Gen (FGIC Insd)................. 5.500 02/01/18 1,660,335
1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale Cmty Hlth
Cent........................................................ 5.250 05/15/26 1,378,832
19,370 Kent Cnty, MI Bldg Auth..................................... 5.000 06/01/26 19,420,168
1,750 Michigan St Hosp Fin Auth Rev Rfdg Hosp Detroit Med Group A
(AMBAC Insd)................................................ 5.250 08/15/27 1,788,465
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl Med Rfdg
(ACA Insd).................................................. 5.500 10/01/18 1,025,320
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl Med Rfdg
(ACA Insd).................................................. 5.500 10/01/27 2,043,900
3,915 Michigan St House Representatives Ctfs Part (AMBAC Insd).... * 08/15/24 1,095,300
6,760 Michigan St Strategic Fd Ltd Oblig Rev Great Lakes Pulp &
Fiber Proj (e).............................................. 8.000 12/01/27 6,106,678
4,500 Michigan St Strategic Fd Solid Waste Disp Rev Genesee Pwr
Station Proj................................................ 7.500 01/01/21 4,920,435
1,000 Mount Clemens, MI Hsg Corp Multi-Family Rev Hsg Ser A Rfdg
(FHA Gtd)................................................... 6.600 06/01/13 1,069,580
--------------
50,776,688
--------------
MINNESOTA 0.4%
1,000 North Saint Paul, MN Multi-Family Rev Hsg Cottages North
Saint Paul Rfdg............................................. 9.250 02/01/22 1,078,820
2,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A Rfdg...... 5.000 01/01/16 1,999,900
1,250 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser C........... 5.000 01/01/17 1,249,912
--------------
4,328,632
--------------
MISSISSIPPI 0.7%
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn Ctl Rev
Weyerhaeuser Co Rfdg (Inverse Fltg)......................... 8.250 04/01/22 6,167,200
1,155 Ridgeland, MS Urban Renewal Rev the Orchard Ltd Proj Ser A
Rfdg........................................................ 7.750 12/01/15 1,269,622
--------------
7,436,822
--------------
MISSOURI 2.2%
1,000 Kansas City, MO Multi-Family Hsg Rev Vlg Green Apts Proj.... 6.250 04/01/30 1,019,720
2,835 Kansas City, MO Port Auth Fac Riverfront Park Proj Ser A
(b)......................................................... 5.750 10/01/06 3,116,912
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev John Knox Vlg
Proj Rfdg & Impt............................................ 7.125 08/15/12 2,140,320
1,330 Missouri St Econ Dev Export & Infrastructure Brd Med Office
Fac Rev (MBIA Insd) (b)..................................... 7.250 06/01/04 1,463,838
3,920 Missouri St Econ Dev Export & Infrastructure Brd Med Office
Fac Rev (Prerefunded @ 06/01/04) (MBIA Insd) (b)............ 7.250 06/01/14 4,652,609
1,000 Missouri St Hlth & Edl Fac Auth Rfdg & Impt................. 8.125 10/01/10 1,068,090
5,000 Missouri St Hlth & Edl Fac Rev Bjc Hlth Sys (c)............. 5.000 05/15/28 4,950,100
2,165 Saint Louis Cnty, MO Indl Dev Auth Nursing Home Rev Mary
Queen & Mother Proj Rfdg (GNMA Collateralized).............. 7.125 03/20/23 2,358,399
845 Saint Louis, MO Tax Increment Rev Scullin Redev Area Ser
A........................................................... 10.000 08/01/10 1,083,755
--------------
21,853,743
--------------
NEBRASKA 0.7%
700 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 9.413 09/15/24 791,875
1,000 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 11.429 09/10/30 1,229,250
4,100 Nebraska Invt Fin Auth Single Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)....................................... 10.065 10/17/23 4,612,500
--------------
6,633,625
--------------
NEVADA 0.7%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd)................................................. 6.700 06/01/22 4,384,360
2,080 Henderson, NV Loc Impt Dist No T-4 Ser A.................... 8.500 11/01/12 2,169,232
--------------
6,553,592
--------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 122
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW HAMPSHIRE 0.7%
$ 1,555 New Hampshire Higher Edl & Hlth Fac Auth Rev................ 8.800% 06/01/09 $ 1,905,481
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev Daniel Webster
College Issue Rfdg.......................................... 7.625 07/01/16 2,221,000
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev New London Hosp
Assn Proj................................................... 7.500 06/01/05 1,143,560
980 New Hampshire St Business Fin Auth Elec Fac Rev Plymouth
Cogeneration................................................ 7.750 06/01/14 1,066,054
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC Insd)......... 6.750 11/01/11 1,184,130
--------------
7,520,225
--------------
NEW JERSEY 3.3%
400 Atlantic City, NJ Brd Edl Sch (Prerefunded @ 12/01/02)
(AMBAC Insd)................................................ 6.125 12/01/11 443,624
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty Gtd (Prerefunded @
10/01/04) (MBIA Insd)....................................... 6.150 10/01/14 284,605
2,000 Camden Cnty, NJ Impt Auth Lease Rev Dockside Refrigerated... 8.400 04/01/24 2,269,540
500 Essex Cnty, NJ Impt Auth Lease Cnty Jail Proj A (MBIA
Insd)....................................................... 5.600 12/01/16 543,845
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth House Proj
(Prerefunded @ 12/01/04) (AMBAC Insd)....................... 6.600 12/01/07 291,445
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd)..................... 5.375 09/01/10 400,595
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac Rfdg
(MBIA Insd)................................................. 6.600 12/01/21 273,008
250 Lacey Muni Util Auth NJ Wtr Rev (Prerefunded @ 12/01/04)
(MBIA Insd)................................................. 6.250 12/01/24 286,680
250 Mercer Cnty, NJ Impt Auth Rev Cap Apprec.................... * 04/01/11 143,320
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg
(MBIA Insd) (b)............................................. 6.250 08/15/10 7,266,747
500 Millburn Twp, NJ Brd Ed..................................... 5.350 07/15/12 551,140
1,000 New Jersey Bldg Auth St Bldg Rev............................ 5.000 06/15/18 1,004,170
500 New Jersey Econ Dev Auth Dist Heating & Cooling Rev Trigen
Trenton Ser A............................................... 6.200 12/01/10 535,690
2,000 New Jersey Econ Dev Auth Holt Hauling & Warehsg Rev Ser G
Rfdg........................................................ 8.400 12/15/15 2,198,520
300 New Jersey Econ Dev Auth Mkt Transition Fac Rev Sr Lien
Ser A (MBIA Insd)........................................... 5.800 07/01/09 330,957
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub Svcs Elec & Gas
Co Proj A (MBIA Insd)....................................... 6.400 05/01/32 233,940
1,900 New Jersey Econ Dev Auth Rev First Mtg Winchester Gardens
Ser A....................................................... 8.500 11/01/16 2,156,633
350 New Jersey Econ Dev Auth Rev RWJ Hlthcare Corp
(FSA Insd).................................................. 6.250 07/01/14 390,957
1,000 New Jersey Econ Dev Auth Rev United Methodist Homes......... 7.500 07/01/20 1,124,080
1,000 New Jersey Econ Dev Auth Rev United Methodist Homes Oblig
Ser A....................................................... 7.500 07/01/25 1,124,080
300 New Jersey Econ Dev Auth Wtr Fac Rev Hackensack Wtr Co Proj
B Rfdg (MBIA Insd).......................................... 5.900 03/01/24 321,624
490 New Jersey Hlthcare Fac Fin Auth Rev Atlantic City Med Cent
Ser C Rfdg.................................................. 6.800 07/01/11 543,508
700 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp Group Issue
(Connie Lee Insd)........................................... 7.000 07/01/04 806,323
400 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp Group Issue
(Connie Lee Insd)........................................... 7.000 07/01/06 473,860
250 New Jersey Hlthcare Fac Fin Auth Rev Englewood Hosp & Med
Cent........................................................ 6.700 07/01/15 276,880
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp Cent at
Passaic (FSA Insd).......................................... 6.000 07/01/06 284,010
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp Cent at
Passaic (FSA Insd).......................................... 6.750 07/01/19 309,047
400 New Jersey Hlthcare Fac Fin Auth Rev Jersey Shore Med Cent
Rfdg (AMBAC Insd)........................................... 6.250 07/01/21 446,808
500 New Jersey Hlthcare Fac Fin Auth Rev Southern Ocean Cnty
Hosp Ser A.................................................. 6.125 07/01/13 531,945
400 New Jersey Sports & Exposition Auth Convention Cent Luxury
Tax Rev Ser A Rfdg (MBIA Insd).............................. 6.250 07/01/20 438,012
200 New Jersey St Edl Fac Auth Rev Caldwell College Ser A....... 7.250 07/01/25 219,946
250 New Jersey St Edl Fac Auth Rev Glassboro St College Ser A
(Prerefunded @ 07/01/01) (MBIA Insd)........................ 6.700 07/01/21 274,480
270 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser K (MBIA
Insd)....................................................... 6.375 10/01/26 291,414
500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser O (MBIA
Insd)....................................................... 6.300 10/01/23 539,925
500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer Ser S
(MBIA Insd)................................................. 6.000 10/01/21 534,905
</TABLE>
See Notes to Financial Statements
16
<PAGE> 123
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 3,480 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg (MBIA Insd) (b)... 6.500% 01/01/16 $ 4,263,557
300 Union City, NJ (FSA Insd)................................... 6.375 11/01/10 359,913
--------------
32,769,733
--------------
NEW MEXICO 0.3%
2,500 New Mexico St Hosp Equip Ln Council Hosp Rev San Juan Regl
Med Cent Inc Proj (Prerefunded @ 06/01/01).................. 7.900 06/01/11 2,808,000
--------------
NEW YORK 9.3%
2,805 Clifton Springs, NY Hosp & Clinic Hosp Rev Rfdg............. 8.000 01/01/20 3,153,409
3,640 Metropolitan Tran Auth NY Commuter Fac Rev Svcs Contract Ser
R Rfdg...................................................... 5.500 07/01/17 3,851,921
5,000 Metropolitan Tran Auth NY Svcs Contract Tran Fac
Ser 5 Rfdg (b).............................................. 7.000 07/01/12 5,474,500
1,000 New York City Indl Dev Agy Field Hotel Assoc Lp Jfk Rfdg
(c)......................................................... 6.000 11/01/28 1,015,320
1,000 New York City Indl Dev Agy Laguardia Assoc Lp Proj Rfdg
(c)......................................................... 6.000 11/01/28 1,015,320
1,000 New York City Indl Dev Agy Civic Fac Marymount Manhattan
College Proj................................................ 7.000 07/01/23 1,084,550
4,100 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser B
(b)......................................................... 5.000 06/15/17 4,107,421
5,000 New York City Ser A (b)..................................... 7.000 08/01/07 5,960,000
2,500 New York City Ser B (b)..................................... 7.500 02/01/07 2,799,225
945 New York City Ser C (Prerefunded @ 08/01/02)................ 6.500 08/01/04 1,051,549
4,055 New York City Ser C......................................... 6.500 08/01/04 4,456,283
640 New York City Ser C Subser C1............................... 7.500 08/01/20 723,584
2,000 New York City Ser D Rfdg (b)................................ 8.000 02/01/05 2,426,840
2,200 New York City Ser E (b)..................................... 5.700 08/01/08 2,380,114
2,500 New York St Dorm Auth Rev Secd Hosp Bronx Lebanon Rfdg...... 5.200 02/15/14 2,585,625
5,000 New York St Dorm Auth Rev City Univ Ser F (b)............... 5.500 07/01/12 5,262,750
2,750 New York St Dorm Auth Rev Court Fac Lease Ser A (b)......... 5.500 05/15/10 2,891,212
2,295 New York St Dorm Auth Rev Mental Hlth Svcs Fac Ser A........ 5.750 02/15/11 2,527,369
2,285 New York St Dorm Auth Rev Mental Hlth Svcs Fac Ser A........ 5.750 02/15/12 2,504,565
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg).............................................. 9.055 04/01/20 3,278,125
3,000 New York St Energy Resh & Dev Auth Gas Fac Rev Brooklyn
Union Gas Co Ser B (Inverse Fltg)........................... 10.203 07/01/26 4,057,500
2,000 New York St Energy Resh & Dev Auth Pollutn Ctl Rev Niagara
Mohawk Pwr Corp Ser A Rfdg (FGIC Insd)...................... 7.200 07/01/29 2,318,940
185 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac
Ser A....................................................... 7.750 08/15/11 203,859
175 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac
Ser C....................................................... 7.300 02/15/21 193,524
2,400 New York St Urban Dev Corp Rev Correctional Cap Fac Rfdg
(b)......................................................... 5.625 01/01/07 2,571,504
20,500 New York St Urban Dev Corp Rev Correctional Cap Fac Ser A
Rfdg (FSA Insd) (b)......................................... 5.250 01/01/14 22,052,670
1,200 Port Auth NY & NJ Cons 95th Ser............................. 6.125 07/15/22 1,313,088
500 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt
Terminal 6 (MBIA Insd)...................................... 5.750 12/01/25 537,745
1,500 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev Spellman High
Voltage Fac Ser A........................................... 6.375 12/01/17 1,535,835
--------------
93,334,347
--------------
NORTH CAROLINA 0.3%
2,500 Martin Cnty, NC Indl Fac & Pollutn Ctl Fin Auth Rev Solid
Waste Weyerhaeuser Co....................................... 5.650 12/01/23 2,566,425
--------------
OHIO 2.7%
1,250 Cleveland Cuyahoga Cnty, OH Port Auth Rev Dev Port Cleveland
Bond Fund Ser A............................................. 5.750 05/15/20 1,276,150
755 Cleveland Cuyahoga Cnty, OH Port Auth Rev Dev Port Cleveland
Bond Fund Ser A............................................. 5.800 05/15/27 769,496
500 Cleveland, OH Pkg Fac Rev Impt (Prerefunded @ 09/15/02)..... 8.000 09/15/12 584,925
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings Hall............ 7.300 11/15/23 1,102,520
370 Fairfield, OH Econ Dev Rev Beverly Enterprises Inc Proj
Rfdg........................................................ 8.500 01/01/03 400,466
1,750 Franklin Cnty, OH Hlthcare Friendship Vlg Dublin, OH Rfdg... 5.625 11/01/22 1,771,735
1,000 Madison Cnty, OH Hosp Impt Rev Madison Cnty Hosp
Proj Rfdg................................................... 6.400 08/01/28 1,018,270
</TABLE>
See Notes to Financial Statements
17
<PAGE> 124
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 6,190 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B (Inverse Fltg)
(GNMA Collateralized)....................................... 9.770% 03/31/31 $ 6,963,750
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Partn Proj
Rfdg (AMBAC Insd)........................................... 6.375 04/01/29 1,119,450
2,000 Ohio St Solid Waste Rev CSC Ltd Poj......................... 8.500 08/01/22 2,120,340
4,000 Ohio St Solid Waste Rev Republic Engineered Steels Proj..... 8.250 10/01/14 4,161,040
2,000 Ohio St Solid Waste Rev Republic Engineered Steels Proj..... 9.000 06/01/21 2,174,180
3,000 Ohio St Tpk Comm Tpk Rev Ser A Rfdg......................... 5.500 02/15/26 3,354,870
--------------
26,817,192
--------------
OKLAHOMA 0.6%
1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA Insd)....... 5.250 12/01/22 2,053,359
2,360 Oklahoma Hsg Fin Agy Single Family Rev Mtg Class B
(GNMA Collateralized)....................................... 7.997 08/01/18 2,794,830
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc............. 7.600 12/01/30 1,091,120
--------------
5,939,309
--------------
OREGON 0.5%
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp................. 6.350 08/01/25 2,150,580
2,000 Oregon St Hlth Hsg Edl & Cultural Facs Auth................. 7.250 06/01/28 2,037,540
475 Salem, OR Hosp Fac Auth Rev Cap Manor Inc................... 7.500 12/01/24 522,870
--------------
4,710,990
--------------
PENNSYLVANIA 3.7%
500 Chartiers Vly, PA Indl & Commercial Dev Auth First Mtg
Rev......................................................... 7.250 12/01/11 517,785
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys Rev
(AMBAC Insd) (b)............................................ 5.650 05/15/20 5,261,500
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel & Conference Cent Hyatt
Regency..................................................... 6.200 01/01/29 5,047,500
2,500 Emmaus, PA Genl Auth Rev Ser C (BIGI Insd) (b).............. 7.900 05/15/18 2,548,350
1,400 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd)................ * 09/01/25 376,460
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg) (FGIC Insd)...... 7.770 06/18/15 2,884,375
1,320 Harrisburg, PA Cap Apprec Nts Ser D Rfdg.................... * 09/15/16 554,347
1,535 Harrisburg, PA Cap Apprec Nts Ser D Rfdg.................... * 09/15/19 550,865
1,000 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev United Church
of Christ Homes Rfdg........................................ 6.750 10/01/10 1,013,380
1,000 Lehigh Cnty, PA Indl Dev Auth Lifepath Inc Proj............. 6.100 06/01/18 989,740
905 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg...................... 8.000 08/01/12 979,020
1,275 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross Rev Rfdg..... 7.875 12/01/13 1,412,050
1,500 McKean Cnty, PA Hosp Auth Hosp Rev Bradford Hosp Proj
(Crossover Rfdg @ 10/01/00)................................. 8.875 10/01/20 1,670,970
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp Rev
(Embedded Swap) (AMBAC Insd)................................ 7.630 06/01/12 3,413,670
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement Cmnty Rev...... 6.300 01/01/13 1,023,810
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res Recov
(LOC - Banque Paribas)...................................... 7.500 01/01/12 1,098,090
3,150 Philadelphia, PA Auth For Indl Dev Rev Coml Dev RMK Rfdg.... 7.750 12/01/17 3,579,030
685 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp Rev........ 7.250 03/01/24 730,895
1,450 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A Rfdg Hosp
Auth Rev Ser 1993A.......................................... 6.000 12/01/13 1,668,965
1,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Allied Svcs
Rehab Hosp Ser A............................................ 7.375 07/15/08 1,118,580
500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev Moses Taylor
Hosp Proj (Prerefunded @ 07/01/01).......................... 8.250 07/01/09 567,945
--------------
37,007,327
--------------
RHODE ISLAND 0.5%
1,975 Providence, RI Redev Agy Ctfs Partn Ser A................... 8.000 09/01/24 2,191,006
2,345 Rhode Island Hsg & Mtg Fin Corp Rental Hsg Pgm Ser B (FHA
Gtd)........................................................ 7.950 10/01/30 2,452,471
600 West Warwick, RI Ser A...................................... 7.300 07/15/08 674,268
--------------
5,317,745
--------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 125
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH CAROLINA 0.4%
$ 3,000 Charleston Cnty, SC Arpt Dist Rfdg (MBIA Insd).............. 4.750% 07/01/15 $ 3,000,300
1,070 Piedmont Muni Pwr Agy SC Elec Rev........................... 5.000 01/01/25 1,046,203
--------------
4,046,503
--------------
SOUTH DAKOTA 0.1%
1,000 South Dakota St Hlth & Edl Fac Auth Rev Huron Regl Med
Cent........................................................ 7.250 04/01/20 1,127,110
--------------
TENNESSEE 0.3%
2,000 Springfield, TN Hlth & Edl Jesse Holman Jones Hosp Proj
(Prerefunded @ 04/01/06).................................... 8.500 04/01/24 2,609,640
--------------
TEXAS 6.7%
1,000 Austin, TX Arpt Sys Rev Prior Lien Ser A (MBIA Insd)........ 6.125 11/15/25 1,108,410
500 Baytown, TX Pptys Mgmt & Dev Corp Ser A (FNMA
Collateralized)............................................. 6.100 08/15/21 518,470
140 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp Proj............... 9.250 07/01/08 148,173
2,000 Bell Cnty, TX Indl Dev Corp Solid Waste Disposal Rev........ 7.600 12/01/17 2,045,140
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint Luke's
Lutheran Hosp............................................... 7.000 05/01/21 650,965
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 1,744,530
307 Bexar Cnty, TX Hsg Fin Corp Rev Ser A (GNMA
Collateralized)............................................. 8.200 04/01/22 319,830
130 Bexar Cnty, TX Hsg Fin Corp Rev Ser B (GNMA
Collateralized)............................................. 9.250 04/01/16 132,752
12,000 Brazos River Auth TX Pollutn Ctl Rev Adj Collateral Util
Elec Co Rfdg................................................ 5.550 06/01/30 12,157,800
6,850 Brazos River Auth TX Rev Houston Inds Inc Proj D Rfdg....... 4.900 10/01/15 7,037,553
1,675 Cedar Hill, TX Indpt Sch Dist Cap Apprec Rfdg............... * 08/15/15 688,425
625 Clear Creek, TX Indpt Sch Dist (Prerefunded @ 02/01/01)
(b)......................................................... 6.250 02/01/11 661,350
250 Coastal Wtr Auth TX Conveyance Sys Rev (AMBAC Insd)......... 6.250 12/15/17 270,855
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp Rev American
Airls Inc................................................... 7.500 11/01/25 1,011,656
1,500 Deer Park, TX Indpt Sch Dist................................ 4.250 02/15/17 1,402,560
250 El Paso, TX Hsg Auth Multi-Family Rev Ser A................. 6.250 12/01/09 267,270
90 Galveston, TX Ppty Fin Auth Single Family Mtg Rev Ser A..... 8.500 09/01/11 97,496
250 Guadalupe Blanco River Auth TX Indl Dev Corp Pollutn Ctl
Rev......................................................... 6.350 07/01/22 272,705
1,250 Harris Cnty, TX Hlth Fac Dev Corp Mem Hosp Sys Proj Rfdg.... 7.125 06/01/15 1,412,250
250 Harris Cnty, TX Muni Util Dist No 120 (Prerefunded @
08/01/01)................................................... 8.000 08/01/14 278,473
375 Harris Cnty, TX Sch Hlthcare Corp Sys Rev
(Prerefunded @ 07/01/01).................................... 7.100 07/01/21 415,256
1,250 Irving, TX Indpt Sch Dist................................... * 02/15/17 516,337
1,000 Irving, TX Indpt Sch Dist Cap Apprec Ser A Rfdg............. * 02/15/18 392,180
5,045 Leander, TX Indpt Sch Dist Cap Apprec Rfdg.................. * 08/15/19 1,678,371
2,755 Leander, TX Indpt Sch Dist Rfdg............................. 4.750 08/15/11 2,786,517
250 Lockhart, TX Correctional Fac Fin Corp Rev (Prerefunded @
04/01/01) (MBIA Insd)....................................... 6.625 04/01/12 267,728
3,500 North Central TX Hlth Fac Dev Corp Rev Presbyterian Hlthcare
Sys Ser C (Inverse Fltg) (Prerefunded @ 06/19/01) (MBIA
Insd)....................................................... 9.346 06/22/21 4,134,375
750 Northwest Harris Cnty, TX Muni Util Dist No 23 (Prerefunded
@ 04/01/01)................................................. 8.100 10/01/15 828,285
2,600 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg (c)............... * 08/15/24 655,850
3,560 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg (c)............... * 08/15/20 1,135,782
250 San Antonio, TX Hlth Fac Dev Corp Rev Encore Nursing
Cent Partn.................................................. 8.250 12/01/19 279,860
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev Rfdg & Impt..... 7.000 05/15/28 274,978
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev Rfdg & Impt
(Prerefunded @ 05/15/03).................................... 7.000 05/15/28 286,503
2,000 Tarrant Cnty, TX Hlth Facs Dev Corp Rev (MBIA Insd)......... 6.000 01/01/37 2,236,260
243 Texas Genl Svcs Cmnty Partn Interests Office Bldg & Land
Acquisition Proj............................................ 7.000 08/01/09 249,515
500 Texas Genl Svcs Cmnty Partn Interests Office Bldg & Land
Acquisition Proj............................................ 7.000 08/01/19 513,690
500 Texas Genl Svcs Cmnty Partn Interests Office Bldg & Land
Acquisition Proj............................................ 7.000 08/01/24 513,690
894 Texas Genl Svcs Commn Partn Interests....................... 7.500 02/01/13 921,229
</TABLE>
See Notes to Financial Statements
19
<PAGE> 126
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 105 Texas Hsg Agy Single Family Mtg Rev Ser A Rfdg.............. 7.150% 09/01/12 $ 112,853
5,250 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev Coll Ser C
Rfdg (Inverse Fltg) (GNMA Collateralized)................... 9.663 07/02/24 6,811,875
235 Texas St Higher Edl Brd College Sr Lien..................... 7.700 10/01/25 253,295
4,025 Texas St Higher Edl Coordinating Brd College Student Ln..... * 10/01/25 4,467,911
1,000 Texas St Veterans Hsg Assist................................ 6.800 12/01/10 1,084,180
1,245 Texas St Veterans Hsg Assist (MBIA Insd).................... 6.800 12/01/23 1,352,082
2,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union
Carbide Chem & Plastics (b)................................. 8.200 03/15/21 2,480,017
3,245 Wylie, TX Indt Sch Dist Cap Apprec Rfdg..................... * 08/15/26 751,964
--------------
67,627,246
--------------
UTAH 2.7%
3,075 Bountiful, UT Hosp Rev South Davis Cmnty Hosp Proj.......... 9.500 12/15/18 3,760,018
1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 7.800 09/01/15 1,435,046
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 8.000 09/01/20 1,083,960
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac Proj.............. 7.800 09/01/25 1,069,700
3,650 Intermountain Pwr Agy UT Pwr Supply Rev Rfdg Ser B
(Prerefunded @ 10/29/98).................................... 7.750 07/01/20 3,735,739
1,850 Intermountain Pwr Agy UT Pwr Supply Rev Ser 86B............. 5.000 07/01/16 1,849,963
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Embedded
Swap)....................................................... 7.150 02/15/12 12,631,080
700 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1 (FHA Gtd)... 7.100 07/01/14 759,941
945 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A2 (FHA Gtd)... 7.200 01/01/27 1,025,108
--------------
27,350,555
--------------
VIRGINIA 2.7%
4,000 Alexandria, VA Redev & Hsg Auth 3001 Park Cent Apts
Ser A Rfdg.................................................. 6.375 04/01/34 4,039,600
5,000 Chesapeake Bay Brdg & Tunl VA Gen Resolution Rfdg (MBIA Insd
(c)......................................................... 5.500 07/01/25 5,584,600
2,000 Fairfax Cnty, VA Park Auth Park Fac Rev (b)................. 6.625 07/15/14 2,181,320
3,500 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev (Prerefunded @
08/15/01) (FGIC Insd) (b)................................... 6.600 08/15/23 3,828,965
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd) (b).................. 6.800 03/01/14 2,362,485
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd) (b).................. 6.900 03/01/19 1,140,600
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem Hosp Carilion
Hlth Sys Ser B Rfdg (MBIA Insd) (b)......................... 4.700 07/01/20 5,311,450
2,650 Virginia St Pub Bldg Auth Ser A............................. 5.500 08/01/16 2,824,211
--------------
27,273,231
--------------
WASHINGTON 1.5%
2,000 King Cnty, WA Ser D......................................... 5.700 12/01/10 2,254,380
4,000 Washington St Hlth Care Facs Auth Rev Multicare Hlth Sys
(MBIA Insd)................................................. 5.000 08/15/18 4,012,200
1,250 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev (FGIC
Insd)....................................................... 7.125 07/01/16 1,604,150
3,555 Washington St Pub Pwr Supply Sys Nuclear Proj No 1 Rev Ser C
Rfdg (FSA Insd)............................................. 5.375 07/01/15 3,689,059
3,750 Washington St Pub Pwr Supply Sys Nuclear Proj No 3 Rev Ser C
Rfdg (FSA Insd)............................................. 5.375 07/01/15 3,891,413
--------------
15,451,202
--------------
WEST VIRGINIA 0.7%
6,750 South Charleston, WV Indl Dev Rev Union Carbide Chem &
Plastics Ser A (b).......................................... 8.000 08/01/20 7,240,050
--------------
WISCONSIN 1.1%
750 Jefferson, WI Swr Sys Wtrwrks & Elec Sys Mtg Rev
(Prerefunded @ 07/01/01).................................... 7.400 07/01/16 822,862
1,000 Oconto Falls, WI Cmnty Dev Oconto Falls Tissue Inc Proj..... 7.750 12/01/22 1,075,230
1,250 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/21 404,225
1,250 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/22 384,663
1,250 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/23 366,025
1,000 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/26 252,450
3,500 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/27 841,225
3,500 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/28 801,150
</TABLE>
See Notes to Financial Statements
20
<PAGE> 127
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 3,500 Southeast WI Professional Baseball Pk Dist Sales Tax Rev
(MBIA Insd)................................................. * 12/15/29 $ 762,755
1,650 Wisconsin Hsg & Econ Dev Auth Home Ownership Rev Rfdg
(Inverse Fltg).............................................. 10.108% 10/25/22 1,862,437
600 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem Hosp Assn..... 7.200 11/01/05 645,318
1,000 Wisconsin St Hlth & Edl Fac Auth Rev United Lutheran Proj
Aging Inc (Prerefunded @ 03/01/99).......................... 8.500 03/01/19 1,041,170
2,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home Proj........ 7.500 07/01/26 2,226,680
--------------
11,486,190
--------------
GUAM 0.4%
3,500 Guam Arpt Auth Rev Ser B.................................... 6.700 10/01/23 3,866,800
250 Guam Govt Ser A............................................. 5.750 09/01/04 251,650
--------------
4,118,450
--------------
PUERTO RICO 3.7%
200 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V Rfdg...... 6.625 07/01/12 220,292
36,105 Puerto Rico Comwlth Hwy & Tran Auth Tran Rev Ser A.......... 4.750 07/01/38 35,437,419
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T (Prerefunded @
07/01/04)................................................... 6.375 07/01/24 287,062
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg................ 6.000 07/01/14 275,420
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z Rfdg................ 5.500 07/01/14 264,658
320 Puerto Rico Hsg Bank & Fin Agy Single Family Mtg Rev (GNMA
Collateralized)............................................. 6.250 04/01/29 342,400
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac Ser M Rfdg
(FSA Insd).................................................. 5.750 07/01/15 321,705
--------------
37,148,956
--------------
TOTAL INVESTMENTS 104.0%
(Cost $951,139,270).................................................................... 1,042,279,757
LIABILITIES IN EXCESS OF OTHER ASSETS (4.0%)............................................ (40,104,540)
--------------
NET ASSETS 100.0%....................................................................... $1,002,175,217
==============
</TABLE>
*Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified Institutional buyers.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option and futures transactions.
(c) Securities purchased on a when issued or delayed delivery basis.
(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(e) Currently is a payment-in-kind security which will convert to a cash paying
security at a predetermined date.
(f) Non-Income Producing Security
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
21
<PAGE> 128
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $951,139,270)....................... $1,042,279,757
Receivables:
Interest.................................................. 16,026,696
Investments Sold.......................................... 4,520,433
Fund Shares Sold.......................................... 948,799
Variation Margin on Futures............................... 169,572
Other....................................................... 18,002
--------------
Total Assets.......................................... 1,063,963,259
--------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 37,519,378
Investments Purchased..................................... 19,611,246
Income Distributions...................................... 2,107,791
Distributor and Affiliates................................ 945,275
Fund Shares Repurchased................................... 519,311
Investment Advisory Fee................................... 388,217
Accrued Expenses............................................ 258,338
Options at Market Value (Net premiums received of $6,775)... 242,187
Trustees' Deferred Compensation and Retirement Plans........ 196,299
--------------
Total Liabilities..................................... 61,788,042
--------------
NET ASSETS.................................................. $1,002,175,217
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 920,238,087
Net Unrealized Appreciation................................. 90,902,720
Accumulated Undistributed Net Investment Income............. 2,282,049
Accumulated Net Realized Loss............................... (11,247,639)
--------------
NET ASSETS.................................................. $1,002,175,217
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $788,717,387 and 49,321,491 shares of
beneficial interest issued and outstanding)............ $ 15.99
Maximum sales charge (4.75%* of offering price)......... .80
--------------
Maximum offering price to public........................ $ 16.79
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $197,947,399 and 12,385,888 shares of
beneficial interest issued and outstanding)............ $ 15.98
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $15,510,431 and 971,576 shares of
beneficial interest issued and outstanding)............ $ 15.96
==============
* On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
22
<PAGE> 129
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and
the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................... $48,555,300 $63,871,998
----------- -----------
EXPENSES:
Investment Advisory Fee..................................... 3,545,745 4,721,648
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,315,469, $1,544,736 and $111,076,
respectively for the nine months ended 9/30/98 and
$1,886,256, $2,047,073 and $125,940, respectively, for the
year ended 12/31/97)...................................... 2,971,281 4,059,269
Shareholder Services........................................ 585,520 991,321
Trustees' Fees and Expenses................................. 59,123 25,979
Legal....................................................... 48,678 106,117
Custody..................................................... 23,020 71,024
Other....................................................... 315,697 483,245
----------- -----------
Total Operating Expenses................................ 7,549,064 10,458,603
----------- -----------
Interest Expense........................................ 252,574 -0-
----------- -----------
NET INVESTMENT INCOME....................................... $40,753,662 $53,413,395
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... 10,$218,111 17,322,192
Options................................................... (453,531) (575,046)
Futures................................................... (3,211,181) (6,420,032)
----------- -----------
Net Realized Gain........................................... 6,553,399 10,327,114
----------- -----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 84,570,511 60,847,273
----------- -----------
End of the Period:
Investments............................................. 91,140,487 84,688,844
Options................................................. (235,412) -0-
Futures................................................. (2,355) (118,333)
----------- -----------
90,902,720 84,570,511
----------- -----------
Net Unrealized Appreciation During the Period............... 6,332,209 23,723,238
----------- -----------
NET REALIZED AND UNREALIZED GAIN............................ $12,885,608 $34,050,352
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $53,639,270 $87,463,747
=========== ===========
</TABLE>
See Notes to Financial Statements
23
<PAGE> 130
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998 and
the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................................$ 40,753,662 $ 53,413,395 $ 58,599,526
Net Realized Gain........................................... 6,553,399 10,327,114 15,529,569
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 6,332,209 23,723,238 (34,930,300)
-------------- -------------- --------------
Change in Net Assets from Operations........................ 53,639,270 87,463,747 39,198,795
-------------- -------------- --------------
Distributions from Net Investment Income:
Class A Shares............................................ (31,284,803) (43,085,857) (46,362,424)
Class B Shares............................................ (7,203,055) (9,834,294) (10,564,184)
Class C Shares............................................ (518,861) (604,662) (607,911)
-------------- -------------- --------------
Total Distributions..................................... (39,006,719) (53,524,813) (57,534,519)
-------------- -------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 14,632,551 33,938,934 18,335,724
-------------- -------------- --------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold................................... 531,715,930 535,028,913 448,529,529
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 19,893,086 27,237,798 29,896,737
Cost of Shares Repurchased.................................. (556,676,605) (619,837,342) (511,329,514)
-------------- -------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (5,067,589) (57,570,631) (32,903,248)
-------------- -------------- --------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 9,564,962 (23,631,697) (51,238,972)
NET ASSETS:
Beginning of the Period..................................... 992,610,255 1,016,241,952 1,067,480,924
-------------- -------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $2,282,049, $535,106 and $662,245,
respectively)............................................. $1,002,175,217 $ 992,610,255 $1,016,241,952
============== ============== ==============
</TABLE>
See Notes to Financial Statements
24
<PAGE> 131
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended December 31,
September 30, -----------------------------------------------
Class A Shares 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............. $15.767 $15.267 $15.549 $14.261 $16.164 $15.310
------- ------- ------- ------- ------- -------
Net Investment Income.............................. .664 .852 .898 .874 .886 .964
Net Realized and Unrealized Gain/Loss.............. .195 .500 (.298) 1.296 (1.907) .862
------- ------- ------- ------- ------- -------
Total from Investment Operations..................... .859 1.352 .600 2.170 (1.021) 1.826
Less Distributions from Net Investment Income........ .635 .852 .882 .882 .882 .972
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period................... $15.991 $15.767 $15.267 $15.549 $14.261 $16.164
======= ======= ======= ======= ======= =======
Total Return (a)..................................... 5.62%* 9.14% 4.07% 15.61% (6.37%) 12.20%
Net Assets at End of the Period (In millions)........ $788.7 $766.2 $792.3 $839.7 $495.8 $597.6
Ratio of Expenses to Average Net Assets (b).......... .87% .89% .94% .99% .99% .87%
Ratio of Net Investment Income to Average Net Assets
(b)................................................ 5.63% 5.54% 5.93% 5.86% 5.93% 6.08%
Portfolio Turnover................................... 89%* 104% 73% 61% 75% 82%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%. For the year ended
December 31, 1993, if certain expenses had not been assumed by Van Kampen,
the Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets would have been .98% and 5.97%, respectively.
* Non-Annualized
See Notes to Financial Statements
25
<PAGE> 132
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended December 31,
September 30, -----------------------------------------------
Class B Shares 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............. $15.764 $15.267 $15.549 $14.261 $16.139 $15.308
------- ------- ------- ------- ------- -------
Net Investment Income.............................. .572 .734 .783 .762 .780 .852
Net Realized and Unrealized Gain/Loss.............. .195 .501 (.297) 1.294 (1.890) .845
------- ------- ------- ------- ------- -------
Total from Investment Operations..................... .767 1.235 .486 2.056 (1.110) 1.697
Less Distributions from Net Investment Income........ .549 .738 .768 .768 .768 .866
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period................... $15.982 $15.764 $15.267 $15.549 $14.261 $16.139
======= ======= ======= ======= ======= =======
Total Return (a)..................................... 5.05%* 8.27% 3.29% 14.74% (6.96%) 11.33%
Net Assets at End of the Period (In millions)........ $197.9 $211.2 $211.0 $216.6 $158.7 $168.2
Ratio of Expenses to Average Net Assets (b).......... 1.65% 1.65% 1.70% 1.73% 1.70% 1.65%
Ratio of Net Investment Income to Average Net Assets
(b)................................................ 4.85% 4.78% 5.17% 5.09% 5.22% 5.19%
Portfolio Turnover................................... 89%* 104% 73% 61% 75% 82%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%. For the year ended
December 31, 1993, if certain expenses had not been assumed by Van Kampen,
the Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets would have been 1.73% and 5.11%, respectively.
* Non-Annualized
See Notes to Financial Statements
26
<PAGE> 133
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Nine Months (Commencement
Ended Year Ended December 31, of Distribution) to
September 30, ------------------------------------- December 31,
Class C Shares 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $15.747 $15.254 $15.545 $14.262 $16.141 $15.990
------- ------- ------- ------- ------- -------
Net Investment Income......................... .570 .730 .782 .771 .783 .300
Net Realized and Unrealized Gain/Loss......... .196 .501 (.305) 1.280 (1.894) .171
------- ------- ------- ------- ------- -------
Total from Investment Operations................ .766 1.231 .477 2.051 (1.111) .471
Less Distributions from Net Investment Income... .549 .738 .768 .768 .768 .320
------- ------- ------- ------- ------- -------
Net Asset Value, End of the Period.............. $15.964 $15.747 $15.254 $15.545 $14.262 $16.141
======= ======= ======= ======= ======= =======
Total Return (a)................................ 4.99%* 8.34% 3.16% 14.74% (6.97%) 2.96%*
Net Assets at End of the Period (In millions)... $ 15.5 $ 15.3 $ 12.9 $ 11.2 $ 3.9 $ 4.1
Ratio of Expenses to Average Net Assets (b)..... 1.65% 1.66% 1.70% 1.72% 1.74% 1.85%
Ratio of Net Investment Income to Average Net
Assets (b).................................... 4.86% 4.75% 5.17% 5.24% 5.19% 3.95%
Portfolio Turnover.............................. 89%* 104% 73% 61% 75% 82%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
27
<PAGE> 134
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Income Fund (the "Fund") is organized as a series of the
Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide a high
level of current income exempt from federal income tax, consistent with
preservation of capital. The Fund commenced investment operations on August 1,
1990. The distribution of the Fund's Class B and Class C shares commenced on
August 24, 1992 and August 13, 1993, respectively. In July, 1998, the Fund's
Board of Trustees approved a change in the Fund's fiscal year end from December
31 to September 30. As a result, this financial report reflects the nine-month
period commencing on January 1, 1998, and ending on September 30, 1998.
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $11,480,037 which will expire on September 30,
2003. Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales and gains or losses recognized for tax purposes on
open option and futures positions at September 30, 1998.
28
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At September 30, 1998, for federal income tax purposes, cost of long-term
investments is $951,144,635; the aggregate gross unrealized appreciation is
$97,996,513 and the aggregate gross unrealized depreciation is $6,861,391,
resulting in net unrealized appreciation of $91,135,122.
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.
For the nine months ended September 30, 1998, 99.3% of the income
distributions made by the Fund were exempt from federal income taxes. In
January, 1999 the Fund will provide tax information to shareholders for the 1998
calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET
ASSETS
- ------------------------------------------------------------------------
<S> <C>
First $500 million.......................................... .50 of 1%
Over $500 million........................................... .45 of 1%
</TABLE>
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $22,000 and $32,500,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $245,900 and $232,300,
respectively, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Fund recognized
expenses of approximately $447,400 and $649,000 respectively. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At September 30, 1998, Van Kampen owned 7,025 Class A shares and 98
shares each of Classes B and C.
29
<PAGE> 136
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 September 30, 1998, capital aggregated $718,935,008, $186,604,874 and
$14,698,205 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 32,662,126 $ 513,944,856
Class B................................................... 929,950 14,649,977
Class C................................................... 198,389 3,121,097
----------- -------------
Total Sales................................................. 33,790,465 $ 531,715,930
=========== =============
Dividend Reinvestment:
Class A................................................... 1,003,395 $ 15,819,172
Class B................................................... 239,468 3,773,374
Class C................................................... 19,090 300,540
----------- -------------
Total Dividend Reinvestment................................. 1,261,953 $ 19,893,086
=========== =============
Repurchases:
Class A................................................... (32,937,857) $(518,889,151)
Class B................................................... (2,179,386) (34,392,429)
Class C................................................... (216,155) (3,395,025)
----------- -------------
Total Repurchases........................................... (35,333,398) $(556,676,605)
=========== =============
</TABLE>
At December 31, 1997, capital aggregated $708,060,131, $202,573,952 and
$14,671,593 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 33,152,701 $ 506,790,274
Class B................................................... 1,551,226 23,205,097
Class C................................................... 328,583 5,033,542
----------- -------------
Total Sales................................................. 35,032,510 $ 535,028,913
=========== =============
Dividend Reinvestment:
Class A................................................... 1,410,217 $ 21,710,873
Class B................................................... 338,503 5,210,731
Class C................................................... 20,537 316,194
----------- -------------
Total Dividend Reinvestment................................. 1,769,257 $ 27,237,798
=========== =============
</TABLE>
30
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchases:
Class A................................................... (37,868,614) $(580,864,995)
Class B................................................... (2,313,649) (35,527,835)
Class C................................................... (225,699) (3,444,512)
----------- -------------
Total Repurchases........................................... (40,407,962) $(619,837,342)
=========== =============
</TABLE>
At December 31, 1996, capital aggregated $760,254,848, $209,639,832 and
$12,761,976 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................................. 27,650,131 $ 418,053,766
Class B.................................................. 1,641,964 24,779,007
Class C.................................................. 375,923 5,696,756
------------ -------------
Total Sales................................................ 29,668,018 $ 448,529,529
============ =============
Dividend Reinvestment:
Class A.................................................. 1,572,959 $ 23,855,458
Class B.................................................. 375,855 5,699,914
Class C.................................................. 22,531 341,365
------------ -------------
Total Dividend Reinvestment................................ 1,971,345 $ 29,896,737
============ =============
Repurchases:
Class A.................................................. (31,326,699) $(474,926,518)
Class B.................................................. (2,128,006) (32,268,288)
Class C.................................................. (272,810) (4,134,708)
------------ -------------
Total Repurchases.......................................... (33,727,515) $(511,329,514)
============ =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but
are subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ----------------------------------------------------------------------------------
<S> <C> <C>
First....................................................... 4.00% 1.00%
Second...................................................... 3.75% None
Third....................................................... 3.50% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth....................................................... 1.00% None
Seventh and Thereafter...................................... None None
</TABLE>
31
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
For the nine months ended September 30, 1998 and the year ended December
31, 1997, Van Kampen as Distributor for the Fund, received commissions on sales
of the Fund's Class A shares of approximately $76,200 and $112,900, respectively
and CDSC on redeemed shares of approximately $252,200 and $435,200,
respectively. Sales charges do not represent expenses of the Fund.
On December 19, 1997, the Fund acquired all of the assets and liabilities
of the Van Kampen American Capital New Jersey Tax Free Income Fund (the "NJ
Fund"), through a tax free reorganization approved by NJ Fund shareholders on
December 18, 1997. The Fund issued 468,278, 621,329 and 62,562 shares of Classes
A, B and C valued at $7,384,748, $9,798,388 and $985,356, respectively, in
exchange for NJ Fund's net assets. Included in these net assets was a capital
loss carryforward of $203,930 which is included in accumulated net realized
gain/loss and cumulative book and tax basis differences related to expenses not
yet deductible for tax purposes of $15,721 which is a component of undistributed
net investment income. Shares issued in connection with this reorganization are
included in common share sales for the year ended December 31, 1997. Combined
net assets on the day of acquisition were $1,013,024,339.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments were $908,003,482
and $914,128,444, respectively. For the year ended December 31, 1997, the cost
of purchases and proceeds from sales of investments, excluding short-term
investments were $1,036,342,353 and $1,065,534,056, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as
to attempt to protect the Fund against possible changes in the market value of
its portfolio and to manage the portfolio's effective yield, maturity and
duration. All of the Fund's portfolio holdings, including derivative
instruments, are marked to market each day with the change in value reflected in
unrealized appreciation/depreciation. Upon disposition, a realized gain or loss
is recognized accordingly, except when exercising a call option contract or
taking delivery of a security underlying a futures contract. In these instances
the recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial
instruments used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
32
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in options for the year ended December 31, 1997 and the nine
months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996............................ 750 $ (659,624)
Options Written and Purchased (Net)......................... 47,054 (2,413,147)
Options Terminated in Closing Transactions (Net)............ (29,290) 1,569,073
Options Expired (Net)....................................... (18,514) 1,503,698
------- -----------
Outstanding at December 31, 1997............................ -0- -0-
Options Written and Purchased (Net)......................... 11,800 295,281
Options Terminated in Closing Transactions (Net)............ (4,650) (949,156)
Options Expired (Net)....................................... (4,900) 660,650
------- -----------
Outstanding at September 30, 1998........................... 2,250 $ 6,775
======= ===========
</TABLE>
The related futures contracts of the outstanding option transactions as
of September 30, 1998, and the description and market value are as follows:
<TABLE>
<CAPTION>
MARKET
EXP. MONTH/ VALUE
DESCRIPTION CONTRACTS STRIKE PRICE OF OPTIONS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BOND FUTURES
November 1998 -- Written Call..................... 500 Nov./132 $(492,188)
November 1998 -- Purchased Call................... 250 Nov./131 289,063
December 1998 -- Written Call..................... 1,000 Dec./136 (484,375)
December 1998 -- Purchased Calls.................. 500 Dec./134 445,313
------- ---------
2,250 $(242,187)
------- ---------
</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 potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
33
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1997
and nine months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996............................ 251
Futures Opened.............................................. 36,006
Futures Closed.............................................. (36,146)
Outstanding at December 31, 1997............................ 111
Futures Opened.............................................. 21,217
Futures Closed.............................................. (19,668)
-------
Outstanding at September 30, 1998........................... 1,660
=======
</TABLE>
The futures contracts outstanding at September 30, 1998, and the
descriptions and unrealized appreciation/ depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DESCRIPTION CONTRACTS (DEPRECIATION)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- U.S. Treasury Bond Futures
December 1998
(Current notional value $131,469 per contract)............ 650 $ 1,886,141
Short Contracts -- Municipal Bond Index Futures
December 1998
(Current notional value $128,375 per contract)............ 1,010 (1,888,496)
----- -----------
1,660 $ (2,355)
===== ===========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed
to a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short-term interest rates which it
pays on its preferred shares.
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.
34
<PAGE> 141
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Annual fees under the Plans of up to .25% for Class A net assets and
1.00% each for Class B and Class C net assets are accrued daily. Included in
these fees for the nine months ended September 30, 1998 and the year ended
December 31, 1997, are payments retained by Van Kampen of approximately
$1,222,100 and $1,464,900 respectively.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its net assets. The Fund, in combination with two other
funds in the fund complex, has entered into a $100 million revolving credit
agreement which expires September 27, 1999. The maximum amount available to any
single fund is $75 million. Interest is charged under the agreement at a rate of
.45% above the federal funds rate. The interest rate in effect at September 30,
1998 was 6.20%. An annual facility fee of .06% is charged on the unused portion
of the credit facility.
The average daily balance of bank borrowings for the nine months ended
September 30, 1998 was approximately $5,707,000 with an average interest rate of
5.98%. At September 30, 1998, borrowings under this agreement represented 3.7%
of the Fund's net assets.
8. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
35
<PAGE> 142
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1998, and the related statement of operations
for the nine-month period ended September 30, 1998 and the year ended December
31, 1997, the statement of changes in net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Income Fund as of September 30, 1998, the results of its
operations for the nine-month period ended September 30, 1998 and the year ended
December 31, 1997, the changes in its net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 5, 1998
36
<PAGE> 143
VAN KAMPEN MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used by prospective
investors, must be accompanied by a quarterly performance update.
37
<PAGE> 144
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 29
</TABLE>
INF ANR 11/98
<PAGE> 145
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. However, the
United States has been relatively
unscathed by the turmoil in many
overseas markets. In fact, the U.S. [PHOTO]
fixed-income markets benefited as
many investors moved assets from
stocks into more conservative DENNIS J. MCDONNELL AND DON G. POWELL
fixed-income investments. The
volatility also forced yield spreads
to widen between Treasuries and
high-yield securities, corporate bonds, and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals. As we explain elsewhere in this letter, the U.S. economy
remains among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
Continued on page 2
1
<PAGE> 146
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG.]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 147
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Nine-month total return based on
NAV(1)................................... 5.36% 4.74% 4.74%
Nine-month total return(2)............... 1.97% 1.74% 3.74%
One-year total return(2)................. 4.38% 4.06% 6.06%
Five-year average annual total
return(2)................................ 5.40% 5.34% N/A
Life-of-Fund average annual total
return(2)................................ 6.21% 6.09% 5.10%
Commencement date........................ 05/28/93 05/28/93 10/19/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.38% 3.87% 3.87%
Taxable equivalent distribution
rate(4).................................. 6.84% 6.05% 6.05%
SEC Yield(5)............................. 3.69% 3.10% 3.06%
</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 September 30, 1998.
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. This performance was achieved during generally
rising stock prices. Fund shares, when redeemed, may be worth more or less than
their original cost.
The share value of the Fund will generally fluctuate more than the value of
short-term investments particularly if there is a rise in short-term rates.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from December 31 to September 30. As a result, this financial report
reflects the 9-month transition period commencing on January 1, 1998, and ending
on September 30, 1998.
3
<PAGE> 148
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index* and the Lehman Brothers 10-Year Municipal Bond
Index over time. These indices are broad-based, statistical composites that does
not include any commissions or sales charges that would be paid by an investor
purchasing the securities they represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Intermediate Term Municipal Income Fund vs. the Lehman Brothers
Municipal Bond Index* and the Lehman Brothers 10-Year Municipal Bond Index
(May 28, 1993 through September 30, 1998)
[INVESTMENT PERFORMANCE CHART]
Fund's Total Return
1 Year Avg. Annual = 4.38%
5 Year Avg. Annual = 5.40%
Inception Avg. Annual = 6.21%
<TABLE>
<CAPTION>
Van Kampen Lehman Lehman
Intermediate Brothers Brothers 10-
Term Municipal Municipal Bond Year Municipal
Income Fund Index Bond Index
<S> <C> <C> <C>
May-93 9671.00 10000.00 10000.00
9851.00 10167.00 10197.00
9853.00 10180.20 10222.50
10136.00 10392.00 10434.10
Sep-93 10259.00 10510.40 10562.40
10292.00 10530.40 10579.30
10223.00 10437.70 10492.60
10421.00 10658.00 10716.10
10556.00 10779.50 10847.90
10363.00 10500.30 10550.60
10002.00 10072.90 10147.60
10077.00 10158.50 10259.20
10173.00 10246.90 10341.30
10186.00 10184.40 10296.90
10333.00 10370.80 10469.80
10375.00 10407.10 10510.70
Sep-94 10257.00 10254.10 10368.80
10075.00 10071.60 10217.40
9850.00 9889.30 10024.30
10075.00 10106.90 10204.70
10345.00 10395.90 10469.00
10626.00 10698.40 10765.30
10724.00 10821.50 10910.60
10756.00 10834.40 10923.70
11074.00 11180.10 11270.00
10996.00 11082.80 11200.10
11084.00 11188.10 11364.80
11205.00 11330.20 11519.30
Sep-95 11294.00 11401.60 11593.00
11405.00 11566.90 11726.40
11517.00 11758.90 11883.50
11618.00 11871.80 11956.00
11697.00 11962.00 12076.80
11674.00 11880.70 12027.20
11525.00 11728.60 11878.10
11513.00 11695.70 11836.50
11547.00 11691.10 11803.40
11615.00 11818.50 11915.50
11719.00 11926.00 12029.90
11730.00 11923.70 12029.90
Sep-96 11858.00 12090.60 12153.80
11975.00 12227.20 12307.00
12151.00 12451.00 12555.50
12115.00 12398.70 12499.00
12126.00 12422.20 12547.80
12233.00 12536.50 12665.80
12124.00 12369.80 12496.00
12196.00 12473.70 12588.50
12340.00 12660.80 12767.20
12448.00 12796.30 12907.70
12727.00 13150.70 13270.40
12665.00 13027.10 13141.70
Sep-97 12787.00 13182.10 13308.60
12872.00 13266.50 13379.10
12933.00 13344.80 13440.70
13094.00 13539.60 13653.00
13194.00 13679.10 13804.60
13219.00 13683.20 13803.20
13270.00 13695.50 13793.50
13220.00 13633.90 13717.70
13423.00 13849.30 13950.90
13461.00 13903.30 14002.50
13487.00 13938.00 14024.90
13654.00 14154.10 14268.90
Sep-98 13796.00 14331.00 14482.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
* The Lehman Brothers Municipal Bond Index represents general municipal bond
market performance and was initially selected as a benchmark for the Fund's
performance; however, based upon the Fund's asset composition, we believe the
Lehman Brothers 10-Year Municipal Bond Index provides a more accurate
benchmark for the Fund. Therefore, the Lehman Brothers Municipal Bond Index
will not be shown in future reports.
4
<PAGE> 149
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
A callable bond is "priced to the call" when it is selling at a premium,
because it is assumed that the issuer will redeem the bond at its call date,
rather than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways
and schools.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
5
<PAGE> 150
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
6
<PAGE> 151
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
We recently spoke with the management team of the Van Kampen Intermediate Term
Municipal Income Fund about the key events and economic forces that shaped the
markets during the reporting period. The team includes Timothy D. Haney,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE CONDITIONS IN THE BOND MARKET DURING THE PAST NINE
MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent.
At the end of the reporting period, the yield on AAA-rated 10-year
general obligation municipal bonds was approaching the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
Q HOW DID YOU STRUCTURE THE FUND'S PORTFOLIO IN LIGHT OF THESE CONDITIONS?
A The Fund performed well throughout the reporting period, so we made very few
adjustments to the portfolio. Due to low interest rates, new bonds would have
had lower yields than most of the bonds already in the portfolio, so we chose
to hold onto our higher-yielding securities in order to help preserve the Fund's
dividend. As an additional means of supporting the dividend, we purchased
several nonrated, higher-yielding bonds. The health care sector offered some
attractive opportunities to purchase nonrated bonds at reasonable prices.
While we sought to boost income with lower-rated and nonrated securities, we
also invested in higher-rated issues to help provide a level of stability and
total return. In addition, AAA-rated bonds respond well during periods of
declining interest rates, which was the case during the reporting period. As of
September 30, 1998, approximately
7
<PAGE> 152
29 percent of the portfolio was invested in nonrated bonds, while AAA-rated
bonds comprised approximately 36 percent of the portfolio.
Finally, we took advantage of several opportunities in the new issue market,
purchasing bonds that came to market at a good price and selling them after
their prices appreciated. This strategy was designed to bolster the Fund's total
return. For additional Fund portfolio highlights, please refer to page 9.
Q HOW DID THE FUND PERFORM AS A RESULT OF THESE STRATEGIES?
A The Fund has been a solid performer in 1998. Its year-to-date total return is
5.36 percent(1) (Class A shares at net asset value). By comparison, the
Lehman Brothers Municipal Bond Index produced a total return of 5.84 percent
for the same period, and the Lehman Brothers 10-Year Municipal Bond Index, which
more closely resembles the Fund, returned 6.07 percent. These broad-based
indexes of municipal bonds do not include any commissions or sales charges that
would be paid by an investor purchasing the securities or investments they
represent.
The Fund's tax-exempt distribution rate for Class A shares was 4.38
percent,(3) based on a monthly dividend of $0.0405 and a maximum public offering
price of $11.09. For investors in the 36 percent federal income tax bracket, the
Fund's taxable-equivalent distribution rate was 6.84 percent.(4) Please refer to
the chart on page 3 for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE BOND MARKET AND FOR THE FUND?
A The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a supportive environment
for bonds. (Editor's note: After the reporting period ended, the Fed
reduced interest rates again by 0.25 percent.) The supply of municipal bond
issues should remain heavy, as low interest rates spark further refunding of
outstanding bond issues and bring new municipal bonds into the marketplace. As
more investors recognize the value available in the municipal market, demand is
likely to increase and municipal bonds could see favorable returns in coming
months.
We will continue to manage the portfolio with an eye toward longer-term
value. Our goal is to seek out higher-yielding, lower-rated or nonrated bonds
and combine them with high-rated issues that we believe have the potential to
outperform the market. We continue to focus on intermediate-term bonds, which
offer somewhat higher yields than shorter-term securities while yielding only
slightly less than long-term bonds. This approach has been effective this year,
and we are confident that it will help keep the Fund competitive throughout the
next six months.
[SIG]
Timothy D. Haney
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 153
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TOP TEN STATES AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois............... 12.0%
New York............... 11.1%
Florida................ 9.1%
New Jersey............. 7.1%
Ohio................... 6.7%
Georgia................ 6.7%
California............. 5.9%
Arizona................ 4.6%
Massachusetts.......... 4.5%
Missouri............... 4.3%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS of September 30, 1998 As of December 31, 1997
<S> <C> <C> <C>
AAA................... 35.9% AAA.................. 34.9%
AA.................... 4.3% AA................... 5.9%
A..................... 7.7% A.................... 8.1%
BBB................... 20.6% BBB.................. 17.9%
BB.................... 2.9% BB................... 4.2%
Non-Rated............. 28.6% Non-Rated............ 29.0%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
As of September 30, 1998
<S> <C>
Health Care............ 21.0%
Multi-Family Housing... 14.3%
General Purpose........ 13.3%
Industrial Revenue..... 11.9%
Airport................ 8.6%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Health Care........... 18.5%
Multi-Family Housing... 16.4%
Industrial Revenue.... 15.0%
General Purpose....... 13.0%
Airport............... 10.7%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 5.81 years 5.81 years
</TABLE>
(1)Unaudited
9
<PAGE> 154
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 102.5%
ALABAMA 1.4%
$ 500 West Jefferson Cnty, AL Amusement & Pub Pk
Auth............................................. 7.500% 12/01/08 $ 539,150
-----------
ALASKA 0.7%
250 Seward, AK Rev AK Sealife Cent Proj.............. 7.100 10/01/05 267,435
-----------
ARIZONA 4.7%
500 Maricopa Cnty, AZ Indl Dev Auth Senior Living Fac
Rev.............................................. 7.250 04/01/05 530,210
1,160 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 1,297,576
-----------
1,827,786
-----------
CALIFORNIA 6.0%
360 California Edl Fac Auth Rev Pacific Grad
School........................................... 6.950 11/01/07 379,077
1,000 California St (AMBAC Insd)....................... 6.400 09/01/08 1,203,530
240 Del Mar, CA Race Track Auth Rev Rfdg............. 6.000 08/15/06 258,115
500 Stockton, CA Comnty Fac Dist Spl Tax No One Mello
Roos Weston Ranch Ser A.......................... 5.500 09/01/09 512,070
-----------
2,352,792
-----------
COLORADO 4.4%
330 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton
Terrace Ser A.................................... 6.800 07/01/09 350,387
174 Colorado Hsg Fin Auth Access Pgm Single Family
Pgm Ser E........................................ 8.125 12/01/24 192,995
1,000 Denver, CO City & Cnty Arpt Rev Ser A............ 7.400 11/15/04 1,159,590
-----------
1,702,972
-----------
CONNECTICUT 2.1%
145 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A (Escrowed to Maturity), 144A -- Private
Placement (a).................................... 6.500 09/01/06 169,050
155 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A -- Private Placement (a)................. 6.500 09/01/06 177,788
475 New Haven, CT Indl Fac Rev Adj Govt Cent Thermal
Energies......................................... 7.250 07/01/09 478,909
-----------
825,747
-----------
FLORIDA 9.3%
1,000 Boca Raton, FL Cmnty Redev Agy Rfdg Mizner Pk
Proj (b)......................................... 4.375 03/01/11 999,020
1,150 Florida Hsg Fin Agy Hsg Maitland Club Apts Ser B1
(AMBAC Insd)..................................... 6.750 08/01/14 1,270,232
190 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Cent Partner Rfdg........................ 8.125 12/01/07 211,544
250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg........................ 8.125 07/01/06 280,868
300 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj
Rfdg............................................. 7.125 11/01/06 325,851
535 Westchase East Cmnty Dev Dist FL Cap Impt Rev.... 7.250 05/01/03 557,973
-----------
3,645,488
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 155
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA 6.8%
$1,460 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA Collateralized)
(c).............................................. 6.625% 01/01/25 $ 1,608,949
1,000 George L Smith II GA World Congress Ctr Auth Rev
Rfdg Domed Stadium Proj (MBIA Insd) (b).......... 6.000 07/01/04 1,051,640
-----------
2,660,589
-----------
ILLINOIS 12.3%
450 Bedford Park, IL Tax Increment 71st & Cicero Proj
Rfdg............................................. 7.000 01/01/06 489,339
500 Carol Stream, IL First Mtg Rev Windsor Pk Mnr
Proj............................................. 6.500 12/01/07 540,935
490 Chicago, IL Tax Increment Allocation San Drainage
& Ship Canal A................................... 7.375 01/01/05 524,663
545 Clay Cnty, IL Hosp Rev........................... 5.500 12/01/10 549,529
150 Danville, IL Single Family Mtg Rev Rfdg.......... 7.300 11/01/10 161,135
1,335 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A........................ 6.500 09/01/09 1,424,325
750 Illinois Hlth Fac Auth Rev Holy Cross Hosp Proj
Ser 94-A......................................... 6.250 03/01/04 801,502
300 Peoria, IL Spl Tax Weaverridge Spl Svc Area...... 7.625 02/01/08 330,750
-----------
4,822,178
-----------
INDIANA 0.9%
350 Indiana Hlth Fac Fing Auth Hosp Rev Rfdg Floyd
Mem Hosp & Hlth Svcs............................. 4.800 02/15/07 359,086
-----------
KENTUCKY 1.4%
500 Kenton Cnty, KY Arpt Brd Rev (MBIA Insd)......... 5.900 03/01/05 550,770
-----------
LOUISIANA 2.0%
240 Iberia Parish, LA Hosp Svc Dist No 1 Hosp Rev.... 7.500 05/26/06 260,892
500 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A................................. 7.200 01/01/06 505,900
-----------
766,792
-----------
MASSACHUSETTS 4.6%
500 Massachusetts St Hlth & Edl Fac Auth Rev Cent New
England Hlth Sys Ser A........................... 6.125 08/01/13 523,500
500 Massachusetts St Hlth & Edl North Adams Regl Hosp
Ser C............................................ 6.250 07/01/04 545,990
210 Massachusetts St Indl Fin Agy East Boston
Neighborhood Proj................................ 7.250 07/01/06 222,060
500 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth...................................... 6.200 06/01/08 508,525
-----------
1,800,075
-----------
MINNESOTA 2.2%
500 Crow Fin Auth MN Tribal Purp Rev 144A -- Private
Placement (a).................................... 5.400 10/01/07 535,305
315 Minneapolis, MN Multi-Family Rev Hsg Belmont Apts
Proj............................................. 7.000 11/01/06 330,407
-----------
865,712
-----------
MISSOURI 4.4%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)............................................ 7.000 09/01/12 1,725,930
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 156
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY 7.3%
$ 500 Camden Cnty, NJ Impt Auth Lease Rev Kaighn Pt
Marine Terminal A................................ 7.375% 06/01/07 $ 538,885
1,000 East Orange, NJ Brd Ed Ctfs Partn Cap Apprec (FSA
Insd)............................................ * 02/01/16 446,170
250 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A....................................... 8.000 05/15/04 274,045
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd).................... 7.000 07/01/06 1,184,650
375 New Jersey Hlthcare Fac Fin Auth Rev Palisades
Med Cent......................................... 7.500 07/01/06 404,070
-----------
2,847,820
-----------
NEW YORK 11.4%
500 New York City Ser A.............................. 7.000 08/01/07 596,000
500 New York St Dorm Auth Rev Rfdg Secd Hosp North
Gen Hosp Ser G................................... 5.125 02/15/08 531,330
1,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/05) (AMBAC Insd)...... 6.200 08/15/05 1,143,990
1,000 New York St Twy Auth Svc Contract Loc Hwy &
Brdg............................................. 5.800 04/01/00 1,030,350
1,000 Niagara Falls, NY Pub Impt (MBIA Insd)........... 6.900 03/01/20 1,151,110
-----------
4,452,780
-----------
OHIO 6.9%
500 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson
Retirement Cmnty Ser A Rfdg...................... 7.000 11/15/10 547,235
250 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg.... 6.375 05/15/11 277,090
1,000 Ohio St Air Quality Dev Auth Rev Owens Corning
Fiberglass Proj Rfdg (c)......................... 6.250 06/01/04 1,071,300
775 Sandusky County, OH Hosp Fac Rev Rfdg Mem Hosp... 5.000 01/01/06 797,971
-----------
2,693,596
-----------
OKLAHOMA 1.4%
520 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg................................ 5.750 10/01/03 540,498
-----------
PENNSYLVANIA 1.9%
225 Erie, PA Higher Edl Bldg Auth College Rev
Mercyhurst College Proj A Rfdg................... 5.300 03/15/03 236,315
490 Philadelphia, PA Auth For Indl Dev Hlthcare Fac
Rev Baptist Home of Phil Ser A................... 5.200 11/15/04 495,748
-----------
732,063
-----------
TEXAS 3.4%
500 Austin, TX Util Sys Rev Rfdg (AMBAC Insd)........ 6.500 11/15/05 578,315
405 Mesquite, TX Hlth Fac Dev Retirement Fac
Christian Ser A.................................. 6.100 02/15/08 436,412
300 San Antonio, TX Hsg Fin Corp Multi-Family Hsg Rev
Beverly Oaks Arpt Proj Ser A..................... 7.500 02/01/10 318,564
-----------
1,333,291
-----------
UTAH 3.9%
1,400 Utah St Hsg Fin Agy Single Family Mtg Mezz Ser
A-1 (FHA Gtd).................................... 7.150 07/01/12 1,518,888
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 157
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA 1.4%
$ 500 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt
Fac Ser A........................................ 7.450% 01/01/09 $ 556,990
-----------
U. S. VIRGIN ISLANDS 1.7%
600 Virgin Islands Pub Fin Auth Rev Sr Lien Fd Ln Nts
Ser C............................................ 5.500 10/01/07 646,776
-----------
TOTAL LONG-TERM INVESTMENTS 102.5%
(Cost $36,950,751)......................................................... 40,035,204
SHORT-TERM INVESTMENTS 1.8%
(Cost $700,000)............................................................ 700,000
-----------
TOTAL INVESTMENTS 104.3%
(Cost $37,650,751)......................................................... 40,735,204
LIABILITIES IN EXCESS OF OTHER ASSETS (4.3%)................................ (1,674,989)
-----------
NET ASSETS 100.0%........................................................... $39,060,215
----------
</TABLE>
*Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
See Notes to Financial Statements
13
<PAGE> 158
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $37,650,751)........................ $40,735,204
Cash........................................................ 113,303
Receivables:
Interest.................................................. 569,026
Investments Sold.......................................... 10,271
Fund Shares Sold.......................................... 4,185
Other....................................................... 164
-----------
Total Assets.......................................... 41,432,153
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,026,300
Income Distributions...................................... 44,838
Distributor and Affiliates................................ 41,459
Fund Shares Repurchased................................... 17,158
Investment Advisory Fee................................... 15,885
Trustees' Deferred Compensation and Retirement Plans........ 114,525
Accrued Expenses............................................ 111,773
-----------
Total Liabilities..................................... 2,371,938
-----------
NET ASSETS.................................................. $39,060,215
===========
NET ASSETS CONSIST OF:
Capital..................................................... $36,242,880
Net Unrealized Appreciation................................. 3,084,453
Accumulated Undistributed Net Investment Income............. 32,934
Accumulated Net Realized Loss............................... (300,052)
-----------
NET ASSETS.................................................. $39,060,215
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $20,581,162 and 1,918,546 shares of
beneficial interest issued and outstanding)............. $ 10.73
Maximum sales charge (3.25%* of offering price)......... .36
-----------
Maximum offering price to public........................ $ 11.09
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $15,189,684 and 1,417,778 shares of
beneficial interest issued and outstanding)............. $ 10.71
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,289,369 and 307,071 shares of
beneficial interest issued and outstanding)............. $ 10.71
===========
*On sales of $25,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
14
<PAGE> 159
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................. $ 1,654,380 $ 2,041,580
----------- -----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $34,136, $119,482 and
$22,783, respectively for the nine months ended
September 30, 1998 and $30,399, $160,699 and
$47,630, respectively for the year ended December
31, 1997).......................................... 176,401 238,728
Investment Advisory Fee.............................. 139,295 164,970
Accounting Services.................................. 45,401 36,037
Registration......................................... 32,213 51,830
Shareholder Reports.................................. 20,428 44,275
Trustees' Fees and Expenses.......................... 20,105 33,533
Shareholder Services................................. 18,728 41,433
Amortization of Organizational Costs................. 4,828 11,994
Legal................................................ 2,424 9,334
Custody.............................................. 1,919 24,290
Other................................................ 8,113 51,451
----------- -----------
Total Expenses................................... 469,855 707,875
Less Expenses Reimbursed......................... -0- 47,231
----------- -----------
Net Expenses..................................... 469,855 660,644
----------- -----------
NET INVESTMENT INCOME................................ $ 1,184,525 $ 1,380,936
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments...................................... $ 15,771 $ 356,859
Options.......................................... 22,583 -0-
Futures.......................................... -0- (9,378)
----------- -----------
Net Realized Gain.................................... 38,354 347,481
----------- -----------
Unrealized Appreciation/Depreciation:
Beginning of the Period.......................... 2,433,733 1,782,271
End of the Period:
Investments.................................... 3,084,453 2,433,733
----------- -----------
Net Unrealized Appreciation During the Period........ 650,720 651,462
----------- -----------
NET REALIZED AND UNREALIZED GAIN..................... $ 689,074 $ 998,943
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS........... $ 1,873,599 $ 2,379,879
=========== ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 160
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998 and the
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............. $ 1,184,525 $ 1,380,936 $ 1,413,175
Net Realized Gain.................. 38,354 347,481 347,243
Net Unrealized
Appreciation/Depreciation During
the Period....................... 650,720 651,462 (454,405)
---------------- ----------- -----------
Change in Net Assets from
Operations....................... 1,873,599 2,379,879 1,306,013
---------------- ----------- -----------
Distributions from Net Investment
Income:
Class A Shares................... (625,738) (560,309) (656,307)
Class B Shares................... (469,656) (628,468) (666,673)
Class C Shares................... (89,521) (186,777) (184,281)
---------------- ----------- -----------
Total Distributions............ (1,184,915) (1,375,554) (1,507,261)
---------------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............ 688,684 1,004,325 (201,248)
---------------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......... 13,360,043 5,579,082 4,946,191
Net Asset Value of Shares Issued
Through Dividend Reinvestment.... 800,943 883,487 972,957
Cost of Shares Repurchased......... (8,183,923) (9,753,115) (9,123,506)
---------------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............. 5,977,063 (3,290,546) (3,204,358)
---------------- ----------- -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS........................... 6,665,747 (2,286,221) (3,405,606)
NET ASSETS:
Beginning of the Period............ 32,394,468 34,680,689 38,086,295
---------------- ----------- -----------
End of the Period (Including
accumulated undistributed net
investment income of $32,934,
$33,324 and $27,942,
respectively).................... $ 39,060,215 $32,394,468 $34,680,689
================ =========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 161
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 28, 1993
Nine Months (Commencement
Ended Year Ended December 31, of Investment
September 30, ------------------------------------ Operations) to
Class A Shares 1998 1997 1996 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................................... $10.536 $10.213 $10.264 $ 9.330 $10.145 $ 9.700
------- ------- ------- ------- ------- -------
Net Investment Income.......................... .358 .480 .455 .508 .489 .278
Net Realized and Unrealized
Gain/Loss.................................... .199 .317 (.032) .900 (.815) .462
------- ------- ------- ------- ------- -------
Total from Investment
Operations................................... .557 .797 .423 1.408 (.326) .740
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income............................ .365 .474 .474 .474 .489 .273
Distributions from Net
Realized Gain................................ -0- -0- -0- -0- -0- .022
------- ------- ------- ------- ------- -------
Total Distributions............................ .365 .474 .474 .474 .489 .295
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................................... $10.728 $10.536 $10.213 $10.264 $ 9.330 $10.145
======= ======= ======= ======= ======= =======
Total Return* (a).............................. 5.36%** 8.08% 4.27% 15.31% (3.32%) 7.75%**
Net Assets at End of the
Period (In millions)......................... $ 20.6 $ 12.9 $ 12.5 $ 15.6 $ 15.7 $ 14.0
Ratio of Expenses to Average
Net Assets*.................................. 1.30% 1.52% 1.56% 1.00% .67% .14%
Ratio of Net Investment
Income to Average Net
Assets*...................................... 4.61% 4.67% 4.45% 5.10% 5.07% 4.78%
Portfolio Turnover............................. 15%** 37% 45% 75% 274% 86%**
* If certain expenses had not been reimbursed Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................................... n/a 1.67% 1.74% 1.61% 1.75% 2.21%
Ratio of Net Investment
Income to Average Net
Assets....................................... n/a 4.52% 4.27% 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.
n/a - not applicable
See Notes to Financial Statements
17
<PAGE> 162
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 28, 1993
Nine Months (Commencement
Ended Year Ended December 31, of Investment
September 30, ------------------------------------ Operations) to
Class B Shares 1998 1997 1996 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................................... $10.536 $10.213 $10.264 $ 9.330 $10.145 $ 9.700
------- ------- ------- ------- ------- -------
Net Asset Value, Beginning
of the Period................................ $ 10.526 $ 10.209 $10.263 $ 9.319 $10.137 $ 9.700
-------- -------- ------- ------- ------- -------
Net Investment Income.......................... .308 .402 .375 .430 .417 .233
Net Realized and Unrealized
Gain/Loss.................................... .191 .317 (.027) .916 (.818) .460
-------- -------- ------- ------- ------- -------
Total from Investment
Operations................................... .499 .719 .348 1.346 (.401) .693
-------- -------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income............................ .311 .402 .402 .402 .417 .234
Distributions from Net
Realized Gain................................ -0- -0- -0- -0- -0- .022
-------- -------- ------- ------- ------- -------
Total Distributions............................ .311 .402 .402 .402 .417 .256
-------- -------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................................... $ 10.714 $ 10.526 $10.209 $10.263 $ 9.319 $10.137
======== ======== ======= ======= ======= =======
Total Return* (a).............................. 4.74%** 7.23% 3.54% 14.62% (4.04%) 7.23%**
Net Assets at End of the
Period (In millions)......................... $ 15.2 $ 16.4 $ 16.4 $ 17.5 $ 17.7 $ 13.9
Ratio of Expenses to
Average Net Assets*.......................... 2.06% 2.28% 2.32% 1.75% 1.43% .92%
Ratio of Net Investment
Income to Average Net
Assets*...................................... 3.90% 3.91% 3.69% 4.33% 4.30% 3.95%
Portfolio Turnover............................. 15%** 37% 45% 75% 274% 86%**
* If certain expenses had not been reimbursed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to
Average Net Assets........................... n/a 2.42% 2.50% 2.36% 2.50% 2.98%
Ratio of Net Investment
Income to Average Net
Assets....................................... n/a 3.77% 3.51% 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.
n/a - not applicable
See Notes to Financial Statements
18
<PAGE> 163
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months October 19, 1993
Ended Year Ended December 31, (Commencement of
September 30, ------------------------------------ Distribution) to
Class C Shares 1998 1997 1996 1995 1994 December 31, 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................................... $10.536 $10.213 $10.264 $ 9.330 $10.145 $ 9.700
------- ------- ------- ------- ------- -------
Net Asset Value, Beginning of
the Period................................... $10.525 $10.206 $10.260 $ 9.314 $10.134 $10.250
------- ------- ------- ------- ------- -------
Net Investment Income.......................... .308 .402 .374 .430 .419 .091
Net Realized and Unrealized
Gain/Loss.................................... .190 .319 (.026) .918 (.822) (.098)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................................... .498 .721 .348 1.348 (.403) (.007)
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income............................ .311 .402 .402 .402 .417 .087
Distributions from Net Realized
Gain......................................... -0- -0- -0- -0- -0- .022
------- ------- ------- ------- ------- -------
Total Distributions............................ .311 .402 .402 .402 .417 .109
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................................... $10.712 $10.525 $10.206 $10.260 $ 9.314 $10.134
======= ======= ======= ======= ======= =======
Total Return* (a).............................. 4.74%** 7.23% 3.54% 14.74% (4.04%) (.10%)**
Net Assets at End of the Period
(In millions)................................ $ 3.3 $ 3.1 $ 5.8 $ 4.9 $ 4.7 $ .3
Ratio of Expenses to Average
Net Assets*.................................. 2.06% 2.29% 2.32% 1.74% 1.43% .97%
Ratio of Net Investment Income
to Average
Net Assets*.................................. 3.89% 3.88% 3.70% 4.36% 4.34% 4.05%
Portfolio Turnover............................. 15%** 37% 45% 75% 274% 86%**
*If certain expenses had not been reimbursed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets....................................... n/a 2.43% 2.50% 2.34% 2.46% 2.97%
Ratio of Net Investment Income
to Average
Net Assets................................... n/a 3.74% 3.52% 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.
n/a - not applicable
See Notes to Financial Statements
19
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Intermediate Term Municipal Income Fund, (the "Fund") is organized as
a series of Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust,
and is registered as a diversified open-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is to seek a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Fund commenced investment
operations on May 28, 1993 with two classes of common shares, Class A and Class
B shares. The distribution of the Fund's Class C shares commenced on October 19,
1993. In July, 1998, the Fund's Board of Trustees approved a change in the
Fund's fiscal year end from December 31 to September 30. As a result, this
financial report reflects the nine month period commencing on January 1, 1998,
and ending on September 30, 1998.
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
20
<PAGE> 165
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $60,000. These costs were amortized on a
straight line basis over the 60 month period which ended May 27, 1998.
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 September 30, 1998, the Fund had an accumulated capital loss carryforward for
tax purposes of $300,052 which will expire between September 30, 2002 and
September 30, 2003. Net realized gains or losses may differ for financial
reporting and tax purposes primarily as a result of post October losses which
may not be recognized for tax purposes until the first day of the following
fiscal year at September 30, 1998.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $37,650,751; the aggregate gross unrealized
appreciation is $3,084,453 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation on long- and short-term investments
of $3,084,453.
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.
For the nine months ended September 30, 1998, 100% of the income
distributions made by the Fund were exempt from federal income taxes. In
January, 1999, the Fund will provide tax information to shareholders for the
1998 calendar year.
21
<PAGE> 166
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%
Over $500 million....................................... .450 of 1%
</TABLE>
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $700 and $1,200,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $47,100 and $43,200,
respectively, representing Van Kampen's cost of providing accounting and legal
services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the nine months
ended September 30, 1998 and the year ended December 31, 1997, the Fund
recognized expenses of approximately $14,400 and $28,200, respectively.
Beginning in 1998, the transfer agency fees are determined through negotiations
with the Fund's Board of Trustees and are based on competitive market
benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At September 30, 1998, Van Kampen 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 shares of beneficial interest, 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.
22
<PAGE> 167
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $19,411,810, $14,023,192 and
$2,807,878 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 1,074,637 $11,350,330
Class B..................................... 130,358 1,377,259
Class C..................................... 59,963 632,454
--------- -----------
Total Sales................................... 1,264,958 $13,360,043
========= ===========
Dividend Reinvestment:
Class A..................................... 43,203 $ 457,668
Class B..................................... 25,218 266,756
Class C..................................... 7,232 76,519
--------- -----------
Total Dividend Reinvestment................... 75,653 $ 800,943
========= ===========
Repurchases:
Class A..................................... (425,765) $(4,501,920)
Class B..................................... (297,555) (3,150,507)
Class C..................................... (50,238) (531,496)
--------- -----------
Total Repurchases............................. (773,558) $(8,183,923)
========= ===========
</TABLE>
23
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $12,105,732, $15,529,684 and
$2,630,401 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 224,786 $ 2,319,832
Class B....................................... 176,313 1,821,383
Class C....................................... 141,162 1,437,867
-------- -----------
Total Sales..................................... 542,261 $ 5,579,082
======== ===========
Dividend Reinvestment:
Class A....................................... 36,275 $ 374,192
Class B....................................... 34,418 354,505
Class C....................................... 15,094 154,790
-------- -----------
Total Dividend Reinvestment..................... 85,787 $ 883,487
======== ===========
Repurchases:
Class A....................................... (255,254) $(2,615,305)
Class B....................................... (255,930) (2,632,842)
Class C....................................... (437,360) (4,504,968)
-------- -----------
Total Repurchases............................... (948,544) $(9,753,115)
======== ===========
</TABLE>
24
<PAGE> 169
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1996, capital aggregated $12,027,013, $15,986,638 and
$5,542,712 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 103,746 $ 1,052,973
Class B....................................... 139,700 1,404,638
Class C....................................... 245,967 2,488,580
-------- -----------
Total Sales..................................... 489,413 $ 4,946,191
======== ===========
Dividend Reinvestment:
Class A....................................... 40,990 $ 414,943
Class B....................................... 38,800 392,637
Class C....................................... 16,324 165,377
-------- -----------
Total Dividend Reinvestment..................... 96,114 $ 972,957
======== ===========
Repurchases:
Class A....................................... (445,139) $(4,514,663)
Class B....................................... (281,671) (2,845,685)
Class C....................................... (172,868) (1,763,158)
-------- -----------
Total Repurchases............................... (899,678) $(9,123,506)
======== ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC for Class B and Class C shares will be imposed on most
redemptions made within four years of the purchase for Class B and one year of
the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First............................................ 3.00% 1.00%
Second........................................... 2.50% None
Third............................................ 2.00% None
Fourth........................................... 1.00% None
Fifth and Thereafter............................. None None
</TABLE>
25
<PAGE> 170
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
For the nine months ended September 30, 1998 and the year ended December 31,
1997, Van Kampen, as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $3,000 and $600, respectively and
CDSC on redeemed shares of approximately $24,800 and $19,600, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments were $13,279,263 and
$5,673,728, respectively. For the year ended December 31, 1997, the cost of
purchases and proceeds from the sales of investments, excluding short-term
investments were $12,443,850 and $17,294,867, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or taking
delivery of a security underlying a futures contract. In these instances, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the Fund'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
26
<PAGE> 171
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
made to the broker based upon changes in the value of the contract (the
variation margin).
Transactions in futures contracts for the year ended December 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996....................... 0
Futures Opened......................................... 6
Futures Closed......................................... (6)
--
Outstanding at December 31, 1997....................... 0
==
</TABLE>
There were no transactions in futures contracts for the nine months ended
September 30, 1998.
B. 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 nine months ended September 30, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997.......... -0- $ -0-
Options Written and Purchased (Net)....... 100 24,193
Options Terminated in Closing Transactions
(Net)................................... (100) (24,193)
---- --------
Outstanding at September 30, 1998......... -0- $ -0-
==== ========
</TABLE>
There were no transactions in options for the year ended December 31, 1997.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended September 30, 1998 and the year ended December 31,
1997, are payments retained by Van Kampen of approximately $98,700 and $152,700,
respectively.
27
<PAGE> 172
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
28
<PAGE> 173
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Intermediate Term Municipal Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Intermediate Term Municipal Income Fund (the "Fund"), including the
portfolio of investments, as of September 30, 1998, and the related statement of
operations for the nine-month period ended September 30, 1998 and the year ended
December 31, 1997, the statement of changes in net assets for the nine-month
period ended September 30, 1998 and for each of the two years in the period
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Intermediate Term Municipal Income Fund as of September 30, 1998, the
results of its operations for the nine-month period ended September 30, 1998 and
the year ended December 31, 1997, the changes in its net assets for the
nine-month period ended September 30, 1998 and for each of the two years in the
period ended December 31, 1997, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 5, 1998
29
<PAGE> 174
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
30
<PAGE> 175
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief
Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, this report, if used with
prospective investors, must be accompanied by a quarterly performance update.
31
<PAGE> 176
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
32
<PAGE> 177
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 29
</TABLE>
FLI ANR 11/98
<PAGE> 178
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. However, the
United States has been relatively
unscathed by the turmoil in many
overseas markets. In fact, the U.S.
fixed-income markets benefited as [PHOTO]
many investors moved assets from
stocks into more conservative
fixed-income investments. The DENNIS J. MCDONNELL AND DON G. POWELL
volatility also forced yield spreads
to widen between Treasuries and
high-yield securities, corporate bonds, and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals. As we explain elsewhere in this letter, the U.S. economy
remains among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
Continued on page 2
1
<PAGE> 179
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG.]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 180
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on
NAV(1).............................. 6.26% 5.74% 5.60%
Nine-month total return(2)............ 1.18% 1.74% 4.60%
One-year total return(2).............. 4.30% 4.70% 7.61%
Life-of-Fund average annual total
return(2)........................... 6.79% 6.98% 7.28%
Commencement date..................... 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................. 4.63% 4.14% 4.14%
Taxable equivalent distribution
rate(4)............................. 7.23% 6.47% 6.47%
SEC Yield(5).......................... 4.19% 3.63% 3.64%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1998. Had
certain expenses of the Fund not been assumed by Van Kampen, the SEC Yield would
have been 2.45%, 1.77% and 1.80% 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.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from December 31 to September 30. As a result, this financial report
reflects the 9-month transition period commencing on January 1, 1998, and ending
on September 30, 1998.
3
<PAGE> 181
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time. The index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Florida Insured Tax Free Income Fund vs. the Lehman Brothers
Municipal Bond Index (July 29, 1994 through September 30, 1998)
INVESTMENT PERFORMANCE CHART
<TABLE>
<CAPTION>
Van Kampen Florida
Insured Tax Free Lehman Brothers
Income Fund Municipal Bond Index
<S> <C> <C>
Jul-94 9527.00 10000.00
9635.00 10035.00
Sep-94 9519.00 9887.49
9289.00 9711.49
9010.00 9535.71
9387.00 9745.50
9718.00 10024.20
9982.00 10315.90
Mar-95 10021.00 10434.50
9998.00 10447.10
10280.00 10780.30
10145.00 10686.50
10233.00 10788.10
10350.00 10925.10
Sep-95 10418.00 10993.90
10565.00 11153.30
10797.00 11338.50
10916.00 11447.30
10998.00 11534.30
10930.00 11455.90
Mar-96 10658.00 11309.20
10625.00 11277.60
10628.00 11273.10
10749.00 11395.90
10921.00 11499.60
10903.00 11497.40
Sep-96 11092.00 11658.30
11230.00 11790.00
11451.00 12005.80
11394.00 11955.40
11359.00 11978.10
11461.00 12088.30
Mar-97 11335.00 11927.50
11423.00 12027.70
11611.00 12208.10
11715.00 12338.80
12060.00 12680.50
11908.00 12561.30
Sep-97 12021.00 12710.80
12111.00 12792.20
12178.00 12867.60
12388.00 13055.50
12503.00 13190.00
12499.00 13193.90
Mar-98 12510.00 13205.80
12433.00 13146.40
12655.00 13354.10
12708.00 13406.20
12744.00 13439.70
12969.00 13648.00
Sep-98 13162.00 13819.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 182
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load").
Generally, there is no redemption fee (Contingent Deferred Sales Charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
REFUNDING: Retiring an outstanding bond issue at maturity using money from the
sale of a new offering.
5
<PAGE> 183
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
6
<PAGE> 184
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen Florida Insured Tax
Free Income Fund about the key events and economic forces that shaped the
markets during the reporting period. The team includes Thomas M. Byron,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997 to September 30, 1998.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT DURING THE PAST NINE MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent as Treasuries.
At the end of the reporting period, the yield on AAA-rated 30-year general
obligation municipal bonds was just slightly less than the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
Florida's economic climate continued to be favorable. The state ended its
fiscal year on June 30, 1998, with a budget surplus and reserve balances of more
than $1 billion. Florida's credit profile portrayed strong and stable credit
characteristics, reflecting solid employment growth, low unemployment, and a
strong financial position. Demand for Florida municipal bonds kept pace with the
state's increasing supply, as Florida's large retiree population tended to favor
more conservative investments such as insured bond issues, which made up a large
percentage of the state's supply.
Q HOW DID THESE CONDITIONS AFFECT THE WAY YOU MANAGED THE FUND?
A The heavy supply of municipal bonds in Florida benefited the Fund, because
there were plenty of quality bond issues from which to choose. Insured
bond issuance
7
<PAGE> 185
accounted for about 76 percent of the state's supply through 1998's second
quarter. This helped us in our efforts to keep the portfolio widely varied.
During the period, we held onto many of our current holdings to maintain
yield in a climate of low interest rates. Although we would like to increase our
exposure somewhat to lower-rated, higher-yielding securities within the
investment-grade category, this was generally not prudent during most of the
reporting period, given the narrow credit spreads and the yield characteristics
of existing holdings in the Fund. With such narrow credit spreads, there is
typically less incentive to take on the extra credit risk associated with
higher-yielding bond issues.
Q HAVE YOU MADE ANY SIGNIFICANT SHIFTS IN THE PORTFOLIO DURING THE LAST NINE
MONTHS?
A Early in the reporting period we moved into higher-yielding, BBB-rated
Florida bonds that have been carefully evaluated by our research analysts.
We increased our share of BBB-rated bonds from 6 to 9 percent while
decreasing our share of insured AAA-rated bonds. In addition to increasing the
Fund's yield, adding BBB-rated bonds should help to provide some price stability
during a down market.
We continue to hold a diverse collection of bonds. At the end of the
reporting period the Fund held municipal bonds from 16 different industry
sectors. As we increase our exposure to higher-yielding bonds, we feel that this
higher level of variety can help provide a buffer from unexpected adverse
economic developments that might arise.
Of course, more than 80 percent of the Fund's portfolio is invested in
securities rated AAA, the highest possible credit rating. As of September 30,
1998, the Fund's largest portfolio allocation was public education, representing
13.5 percent of the Fund's total assets. Health care bonds held the
second-largest place in the Fund at 13.3 percent, while water and sewer bonds
were third at 10.2 percent. For additional Fund portfolio highlights, please
refer to page 10.
Q HOW WELL DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund performed well. For the reporting period, it achieved a
year-to-date total return through September 30, 1998 of 6.26 percent(1)
(Class A shares at net asset value). By comparison, the Lehman Brothers
Municipal Bond Index returned 5.84 percent during the same period. This index is
a broad-based index of municipal bonds and does not reflect any commissions that
would be paid by an investor purchasing the securities it represents.
The Fund's dividend was unchanged, and its distribution rate was 4.63
percent(3) as of September 30, 1998. The taxable-equivalent distribution rate
for an investor in the 36 percent federal income tax bracket would be 7.23
percent.(4) Please refer to the chart on page 3 for additional Fund performance
results.
8
<PAGE> 186
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a favorable
environment for bonds. (Editor's note: After the reporting period ended,
the Fed reduced interest rates again by 0.25 percent.) The supply of municipal
bond issues looks like it will remain strong, as low interest rates spark
further refunding of outstanding bond issues and bring new municipal bonds into
the marketplace. As more investors recognize the value available in the
municipal market, demand is likely to increase and municipal bonds could see
favorable returns in coming months.
[SIG] [SIG]
Thomas M. Byron Peter W. Hegel
Portfolio Manager Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
9
<PAGE> 187
PORTFOLIO HIGHLIGHTS
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
PIE CHART
PIE CHART
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Public Education....... 13.5%
Health Care............ 13.3%
Water and Sewer........ 10.2%
Higher Education....... 9.8%
Single-Family Housing... 8.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Public Education....... 20.1%
Health Care............ 19.6%
Water and Sewer........ 10.0%
Single-Family
Housing.............. 9.2%
Higher Education....... 8.0%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 8.56 years 8.75 years
</TABLE>
(1)Unaudited
10
<PAGE> 188
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
FLORIDA 102.8%
$1,500 Alachua Cnty, FL Sch Brd Ctfs Partn (AMBAC
Insd)............................................ 5.000% 07/01/18 $ 1,525,965
1,000 Boca Raton, FL Cmnty Redev Agy Mizner Park Proj
Rfdg (FSA Insd) (a).............................. 4.500 03/01/12 1,000,380
1,805 Boca Raton, FL Cmnty Redev Agy Mizner Park Proj
Rfdg (FSA Insd) (a).............................. 4.625 03/01/14 1,802,960
465 Brevard Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.650 09/01/21 501,972
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd)....... 5.750 12/01/13 713,148
1,000 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd) (b)........................................ 5.400 07/01/12 1,105,020
445 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.100 10/01/19 477,845
670 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.200 04/01/30 719,205
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd)................................ 6.500 08/15/12 551,770
1,000 Dade Cnty, FL Aviation Rev Ser B (MBIA Insd)..... 5.600 10/01/26 1,079,040
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of Miami Ser
B (MBIA Insd).................................... 5.750 04/01/20 1,094,310
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd) (Prerefunded @ 05/01/04)................... 5.750 05/01/08 1,082,488
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd) (Prerefunded @ 05/01/04)................... 6.000 05/01/14 558,525
1,000 Dade Cnty, FL Seaport Rfdg (MBIA Insd)........... 5.125 10/01/21 1,014,070
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd)...... 5.375 10/01/16 802,755
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC
Insd)............................................ 5.750 11/15/10 974,691
400 Florida Hsg Fin Agy Hsg Reserves at Kanapaha Ser
G (AMBAC Insd)................................... 5.600 07/01/27 418,384
2,500 Florida St Brd Edl Cap Outlay Pub Edl Ser C (MBIA
Insd)............................................ 5.600 06/01/20 2,659,025
1,750 Florida St Brd Regt Univ Sys Impt Rev (MBIA
Insd)............................................ 5.625 07/01/19 1,890,262
1,750 Florida St Division Bond Fin Dept Genl Svcs Rev
(AMBAC Insd)..................................... 5.000 07/01/12 1,826,072
1,500 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj
Rfdg............................................. 5.750 04/01/18 1,566,720
500 Hillsborough Cnty, FL Hosp Auth Hosp Rev Tampa
Genl Hosp Proj Rfdg (FSA Insd)................... 6.375 10/01/13 549,320
750 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Rfdg (MBIA Insd).......... 6.250 12/01/34 838,050
1,300 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 5.700 10/01/15 1,428,076
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 6.100 10/01/18 1,122,340
1,000 Jacksonville, FL Elec Auth Rev Saint John's Pwr-2
Ser 7 Rfdg (MBIA Insd) (b)....................... 5.500 10/01/14 1,052,320
1,000 Jacksonville, FL Wtr & Swr Rev United Wtr FL Proj
(AMBAC Insd)..................................... 6.350 08/01/25 1,136,150
</TABLE>
See Notes to Financial Statements
11
<PAGE> 189
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$2,250 Jupiter Islands, FL Util Sys Rev South Martin Reg
Util (MBIA Insd)................................. 5.000% 10/01/28 $ 2,267,190
925 Lee Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Multi-Cnty Pgm Ser A (GNMA Collateralized)....... 7.450 09/01/27 1,057,090
960 Manatee Cnty, FL Hsg Fin Auth Mtg Rev (GNMA
Collateralized) (b).............................. 6.875 11/01/26 1,083,254
835 Martin Cnty, FL Consolidated Util Sys Rev (FGIC
Insd)............................................ 5.750 10/01/08 924,520
55 Martin Cnty, FL Consolidated Util Sys Rev
(Prerefunded @ 10/01/04) (FGIC Insd)............. 5.750 10/01/08 61,538
750 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg.............. 7.875 12/15/25 883,958
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd).......... 6.250 10/01/18 623,387
500 Miramar, FL Wastewater Impt Assmt Rev (FGIC
Insd)............................................ 6.750 10/01/25 582,055
1,000 Naples, FL Hosp Rev Naples Cmnty Hosp Inc Rfdg
(MBIA Insd)...................................... 5.500 10/01/26 1,055,500
1,250 North Broward, FL Hosp Dist Rev Rfdg & Impt (MBIA
Insd)............................................ 5.375 01/15/24 1,300,013
775 Orange Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized) (b).................... 6.550 10/01/21 835,179
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B
(Prerefunded @ 10/01/02) (AMBAC Insd)............ 6.500 10/01/19 1,008,864
1,000 Orlando & Orange Cnty Expressway Auth FL
Expressway Rev (FGIC Insd)....................... 5.000 07/01/21 1,007,440
750 Palm Beach Cnty, FL Hlth Fac Auth Rev Abbey
Delray South Proj Rfdg........................... 5.500 10/01/11 761,858
1,550 Palm Beach Cnty, FL Hlth Fac Auth Rev Retirement
Cmnty............................................ 5.625 11/15/20 1,641,931
450 Palm Beach Cnty, FL Hlth Fac Auth Rev Waterford
Proj Rfdg........................................ 5.500 10/01/15 456,075
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 08/01/04) (AMBAC Insd)............ 6.375 08/01/15 855,578
1,000 Polk Cnty, FL Indl Dev Auth Tampa Elec Co Proj... 5.850 12/01/30 1,087,670
500 Port Orange, FL Wtr & Swr Rev Rfdg (AMBAC
Insd) (a)........................................ 5.000 10/01/16 504,655
500 Reedy Creek Impt Dist FL Ser A (MBIA Insd) (a)... 5.250 06/01/15 528,105
1,000 Santa Rosa Bay Brdg Auth FL Rev.................. 6.250 07/01/28 1,100,880
750 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)............................ 6.500 10/01/14 869,085
500 Sunrise, FL Util Sys Rev Rfdg (AMBAC Insd)....... 5.000 10/01/28 515,045
600 Tampa, FL Sports Auth Rev (AMBAC Insd)........... 5.000 10/01/28 601,938
1,000 Volusia Cnty, FL Edl Fac Auth Rev Stetson Univ
Proj Ser A (MBIA Insd)........................... 5.500 06/01/26 1,066,730
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac Mem
Hlth Rfdg & Impt (AMBAC Insd).................... 5.750 11/15/13 550,485
1,000 Volusia Cnty, FL Hlth Fac Auth Rev John Knox Hlth
Care Rfdg (Asset Gty Insd)....................... 6.000 06/01/17 1,090,400
-----------
53,811,286
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 190
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO 2.7%
$ 670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................. 6.625% 07/01/12 $ 737,978
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd)............................ 5.750 07/01/15 697,028
-----------
1,435,006
-----------
TOTAL LONG-TERM INVESTMENTS 105.5%
(Cost $50,655,943)......................................................... 55,246,292
-----------
SHORT-TERM INVESTMENTS 0.2%
(Cost $100,000)............................................................ 100,000
-----------
TOTAL INVESTMENTS 105.7%
(Cost $50,755,943)......................................................... 55,346,292
LIABILITIES IN EXCESS OF OTHER ASSETS (5.7%)................................ (2,995,531)
-----------
NET ASSETS 100.0%........................................................... $52,350,761
----------
</TABLE>
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC-- AMBAC Indemnity Corporation
FGIC-- Financial Guaranty Insurance Company
FSA-- Financial Security Assurance Inc.
MBIA-- Municipal Bond Investors Assurance Corp.
Asset Gty-- Asset Guaranty Insurance Company
See Notes to Financial Statements
13
<PAGE> 191
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $50,755,943)........................ $55,346,292
Cash........................................................ 125,868
Receivables:
Investments Sold.......................................... 1,044,837
Interest.................................................. 991,891
Fund Shares Sold.......................................... 46,339
Unamortized Organizational Costs............................ 11,532
Other....................................................... 124
-----------
Total Assets.......................................... 57,566,883
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,806,234
Fund Shares Repurchased................................... 109,550
Income Distributions...................................... 106,609
Distributor and Affiliates................................ 80,481
Trustees' Deferred Compensation and Retirement Plans........ 80,038
Accrued Expenses............................................ 33,210
-----------
Total Liabilities..................................... 5,216,122
-----------
NET ASSETS.................................................. $52,350,761
===========
NET ASSETS CONSIST OF:
Capital..................................................... $48,101,270
Net Unrealized Appreciation................................. 4,590,349
Accumulated Distributions in Excess of Net Investment
Income.................................................... (58,071)
Accumulated Net Realized Loss............................... (282,787)
-----------
NET ASSETS.................................................. $52,350,761
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $27,113,986 and 1,703,029 shares of
beneficial interest issued and outstanding)........... $ 15.92
Maximum sales charge (4.75%* of offering price)......... .79
-----------
Maximum offering price to public........................ $ 16.71
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $23,614,356 and 1,482,836 shares of
beneficial interest issued and outstanding)........... $ 15.93
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $1,622,419 and
101,774 shares of beneficial interest issued and
outstanding).......................................... $ 15.94
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
14
<PAGE> 192
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest............................................... $ 2,048,317 $ 2,523,156
------------ -----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $49,218, $170,192 and $9,173,
respectively, for the nine months ended 9/30/98 and
$59,871, $201,488 and $6,432, respectively, for the
year ended 12/31/97)................................. 228,583 267,791
Investment Advisory Fee................................ 188,173 223,516
Shareholder Reports.................................... 50,357 40,584
Registration and Filing Fees........................... 19,687 35,205
Shareholder Services................................... 19,093 19,910
Trustees' Fees and Expenses............................ 18,888 5,729
Custody................................................ 12,604 71,138
Legal.................................................. 3,006 9,125
Other.................................................. 82,881 58,605
------------ -----------
Total Expenses....................................... 623,272 731,603
Less Fees Waived and Expenses Reimbursed ($188,173
and $75,838, respectively, for the nine months
ended 9/30/98 and $223,516 and $88,936,
respectively, for the year ended 12/31/97)......... 264,011 312,452
------------ -----------
Net Expenses....................................... 359,261 419,151
------------ -----------
NET INVESTMENT INCOME.................................. $ 1,689,056 $ 2,104,005
============ ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments.......................................... $ 305,575 $ (229,913)
Futures.............................................. 5,036 (363,485)
------------ -----------
Net Realized Gain/Loss................................. 310,611 (593,398)
------------ -----------
Unrealized Appreciation/Depreciation:
Beginning of the Period.............................. 3,637,769 1,459,008
------------ -----------
End of the Period:
Investments.......................................... 4,590,349 3,647,942
Futures.............................................. -0- (10,173)
------------ -----------
4,590,349 3,637,769
------------ -----------
Net Unrealized Appreciation During the Period.......... 952,580 2,178,761
------------ -----------
NET REALIZED AND UNREALIZED GAIN....................... $ 1,263,191 $ 1,585,363
============ ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS............. $ 2,952,247 $ 3,689,368
============ ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 193
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998
and the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................... $ 1,689,056 $ 2,104,005 $ 1,687,363
Net Realized Gain/Loss.................. 310,611 (593,398) 287,514
Net Unrealized Appreciation/Depreciation
During the Period..................... 952,580 2,178,761 (547,665)
------------ ----------- -----------
Change in Net Assets from Operations.... 2,952,247 3,689,368 1,427,212
------------ ----------- -----------
Distributions from Net Investment
Income................................ (1,689,056) (2,104,005) (1,654,415)
Distributions in Excess of Net
Investment Income..................... (53,515) (24,977) -0-
------------ ----------- -----------
Distributions from and in Excess of Net
Investment Income*.................... (1,742,571) (2,128,982) (1,654,415)
------------ ----------- -----------
Distributions from Net Realized Gain:
Class A Shares........................ -0- (14,898) -0-
Class B Shares........................ -0- (12,813) -0-
Class C Shares........................ -0- (397) -0-
------------ ----------- -----------
-0- (28,108) -0-
------------ ----------- -----------
Total Distributions..................... (1,742,571) (2,157,090) (1,654,415)
------------ ----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................ 1,209,676 1,532,278 (227,203)
------------ ----------- -----------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold............... 11,498,972 15,913,603 16,047,069
Net Asset Value of Shares Issued Through
Dividend Reinvestment................. 804,084 999,451 701,942
Cost of Shares Repurchased.............. (14,206,014) (7,278,428) (8,255,409)
------------ ----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.......................... (1,902,958) 9,634,626 8,493,602
------------ ----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS... (693,282) 11,166,904 8,266,399
NET ASSETS:
Beginning of the Period................. 53,044,043 41,877,139 33,610,740
------------ ----------- -----------
End of the Period (Including accumulated
undistributed net investment income of
$(58,071), $(4,556) and $20,971,
respectively)......................... $ 52,350,761 $53,044,043 $41,877,139
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares........................ $ (981,519) $(1,223,114) $ (868,212)
Class B Shares........................ (722,360) (878,013) (768,924)
Class C Shares........................ (38,692) (27,855) (17,279)
----------- ----------- -----------
$(1,742,571) $(2,128,982) $(1,654,415)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 194
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months of Investment
Ended Year Ended December 31, Operations) to
September 30, ---------------------------- December 31,
Class A Shares 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.550 $15.060 $ 15.203 $13.796 $14.300
------- ------- -------- ------- -------
Net Investment Income............ .564 .766 .784 .789 .291
Net Realized and Unrealized
Gain/Loss...................... .388 .508 (.153) 1.416 (.507)
------- ------- -------- ------- -------
Total from Investment Operations... .952 1.274 .631 2.205 (.216)
------- ------- -------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .581 .774 .774 .798 .288
Distributions from Net Realized
Gain........................... -0- .010 -0- -0- -0-
------- ------- -------- ------- -------
Total Distributions................ .581 .784 .774 .798 .288
------- ------- -------- ------- -------
Net Asset Value, End of the
Period........................... $15.921 $15.550 $ 15.060 $15.203 $13.796
======= ======= ======== ======= =======
Total Return* (a).................. 6.26%** 8.72% 4.37% 16.29% (1.47%)**
Net Assets at End of the Period (In
millions)........................ $ 27.1 $ 29.3 $ 22.2 $ 16.2 $ 9.0
Ratio of Expenses to Average Net
Assets*.......................... .60% .59% .28% .44% .49%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.85% 5.05% 5.31% 5.33% 5.13%
Portfolio Turnover................. 50%** 48% 73% 41% 19%**
* If certain expenses had not been
assumed by Van Kampen, total
return would have been lower and
the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets........................... 1.30% 1.29% 1.47% 1.70% 1.99%
Ratio of Net Investment Income to
Average Net Assets............... 4.15% 4.35% 4.13% 4.07% 3.64%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
17
<PAGE> 195
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months of Investment
Ended Year Ended December 31, Operations) to
September 30, --------------------------- December 31,
Class B Shares 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.554 $15.064 $15.201 $13.792 $14.300
------- ------- ------- ------- -------
Net Investment Income............ .478 .650 .677 .685 .251
Net Realized and Unrealized
Gain/Loss...................... .388 .510 (.154) 1.415 (.509)
------- ------- ------- ------- -------
Total from Investment Operations... .866 1.160 .523 2.100 (.258)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .495 .660 .660 .691 .250
Distributions from Net Realized
Gain........................... -0- .010 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions................ .495 .670 .660 .691 .250
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $15.925 $15.554 $15.064 $15.201 $13.792
======= ======= ======= ======= =======
Total Return* (a).................. 5.74%** 7.91% 3.58% 15.53% (1.81%)**
Net Assets at End of the Period (In
millions)........................ $ 23.6 $ 22.5 $ 18.9 $ 16.9 $ 10.9
Ratio of Expenses to Average Net
Assets*.......................... 1.35% 1.33% 1.03% 1.12% 1.26%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.09% 4.30% 4.56% 4.66% 4.31%
Portfolio Turnover................. 50%** 48% 73% 41% 19%**
* If certain expenses had not been
assumed by Van Kampen, total
return would have been lower and
the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets........................... 2.05% 2.03% 2.22% 2.38% 2.75%
Ratio of Net Investment Income to
Average Net Assets............... 3.39% 3.60% 3.38% 3.40% 2.81%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 196
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months of Investment
Ended Year Ended December 31, Operations) to
September 30, ----------------------------- December 31,
Class C Shares 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $ 15.581 $ 15.081 $ 15.213 $13.786 $14.300
-------- -------- -------- ------- -------
Net Investment Income........... .483 .666 .668 .690 .249
Net Realized and Unrealized
Gain/Loss..................... .372 .504 (.140) 1.428 (.513)
-------- -------- -------- ------- -------
Total from Investment
Operations...................... .855 1.170 .528 2.118 (.264)
-------- -------- -------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income...... .495 .660 .660 .691 .250
Distribution from Net Realized
Gain.......................... -0- .010 -0- -0- -0-
-------- -------- -------- ------- -------
Total Distributions............... .495 .670 .660 .691 .250
-------- -------- -------- ------- -------
Net Asset Value, End of the
Period.......................... $ 15.941 $ 15.581 $ 15.081 $15.213 $13.786
======== ======== ======== ======= =======
Total Return* (a)................. 5.60%** 7.97% 3.65% 15.61% (1.81%)**
Net Assets at End of the Period
(In thousands).................. $1,622.4 $1,195.1 $ 849.2 $ 461.8 $ 11.4
Ratio of Expenses to Average Net
Assets*......................... 1.32% 1.37% 1.03% 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............. 4.08% 4.38% 4.56% 4.51% 4.28%
Portfolio Turnover................ 50%** 48% 73% 41% 19%**
* If certain expenses had not been
assumed by Van Kampen, total
return would have been lower and
the ratios would have been as
follows:
Ratio of Expenses to Average Net
Assets.......................... 2.03% 2.06% 2.22% 2.39% 2.74%
Ratio of Net Investment Income to
Average Net Assets.............. 3.38% 3.68% 3.38% 3.25% 2.87%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
19
<PAGE> 197
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Florida Insured Tax Free Income Fund (the "Fund"), is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a non-diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors a high level of current income exempt from federal income
and Florida state intangibles taxes, consistent with preservation of capital.
Under normal market conditions, the Fund will invest at least 80% of its assets
in insured Florida municipal securities. The Fund commenced investment
operations on July 29, 1994. In July, 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from December 31 to September
30. As a result, this financial report reflects the nine month period commencing
on January 1, 1998, and ending on September 30, 1998.
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 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the
20
<PAGE> 198
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
expected life of each applicable security. Expenses of the Fund are allocated on
a pro rata basis to each class of shares, except for distribution and service
fees and transfer agency costs which are unique to each class of shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $70,000. These costs are being amortized on
a straight line basis over the 60 month period ending July 28, 1999. Van Kampen
Investment Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Fund originally purchased by Van Kampen are redeemed
during the amortization period, the Fund will be reimbursed for any unamortized
organizational costs 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 loss and offset such losses against any future realized capital gains.
At September 30, 1998, the Fund had an accumulated capital loss carryforward for
tax purposes of $282,787 which will expire on September 30, 2005. Net realized
gains or losses differ for financial reporting and tax purposes as a result of
post October 31 losses which are not realized for tax purposes until the first
day of the following fiscal year.
At September 30, 1998, for federal income tax purposes the cost of long- and
short-term investments is $50,755,943, the aggregate gross unrealized
appreciation is $4,590,349 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation on long- and short-term investments
of $4,590,349.
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. For the nine months ended September 30, 1998, 100% of the
income distributions made
21
<PAGE> 199
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
by the Fund were exempt from federal income taxes. In January, 1999, the Fund
will provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%
Over $500 million....................................... .450 of 1%
</TABLE>
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $1,000 and $1,800,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $42,200 and $27,100,
respectively, representing Van Kampen's cost of providing accounting and legal
services to the Fund. All of these expenses were assumed by Van Kampen.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the nine months ended September
30, 1998 and the year ended December 31, 1997, the Fund recognized expenses of
approximately $11,600 and $11,400, respectively. All of these expenses were
assumed by Van Kampen. Beginning in 1998, transfer agency fees are determined
through negotiations with the Fund's Board of Trustees and are based on
competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At September 30, 1998, Van Kampen owned 100 shares each of Classes A, B and
C.
22
<PAGE> 200
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 September 30, 1998, capital aggregated $24,924,266, $21,619,168 and
$1,557,836 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 352,234 $ 5,494,787
Class B............................... 320,092 4,997,538
Class C............................... 64,525 1,006,647
-------- ------------
Total Sales............................. 736,851 $ 11,498,972
======== ============
Dividend Reinvestment:
Class A............................... 30,117 $ 469,824
Class B............................... 19,918 310,753
Class C............................... 1,504 23,507
-------- ------------
Total Dividend Reinvestment............. 51,539 $ 804,084
======== ============
Repurchases:
Class A............................... (566,619) $ (8,834,774)
Class B............................... (303,798) (4,731,240)
Class C............................... (40,958) (640,000)
-------- ------------
Total Repurchases....................... (911,375) $(14,206,014)
======== ============
</TABLE>
23
<PAGE> 201
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $27,794,429, $21,042,117 and
$1,167,682 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 609,339 $ 9,274,646
Class B..................................... 384,943 5,831,452
Class C..................................... 52,399 807,505
--------- -----------
Total Sales................................... 1,046,681 $15,913,603
========= ===========
Dividend Reinvestment:
Class A..................................... 39,223 $ 594,339
Class B..................................... 25,536 387,076
Class C..................................... 1,188 18,036
--------- -----------
Total Dividend Reinvestment................... 65,947 $ 999,451
========= ===========
Repurchases:
Class A..................................... (232,349) $(3,502,983)
Class B..................................... (216,650) (3,274,422)
Class C..................................... (33,195) (501,023)
--------- -----------
Total Repurchases............................. (482,194) $(7,278,428)
========= ===========
</TABLE>
24
<PAGE> 202
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1996, capital aggregated $21,428,427, $18,098,011 and
$843,164 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 662,550 $ 9,888,850
Class B..................................... 371,733 5,505,878
Class C..................................... 43,663 652,341
--------- -----------
Total Sales................................... 1,077,946 $16,047,069
========= ===========
Dividend Reinvestment:
Class A..................................... 24,754 $ 367,510
Class B..................................... 21,677 321,647
Class C..................................... 858 12,785
--------- -----------
Total Dividend Reinvestment................... 47,289 $ 701,942
========= ===========
Repurchases:
Class A..................................... (282,145) $(4,206,188)
Class B..................................... (255,198) (3,772,557)
Class C..................................... (18,569) (276,664)
--------- -----------
Total Repurchases............................. (555,912) $(8,255,409)
========= ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on
25
<PAGE> 203
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
most redemptions made within six years of the purchase for Class B and one year
of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First....................................... 4.00% 1.00%
Second...................................... 3.75% None
Third....................................... 3.50% None
Fourth...................................... 2.50% None
Fifth....................................... 1.50% None
Sixth....................................... 1.00% None
Seventh and Thereafter...................... None None
</TABLE>
For the nine months ended September 30, 1998 and the year ended December 31,
1997, Van Kampen as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $16,900 and $15,100, respectively and
CDSC on redeemed shares of approximately $54,100 and $68,700, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments were $25,816,471 and
$26,705,963, respectively. For the year ended December 31, 1997, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments were $35,250,549 and $21,272,934, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
26
<PAGE> 204
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts for the year ended December 31, 1997, and
for the nine months ended September 30, 1998, were as follows.
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996........................... -0-
Futures Opened............................................. 285
Futures Closed............................................. (279)
----
Outstanding at December 31, 1997........................... 6
Futures Opened............................................. 104
Futures Closed............................................. (110)
----
Outstanding at September 30, 1998.......................... -0-
----
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended September 30, 1998 and the year ended December 31,
1997, are payments retained by Van Kampen of approximately $135,200 and
$156,100, respectively.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software as well as external software systems provided
by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project to
review both the internal systems and external vendor connections. The goal of
this project is to position its business to
27
<PAGE> 205
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
continue unaffected as a result of the century change. At this time, there can
be no assurance that the steps taken will be sufficient to avoid any adverse
impact to the Fund, but Van Kampen does not anticipate that the move to Year
2000 will have a material impact on its ability to continue to provide the Fund
with service at current levels. In addition, it is possible that the securities
markets in which the Fund invests may be detrimentally affected by computer
failures throughout the financial services industry beginning January 1, 2000.
Improperly functioning trading systems may result in settlement problems and
liquidity issues.
28
<PAGE> 206
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Florida Insured Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Florida Insured Tax Free Income Fund (the "Fund"), including the
portfolio of investments, as of September 30, 1998, and the related statement of
operations for the nine-month period ended September 30, 1998 and the year ended
December 31, 1997, the statement of changes in net assets for the nine-month
period ended September 30, 1998 and for each of the two years in the period
ended December 31, 1997, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Florida Insured Tax Free Income Fund as of September 30, 1998, the
results of its operations for the nine-month period ended September 30, 1998 and
the year ended December 31, 1997, the changes in its net assets for the
nine-month period ended September 30, 1998 and for each of the two years in the
period ended December 31, 1997, and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 6, 1998
29
<PAGE> 207
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
30
<PAGE> 208
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* -- Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
31
<PAGE> 209
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
32
<PAGE> 210
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 28
</TABLE>
NYTF ANR 11/98
<PAGE> 211
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. However, the United
States has been relatively unscathed by
the turmoil in many overseas markets.
In fact, the U.S. fixed-income markets
benefited as many investors moved [PHOTO]
assets from stocks into more
conservative fixed-income investments.
The volatility also forced yield
spreads to widen between Treasuries and DENNIS J. MCDONNELL AND DON G. POWELL
high-yield securities, corporate bonds,
and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals. As we explain elsewhere in this letter, the U.S. economy
remains among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors played a role in the deceleration of U.S. economic
growth. In a recent speech, Federal Reserve Chairman Alan Greenspan noted that
Americans suddenly have acquired a strong aversion to risk that had been notably
absent in recent years. This risk-averse attitude manifested itself in slower
retail sales growth and a mild drop in housing activity. Also, the clear
preference among investors for safety and liquidity caused interest rates on
lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term
Continued on page 2
1
<PAGE> 212
Treasury bonds had fallen below 5 percent for the first time since 1977. Total
returns in the U.S. bond market were uneven, however, as investors displayed a
preference for quality amid the raging global economic storm.
In the tax-exempt market, the supply of municipal bonds surged as
municipalities rushed to take advantage of lower interest rates. Through the
first nine months of the year, municipal bond issuance was on pace to eclipse
the previous record of $293 billion, set in 1993. During the nine months through
September, the Bond Buyer Municipal Index gained 3.18 percent, with strength
concentrated among longer-term, higher-quality issues. As a result of the uneven
drop in rates, yields on long-term tax-exempt bonds climbed to roughly 95
percent of those for similarly dated Treasury bonds, the most attractive
relative valuation since 1986. The 5.09 percent yield on the Bond Buyer
municipal index at the end of the reporting period was equivalent to a 7.95
percent taxable yield for an investor in the 36 percent federal income tax
bracket.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[sig]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[sig]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 213
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TOTAL RETURNS
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Nine-month total return based on NAV(1)......
.................................. 7.11% 6.58% 6.51%
Nine-month total return(2)................... 2.06% 2.58% 5.51%
One-year total return based on NAV(1)........ 10.68% 9.93% 9.86%
One-year total return(2)..................... 5.42% 5.93% 8.86%
Life-of-Fund average annual total return(2).. 7.55% 7.74% 8.00%
Commencement date............................ 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3)......................... 4.69% 4.26% 4.26%
Taxable equivalent distribution rate(4)...... 7.87% 7.15% 7.15%
SEC Yield(5)................................. 4.71% 4.19% 4.20%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period ended and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)Taxable equivalent calculations reflect a combined federal and state income
tax rate of 40.4% which takes into consideration the deductibility of individual
state taxes paid.
(5)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending September 30, 1998. Had
certain expenses of the Fund not been assumed by Van Kampen, the SEC Yield would
have been 2.88%, 2.29%, and 2.29% 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.
Investing in lower-rated securities involves a higher degree of credit and
market risk. Investments in derivative securities will subject the Fund to
greater risks.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from December 31 to September 30. As a result, this financial report
reflects the 9-month transition period commencing on January 1, 1998 and ending
on September 30, 1998.
3
<PAGE> 214
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Lehman
Brothers Municipal Bond Index over time. The index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen New York Tax Free Income Fund vs. the Lehman Brothers Municipal
Bond Index (July 29, 1994 through September 30, 1998)
Investment Performance Chart
[GRAPH]
<TABLE>
<CAPTION>
Van Kampen Tax Lehman Brothers
Free Income Fund Municipal Bond Index
<S> <C> <C>
Jul 1994 9527.00 10000.00
9662.00 10035.00
Sep 1994 9422.00 9887.50
9207.00 9711.50
8971.00 9535.70
9248.00 9745.50
9541.00 10024.20
9889.00 10315.90
Mar 1995 9958.00 10434.60
9944.00 10447.10
10207.00 10780.30
10046.00 10686.60
10123.00 10788.10
10228.00 10925.10
Sep 1995 10320.00 10993.90
10490.00 11153.30
10717.00 11338.50
10850.00 11447.30
10898.00 11534.30
10816.00 11455.90
Mar 1996 10624.00 11309.20
10578.00 11277.60
10620.00 11273.10
10735.00 11395.90
10895.00 11499.70
10878.00 11497.40
Sep 1996 11077.00 11658.30
11232.00 11790.10
11456.00 12005.80
11408.00 11955.40
11413.00 11978.10
11540.00 12088.30
Mar 1997 11430.00 11927.50
11512.00 12027.70
11687.00 12208.10
11833.00 12338.80
12244.00 12680.50
12092.00 12561.30
Sep 1997 12247.00 12710.80
12339.00 12792.20
12408.00 12867.70
12654.00 13055.50
12804.00 13190.00
12833.00 13193.90
Mar 1998 12852.00 13205.80
12768.00 13146.40
13027.00 13354.10
13090.00 13406.20
13120.00 13439.70
13382.00 13648.00
Sep 1998 13554.00 13648.60
- ------------------------------
Fund's Total Return
1 Year Avg. Annual = 5.42%
5 Year Avg. Annual = 7.76%
Inception Avg. Annual = 7.55%
- ------------------------------
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 215
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load").
Generally, there is no redemption fee (Contingent Deferred Sales Charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal when due. As a result of this
protection against credit risk, most insured bonds are AAA-rated. Recently,
an A-rated insurer has started to insure lower-quality municipal bonds, and
those bonds are A-rated. Insurance on the bonds does not relate to mutual
fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction
of highways, public works, or school buildings. Interest on municipal bonds
is exempt from federal taxation and, potentially, from state and local
taxation.
REFUNDING: Retiring an outstanding bond issue at maturity using money from the
sale of a new offering.
5
<PAGE> 216
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
6
<PAGE> 217
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen New York Tax Free
Income Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes Dennis S. Pietrzak, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your semiannual reports will be dated March 31, and
your annual reports will be dated September 30. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT DURING THE PAST NINE MONTHS?
A While diminishing supply and strong demand fueled the Treasury market,
conditions weren't quite as favorable in the municipal bond market. Supply
has been very heavy this year, as state and local governments have taken
advantage of low interest rates to refinance old debt and issue new bonds.
Demand for municipal bonds, however, has been weaker, as domestic and foreign
investors displayed a preference for the safety of government securities. Some
of the municipal supply was absorbed by institutions that typically purchase
taxable securities, given the attractive relative yields offered by municipal
bonds. Despite these crossover buyers, demand for municipal bonds was outmatched
by the demand for Treasuries, so municipal bond prices did not rally to the same
extent as Treasuries.
At the end of the reporting period, the yield on AAA-rated 30-year general
obligation municipal bonds was just slightly less than the yield on long-term
Treasuries--even before considering municipals' tax-free advantage. These narrow
yield spreads presented an attractive buying opportunity for municipal bonds,
relative to Treasuries.
The New York municipal market continued to be healthy, as the state
benefited from sound fiscal management and a growing economy. A number of
agencies across the state had their credit ratings upgraded. Through the first
two quarters of 1998 New York was the nation's largest issuer of debt, ensuring
ample supply.
Q HOW HAS THE PORTFOLIO CHANGED OVER THE PAST NINE MONTHS?
A Although we did not make major changes in the Fund's holdings during the
reporting period, improvements in New York credit ratings somewhat altered
the structure of the Fund by increasing the percentage of higher-rated
assets in the portfolio.
7
<PAGE> 218
In response to these credit-rating increases, we opted to replace some of these
newly upgraded bonds with lower-rated ones, hoping to generate increased yield.
Our exposure to AAA-rated securities increased slightly since the beginning
of the year, closing the reporting period at approximately 30 percent of the
long-term investments. Meanwhile, the Fund's allocation to BBB-rated bonds
declined about 10 percent to 36 percent of the long-term investments, while the
portion of long-term investments allocated to higher-yielding, nonrated bonds
was about 18 percent, an 7 percent increase from December 31, 1997.
The Fund was widely varied during the past nine months, with sector exposure
in 14 different areas. The largest weightings included industrial revenue (15
percent), transportation (13 percent), higher education (12 percent), general
purpose (11 percent), and health care (10 percent) issues. For additional Fund
portfolio highlights, please refer to page 10.
Q HOW WELL DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund has performed extremely well--at or near the top of its peer
group average throughout the nine-month reporting period. Its year-to-date
total return is 7.11 percent(1) (Class A shares at net asset value). By
comparison, the Lehman Brothers Municipal Bond Index returned 5.84 percent over
the same period. This index is a broad-based index of municipal bonds and does
not reflect any commissions that would be paid by an investor purchasing the
securities it represents. The Fund's distribution rate was 4.69 percent(3) as of
September 30, 1998, representing a taxable-equivalent rate of 7.87 percent(4)
for an investor in the 40.4 percent combined federal and state income tax
bracket. The Fund's monthly dividend of $0.0665 per share was unchanged during
the reporting period. Please refer to the chart on page 3 for additional Fund
performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A The Fed's recent interest-rate cut and the apparent slowdown of the U.S.
economy are likely to sustain lower interest rates--a favorable
environment for bonds. (Editor's note: After the reporting period ended,
the Fed reduced interest rates again by 0.25 percent.) The supply of municipal
bond issues looks like it will remain strong, as low interest rates spark
further refunding of outstanding bond issues and bring new municipal bonds into
the marketplace. As more investors recognize the value available in the
municipal market, demand is likely to increase and municipal bonds could see
favorable returns in coming months.
We are satisfied with the current structure of the Fund's portfolio and
don't expect to make any major changes, nor do we think that a change in
interest rates will have a dramatic effect on the Fund's performance. As long as
credit spreads remain tight, we will
8
<PAGE> 219
probably purchase more higher-yielding, nonrated instruments as well as more
high-grade, insured investments. This "two-pronged" approach offers the promise
of higher yields while providing the additional credit quality of insured bonds.
This insurance, however, does not protect against changes in the market value of
Fund shares. We will also look to eliminate lower-rated New York state agency
bonds, because the additional yield they offer isn't enough to compensate for
the added risk.
[SIG]
Dennis Pietrzak
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
9
<PAGE> 220
PORTFOLIO HIGHLIGHTS
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<S> <C>
AAA................... 30.2
AA.................... 5.9
A..................... 10.6 [PIE CHART]
BBB................... 35.6
Non-Rated............. 17.7
</TABLE>
<TABLE>
<S> <C>
AAA.................. 28.6
AA................... 3.7
A.................... 10.9 [PIE CHART]
BBB.................. 45.9
Non-Rated............ 10.9
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Industrial Revenue .... 15.3%
Transportation ........ 12.9%
Higher Education ...... 12.2%
General Purpose ....... 11.4%
Health Care ........... 9.7%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
Industrial Revenue ... 17.1%
Transportation ....... 13.9%
Higher Education ..... 11.9%
General Purpose ...... 9.6%
Health Care .......... 8.4%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 8.14 years 8.87 years
</TABLE>
(1)Unaudited
10
<PAGE> 221
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.2%
NEW YORK 94.4%
$ 780 Buffalo, NY Muni Wtr Fin Auth Wtr Sys Rev Ser B
Rfdg (FGIC Insd)................................. 5.000% 07/01/18 $ 791,380
1,180 Buffalo, NY Muni Wtr Fin Auth Wtr Sys Rev Ser B
Rfdg (FGIC Insd)................................. 5.000 07/01/19 1,192,992
750 Clifton Springs, NY Hosp & Clinic Ser A Rfdg &
Impt............................................. 7.650 01/01/12 856,162
250 Erie Cnty, NY Indl Dev Agy Life Care Cmnty Rev
Episcopal Church Home Ser A...................... 6.000 02/01/28 257,968
500 Erie Cnty, NY Indl Dev Agy Civic Fac Rev Depaul
Ppty Inc Proj Ser A.............................. 5.750 09/01/28 500,830
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg..................... 7.500 03/01/26 560,070
1,000 Long Island Power Auth NY Elec Sys Rev Genl Ser
A................................................ 5.500 12/01/29 1,036,700
1,645 Metropolitan Tran Auth NY Commuter Fac Rev....... 5.500 07/01/14 1,756,679
800 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 865,632
400 Metropolitan Tran Auth NY Commuter Fac Svc
Contract Ser O................................... 5.750 07/01/13 439,944
500 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev Empire
Sports Proj Ser A................................ 6.250 03/01/28 505,870
600 New York City Indl Dev Agy Brooklyn Navy Yard.... 5.650 10/01/28 617,400
500 New York City Indl Dev Agy Civic Fac Rev Cmnty
Res Developmentally Disabled..................... 7.500 08/01/26 539,520
500 New York City Indl Dev Agy Civic Fac Rev College
of New Rochelle Proj............................. 5.750 09/01/17 530,155
500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj............................................. 7.950 01/01/28 569,130
375 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj.............................. 5.700 01/01/04 402,705
500 New York City Indl Dev Agy Spl Fac United Airls
Inc Proj......................................... 5.650 10/01/32 513,820
500 New York City Indl Dev Civic YMCA Greater NY
Proj............................................. 6.000 08/01/07 554,535
515 New York City Indl Dev Civic YMCA Greater NY
Proj............................................. 5.800 08/01/16 553,167
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B (AMBAC Insd)............................... 5.375 06/15/19 517,300
500 New York City Ser B.............................. 5.700 08/15/07 554,085
500 New York City Ser C (Prerefunded @ 08/15/01)..... 7.250 08/15/24 549,105
20 New York City Ser H (FSA Insd)................... 7.000 02/01/21 22,121
480 New York City Ser H (Prerefunded @ 02/01/02) (FSA
Insd)............................................ 7.000 02/01/21 535,862
1,250 New York NY City Indl Dev Agy Rfdg Laguardia
Assoc Lp Proj (a)................................ 6.000 11/01/28 1,269,150
1,500 New York St Dorm Auth Rev Buena Vida Nursing Home
A................................................ 5.000 07/01/18 1,497,090
300 New York St Dorm Auth Rev City Univ Ser F........ 5.000 07/01/14 302,058
600 New York St Dorm Auth Rev City Univ Sys Third
Genl Res 2 Rfdg (b).............................. 6.000 07/01/05 667,542
</TABLE>
See Notes to Financial Statements
11
<PAGE> 222
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 750 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625% 07/01/16 $ 825,675
500 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.700 05/15/22 525,200
570 New York St Dorm Auth Rev Dept Ed St of NY Issue
Ser A............................................ 5.800 07/01/22 610,709
750 New York St Dorm Auth Rev FHA Nursing Home
Menorah (FHA Insd)............................... 5.950 02/01/17 817,373
1,000 New York St Dorm Auth Rev Second Hosp Interfaith
Med Cent Ser D................................... 5.750 02/15/08 1,110,450
500 New York St Dorm Auth Rev St Univ Edl Fac........ 5.750 05/15/10 551,670
1,200 New York St Dorm Auth Rev Svc Contract Albany
Cnty............................................. 5.250 04/01/13 1,255,416
1,000 New York St Dorm Auth Rev Svc Contract Albany
Cnty............................................. 5.250 04/01/17 1,021,230
500 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA Insd)..... 7.500 01/01/26 525,670
500 New York St Energy Resh & Dev Auth Gas Fac Rev
Brooklyn Union Gas Co Ser B (Inverse Fltg) (c)... 10.051 07/01/26 676,250
300 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Proj.... 6.000 04/01/00 309,975
500 New York St Environmental Fac Corp Pollutn Ctl
Rev St Wtr Revolving Fund Ser D (b).............. 6.850 11/15/11 578,775
500 New York St Hsg Fin Agy Rev Insd Multi-Family Mtg
Ser B (AMBAC Insd)............................... 6.250 08/15/14 545,185
500 New York St Local Government Assistance
Corporation Refunding Ser B (MBIA Insd).......... 5.000 04/01/21 501,955
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/05) (AMBAC
Insd) (b)........................................ 6.200 08/15/05 571,995
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/01) (AMBAC Insd)...... 6.600 02/15/11 533,355
300 New York St Med Care Fac Fin Agy Rev Presbyterian
Hosp Mtg Ser A Rfdg (FHA Insd)................... 5.250 08/15/14 312,348
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B.... 6.650 10/01/25 536,650
750 New York St Mtg Agy Rev Homeowner Mtg Ser 58..... 6.400 04/01/27 825,000
540 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.100 04/01/08 573,194
290 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.750 04/01/09 319,658
1,000 New York St Urban Dev Corp Rev Sports Fac
Assistance Pgm Ser A............................. 5.000 04/01/18 993,230
370 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg......................................... 5.625 01/01/07 396,440
450 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 7........................................ 5.700 01/01/27 478,890
500 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser A Rfdg................................... 5.500 01/01/14 540,610
300 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg......................................... 5.750 01/01/13 317,571
420 Niagara Falls, NY Pub Impt (MBIA Insd)........... 6.900 03/01/20 483,466
500 Oneida Cnty, NY Pub Impt (Prerefunded @
03/15/01)........................................ 5.850 03/15/12 535,235
</TABLE>
See Notes to Financial Statements
12
<PAGE> 223
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 600 Oneida Cnty, NY Indl Dev Agy Rev Rfdg Civic Fac
Presbyterian..................................... 5.000% 03/01/14 $ 603,612
455 Orange Cnty NY Indl Dev Agy Life Care Cmnty
Rev.............................................. 5.625 01/01/18 459,050
300 Port Auth NY & NJ Spl Oblig...................... 7.000 10/01/07 339,399
1,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 1,075,490
555 Rockland Cnty, NY Indl Dev Agy Civic Fac Rev
Dominican College Proj........................... 6.250 05/01/28 563,697
625 Rockland Cnty, NY Solid Waste Mgmt Auth Ser B
(AMBAC Insd)..................................... 5.550 12/15/16 675,169
500 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A.................. 6.375 12/01/17 511,945
825 Suffolk Cnty, NY Pub Impt Ser D Rfdg (FGIC
Insd)............................................ 4.750 11/01/18 818,111
1,000 Syracuse NY Ser C (FSA Insd)..................... 4.900 10/01/09 1,035,470
225 Syracuse, NY Hsg Auth Rev Sub Proj Loretto Rest
Ser B............................................ 7.500 08/01/10 235,465
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
A Rfdg........................................... 5.000 01/01/12 407,248
500 Triborough Brdg & Tunl Auth NY Ser A Rfdg (FGIC
Insd)............................................ 5.000 01/01/17 510,105
1,000 Utica NY Indl Dev Agy Civic Fac Rev Utica College
Proj Ser A....................................... 5.750 08/01/28 1,019,270
-----------
44,486,178
-----------
GUAM 1.2%
500 Guam Arpt Auth Rev Ser B......................... 6.700 10/01/23 552,400
-----------
PUERTO RICO 1.1%
500 Puerto Rico Indl Tourist Edl Mennonite Genl Hosp
Proj Ser A....................................... 5.625 07/01/27 513,815
-----------
U. S. VIRGIN ISLANDS 1.5%
650 Virgin Islands Pub Fin Auth Rev Sr Lien Fd Ln Nts
Ser C............................................ 5.500 10/01/07 700,674
-----------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $43,086,936)......................................................... 46,253,067
SHORT-TERM INVESTMENTS 3.1%
(Cost $1,475,000).......................................................... 1,475,000
-----------
TOTAL INVESTMENTS 101.3%
(Cost $44,561,936)......................................................... 47,728,067
LIABILITIES IN EXCESS OF OTHER ASSETS (1.3%)................................ (634,854)
-----------
NET ASSETS 100.0%........................................................... $47,093,213
-----------
</TABLE>
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(c) An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by
the Fund to enhance the yield of the portfolio. The price of these
securities may be more volatile than the price of a comparable fixed rate
security.
See Notes to Financial Statements
13
<PAGE> 224
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $44,561,936)........................ $47,728,067
Cash........................................................ 21,300
Receivables:
Interest.................................................. 668,644
Fund Shares Sold.......................................... 100,470
Unamortized Organizational Costs............................ 12,368
Other....................................................... 154
-----------
Total Assets.......................................... 48,531,003
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,265,208
Income Distributions...................................... 60,154
Fund Shares Repurchased................................... 3,492
Distributor and Affiliates................................ 2,536
Accrued Expenses............................................ 68,377
Trustees' Deferred Compensation and Retirement Plans........ 38,023
-----------
Total Liabilities..................................... 1,437,790
-----------
NET ASSETS.................................................. $47,093,213
===========
NET ASSETS CONSIST OF:
Capital..................................................... $43,670,839
Net Unrealized Appreciation................................. 3,166,131
Accumulated Net Realized Gain............................... 271,913
Accumulated Distributions in Excess of Net Investment
Income.................................................... (15,670)
-----------
NET ASSETS.................................................. $47,093,213
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $25,002,174 and 1,541,195 shares of
beneficial interest issued and outstanding)........... $ 16.22
Maximum sales charge (4.75%* of offering price)......... .81
-----------
Maximum offering price to public........................ $ 17.03
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $18,953,004 and 1,169,362 shares of
beneficial interest issued and outstanding)........... $ 16.21
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,138,035 and 193,648 shares of
beneficial interest issued and outstanding)........... $ 16.20
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 225
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and
the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.......................................... $1,605,334 $1,350,276
---------- ----------
EXPENSES:
Investment Advisory Fee........................... 178,001 139,021
Distribution (12b-1) and Service Fees (Attributed
to Classes A, B and C of $40,153, $120,530 and
$16,150, respectively, for the nine months ended
9/30/98 and $28,117, $113,878 and $5,783,
respectively, for the year ended 12/31/97)...... 176,833 147,778
Reports to Shareholders........................... 41,101 20,778
Accounting Services............................... 36,425 28,263
Shareholder Services.............................. 18,387 23,700
Trustees' Fees and Expenses....................... 18,111 6,690
Legal............................................. 8,424 26,500
Custody........................................... 3,829 13,497
Other............................................. 48,129 20,153
---------- ----------
Total Expenses................................ 529,240 426,380
Less Fees Waived and Expenses Reimbursed
($178,001 and $132,626, respectively, for
the nine months ended 9/30/98 and $139,021
and $52,808, respectively, for the year
ended 12/31/97)............................. 310,627 191,829
---------- ----------
Net Expenses.................................. 218,613 234,551
---------- ----------
NET INVESTMENT INCOME............................. $1,386,721 $1,115,725
========== ==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments..................................... $ 271,958 $ 302,167
Futures......................................... -0- (47,138)
---------- ----------
Net Realized Gain................................. 271,958 255,029
---------- ----------
Unrealized Appreciation/Depreciation:
Beginning of the Period......................... 2,085,140 967,758
End of the Period............................... 3,166,131 2,085,140
---------- ----------
Net Unrealized Appreciation During the Period..... 1,080,991 1,117,382
---------- ----------
NET REALIZED AND UNREALIZED GAIN.................. $1,352,949 $1,372,411
========== ==========
NET INCREASE IN NET ASSETS FROM OPERATIONS........ $2,739,670 $2,488,136
========== ==========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 226
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998 and the
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............. $ 1,386,721 $ 1,115,725 $ 861,604
Net Realized Gain.................. 271,958 255,029 178,372
Net Unrealized
Appreciation/Depreciation During
the Period....................... 1,080,991 1,117,382 (185,185)
----------- ----------- -----------
Change in Net Assets from
Operations....................... 2,739,670 2,488,136 854,791
----------- ----------- -----------
Distributions from Net Investment
Income........................... (1,386,749) (1,126,124) (843,389)
Distributions in Excess of Net
Investment Income................ (15,670) -0- -0-
----------- ----------- -----------
Distributions from and in Excess of
Net Investment Income*........... (1,402,419) (1,126,124) (843,389)
Distributions from Net Realized
Gains*........................... (40,996) (83,754) -0-
----------- ----------- -----------
Total Distributions................ (1,443,415) (1,209,878) (843,389)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............ 1,296,255 1,278,258 11,402
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.......... 16,595,104 16,610,486 5,845,364
Net Asset Value of Shares Issued
Through Dividend Reinvestment.... 924,200 683,838 429,768
Cost of Shares Repurchased......... (3,838,934) (4,637,600) (3,618,542)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............. 13,680,370 12,656,724 2,656,590
----------- ----------- -----------
TOTAL INCREASE IN NET ASSETS....... 14,976,625 13,934,982 2,667,992
NET ASSETS:
Beginning of the Period............ 32,116,588 18,181,606 15,513,614
----------- ----------- -----------
End of the Period (Including
accumulated undistributed net
investment income of ($15,670),
$28, and $10,427, respectively).. $47,093,213 $32,116,588 $18,181,606
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares................... $ (809,026) $ (584,822) $(354,322)
Class B Shares................... (523,570) (515,371) (471,468)
Class C Shares................... (69,823) (25,931) (17,599)
----------- ----------- ---------
$(1,402,419) $(1,126,124) $(843,389)
=========== =========== =========
Distributions from Net Realized
Gain:
Class A Shares................... $ (22,100) $ (46,829) $ -0-
Class B Shares................... (16,870) (34,234) -0-
Class C Shares................... (2,026) (2,691) -0-
--------- --------- --------
$ (40,996) $ (83,754) $ -0-
--------- --------- --------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 227
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Nine Months Year Ended December 31 Operations) to
Ended --------------------------- December 31,
Class A Shares September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.734 $14.992 $15.048 $13.579 $14.300
------- ------- ------- ------- -------
Net Investment Income............ .596 .786 .816 .821 .302
Net Realized and Unrealized
Gain/Loss...................... .509 .795 (.074) 1.476 (.722)
------- ------- ------- ------- -------
Total from Investment Operations... 1.105 1.581 .742 2.297 (.420)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .599 .798 .798 .828 .301
Distributions from Net Realized
Gain........................... .017 .041 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions................ .616 .839 .798 .828 .301
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $16.223 $15.734 $14.992 $15.048 $13.579
======= ======= ======= ======= =======
Total Return*(a)................... 7.11%** 10.92% 5.14% 17.33% (2.93%)**
Net Assets at End of the Period (In
millions)........................ $ 25.0 $ 18.0 $ 7.7 $ 5.4 $ 2.9
Ratio of Expenses to Average Net
Assets*.......................... .39% .64% .31% .21% .26%
Ratio of Net Investment Income to
Average Net Assets*.............. 5.01% 5.16% 5.56% 5.63% 5.27%
Portfolio Turnover................. 53%** 60% 126% 51% 68%**
*If certain expenses had not been assumed by Van Kampen, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets........................... 1.43% 1.47% 1.82% 2.10% 2.73%
Ratio of Net Investment Income to
Average Net Assets............... 3.97% 4.33% 4.04% 3.74% 2.81%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
17
<PAGE> 228
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months Year Ended December 31, of Investment
Ended --------------------------- Operations) to
Class B Shares September 30, 1998 1997 1996 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period....................... $15.727 $14.992 $15.046 $13.578 $14.300
------- ------- ------- ------- -------
Net Investment Income............ .509 .684 .704 .713 .263
Net Realized and Unrealized
Gain/Loss...................... .507 .782 (.068) 1.476 (.722)
------- ------- ------- ------- -------
Total from Investment Operations... 1.016 1.466 .636 2.189 (.459)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .518 .690 .690 .721 .263
Distributions from Net Realized
Gain........................... .017 .041 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions................ .535 .731 .690 .721 .263
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $16.208 $15.727 $14.992 $15.046 $13.578
======= ======= ======= ======= =======
Total Return*(a)................... 6.58%** 10.07% 4.37% 16.47% (3.20%)**
Net Assets at End of the Period (In
millions)........................ $ 19.0 $ 13.1 $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to Average Net
Assets*.......................... 1.14% 1.36% 1.07% .93% .96%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.26% 4.49% 4.79% 4.93% 4.58%
Portfolio Turnover................. 53%** 60% 126% 51% 68%**
*If certain expenses had not been assumed by Van Kampen, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets........................... 2.19% 2.18% 2.60% 2.82% 3.42%
Ratio of Net Investment Income to
Average Net Assets............... 3.21% 3.67% 3.26% 3.04% 2.12%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 229
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Nine Months Year Ended December 31, of Investment
Ended --------------------------- Operations) to
Class C Shares September 30, 1998 1997 1996 1995 December 31, 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.726 $14.992 $15.041 $13.579 $14.300
------- ------- ------- ------- -------
Net Investment Income............ .515 .676 .701 .711 .267
Net Realized and Unrealized
Gain/Loss...................... .498 .789 (.060) 1.472 (.725)
------- ------- ------- ------- -------
Total from Investment Operations... 1.013 1.465 .641 2.183 (.458)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .518 .690 .690 .721 .263
Distributions from Net Realized
Gain........................... .017 .041 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions................ .535 .731 .690 .721 .263
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $16.204 $15.726 $14.992 $15.041 $13.579
======= ======= ======= ======= =======
Total Return*(a)................... 6.51%** 10.07% 4.44% 16.39% (3.20%)**
Net Assets at End of the Period (In
millions)........................ $ 3.1 $ 1.0 $ .4 $ .4 $ .2
Ratio of Expenses to Average Net
Assets*.......................... 1.14% 1.41% 1.08% .98% .96%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.22% 4.37% 4.78% 4.81% 4.58%
Portfolio Turnover................. 53%** 60% 126% 51% 68%**
*If certain expenses had not been assumed by Van Kampen, total return would have been lower and the ratios
would have been as follows:
Ratio of Expenses to Average Net
Assets........................... 2.18% 2.23% 2.61% 2.86% 3.42%
Ratio of Net Investment Income to
Average Net Assets............... 3.17% 3.55% 3.25% 2.93% 2.12%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
19
<PAGE> 230
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen New York Tax Free Income Fund (the "Fund") is organized as a series
of the Van Kampen Tax Free Trust, a Delaware business trust, and is registered
as a non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide
investors with a high level of current income exempt from federal, New York
State and New York City income taxes, consistent with preservation of capital.
The Fund seeks to achieve its investment objective by investing at least 80% of
its assets in a portfolio of New York municipal securities rated investment
grade at the time of investment. The Fund commenced investment operations on
July 29, 1994. In July, 1998, the Fund's Board of Trustees approved a change in
the Fund's fiscal year end from December 31 to September 30. As a result, this
financial report reflects the nine-month period commencing on January 1, 1998,
and ending on September 30, 1998.
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 60 or less 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.
20
<PAGE> 231
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the expected life of each applicable security. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $75,000. These costs are being amortized on
a straight line basis over the 60 month period ending July 28, 1999. Van Kampen
Investment Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Fund originally purchased by Van Kampen are redeemed
during the amortization period, the Fund will be reimbursed for any unamortized
organizational costs 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.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $44,561,936; the aggregate gross unrealized
appreciation is $3,166,131 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation on long- and short-term investments
of $3,166,131.
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.
For the nine months ended September 30, 1998, 100% of the income
distributions made by the Fund were exempt from federal income taxes.
Additionally, during the period the Fund designated and paid $40,951 as a 20%
rate gain distribution. In January, 1999 the Fund will provide tax information
to shareholders for the 1998 calendar year.
21
<PAGE> 232
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
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>
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $6,000 and $16,300,
respectively, representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person. All of this expense has been assumed by Van Kampen.
For the nine months ended September 30, 1998 and the year ended December 31,
1997, the Fund recognized expenses of approximately $42,400 and $38,800,
respectively, representing Van Kampen's cost of providing accounting services
and legal services to the Fund. A portion of this cost has been assumed by Van
Kampen.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Fund recognized
expenses of approximately $11,800 and $14,200, respectively. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At September 30, 1998, Van Kampen owned 100 shares each of Classes A, B
and C.
22
<PAGE> 233
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 September 30, 1998, capital aggregated $23,341,371, $17,309,186, and
$3,020,282 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 520,265 $ 8,251,633
Class B..................................... 391,237 6,192,887
Class C..................................... 135,402 2,150,584
--------- -----------
Total Sales................................... 1,046,904 $16,595,104
========= ===========
Dividend Reinvestment:
Class A..................................... 39,009 $ 619,536
Class B..................................... 16,654 264,369
Class C..................................... 2,532 40,295
--------- -----------
Total Dividend Reinvestment................... 58,195 $ 924,200
========= ===========
Repurchases:
Class A..................................... (160,416) $(2,542,226)
Class B..................................... (72,177) (1,139,992)
Class C..................................... (9,896) (156,716)
--------- -----------
Total Repurchases............................. (242,489) $(3,838,934)
========= ===========
</TABLE>
23
<PAGE> 234
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $17,012,428, $11,991,922, and
$986,119 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 704,992 $10,792,140
Class B..................................... 335,132 5,071,998
Class C..................................... 48,608 746,348
--------- -----------
Total Sales................................... 1,088,732 $16,610,486
========= ===========
Dividend Reinvestment:
Class A..................................... 27,283 $ 418,784
Class B..................................... 15,994 244,789
Class C..................................... 1,318 20,265
--------- -----------
Total Dividend Reinvestment................... 44,595 $ 683,838
========= ===========
Repurchases:
Class A..................................... (103,563) $(1,589,463)
Class B..................................... (193,090) (2,927,339)
Class C..................................... (7,857) (120,798)
--------- -----------
Total Repurchases............................. (304,510) $(4,637,600)
========= ===========
</TABLE>
24
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1996, capital aggregated $7,390,967, $9,602,474 and $340,304
for Classes A, B and C, respectively. For the year ended December 31, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................................ 221,959 $ 3,267,016
Class B............................................ 167,902 2,467,305
Class C............................................ 7,482 111,043
-------- -----------
Total Sales.......................................... 397,343 $ 5,845,364
======== ===========
Dividend Reinvestment:
Class A............................................ 14,548 $ 214,270
Class B............................................ 13,908 204,781
Class C............................................ 727 10,717
-------- -----------
Total Dividend Reinvestment.......................... 29,183 $ 429,768
======== ===========
Repurchases:
Class A............................................ (78,724) $(1,167,300)
Class B............................................ (154,018) (2,273,282)
Class C............................................ (12,034) (177,960)
-------- -----------
Total Repurchases.................................... (244,776) $(3,618,542)
======== ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
First................................................. 4.00% 1.00%
Second................................................ 3.75% None
Third................................................. 3.50% None
Fourth................................................ 2.50% None
Fifth................................................. 1.50% None
Sixth................................................. 1.00% None
Seventh and Thereafter................................ None None
</TABLE>
25
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
For the nine months ended September 30, 1998 and the year ended December 31,
1997, Van Kampen, as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $12,600 and $12,600, respectively and
CDSC on redeemed shares of approximately $21,800 and $59,300, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $32,322,738
and $20,195,303, respectively. For the year ended December 31, 1997, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments, were $27,073,236 and $13,692,692, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
26
<PAGE> 237
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996..................................... -0-
Futures Opened....................................................... 55
Futures Closed....................................................... (55)
---
Outstanding at December 31, 1997..................................... -0-
===
</TABLE>
The Fund did not enter into any futures transactions for the nine months
ended September 30, 1998.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended September 30, 1998 and the year ended December 31,
1997, are payments retained by Van Kampen of approximately $99,800 and $92,600,
respectively.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
27
<PAGE> 238
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen New York Tax Free Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen New York Tax Free Income Fund (the "Fund"), including the portfolio of
investments, as of September 30, 1998, and the related statement of operations
for the nine-month period ended September 30, 1998 and the year ended December
31, 1997, the statement of changes in net assets for the nine-month period ended
September 30, 1998 and for each of the two years in the period ended December
31, 1997, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen New York Tax Free Income Fund as of September 30, 1998, the results of
its operations for the nine-month period ended September 30, 1998 and the year
ended December 31, 1997, the changes in its net assets for the nine-month period
ended September 30, 1998 and for each of the two years in the period ended
December 31, 1997, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
November 5, 1998
28
<PAGE> 239
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
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 Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
29
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INSURED TF CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,287,475,348<F1>
<INVESTMENTS-AT-VALUE> 1,430,623,524<F1>
<RECEIVABLES> 46,065,562<F1>
<ASSETS-OTHER> 26,238<F1>
<OTHER-ITEMS-ASSETS> 15,577<F1>
<TOTAL-ASSETS> 1,476,730,901<F1>
<PAYABLE-FOR-SECURITIES> 40,154,755<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,992,561<F1>
<TOTAL-LIABILITIES> 44,147,316<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,199,841,126
<SHARES-COMMON-STOCK> 67,843,044
<SHARES-COMMON-PRIOR> 65,380,120
<ACCUMULATED-NII-CURRENT> (521,990)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 15,232,609<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 143,148,176<F1>
<NET-ASSETS> 1,353,881,347
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 58,756,607<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (9,646,069)<F1>
<NET-INVESTMENT-INCOME> 49,110,538<F1>
<REALIZED-GAINS-CURRENT> 15,077,312<F1>
<APPREC-INCREASE-CURRENT> 12,112,058<F1>
<NET-CHANGE-FROM-OPS> 76,299,908<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (47,397,497)
<DISTRIBUTIONS-OF-GAINS> (2,262,642)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,717,457
<NUMBER-OF-SHARES-REDEEMED> (24,001,702)
<SHARES-REINVESTED> 1,747,169
<NET-CHANGE-IN-ASSETS> 70,375,960
<ACCUMULATED-NII-PRIOR> 164,030<F1>
<ACCUMULATED-GAINS-PRIOR> 2,556,582<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,135,396<F1>
<INTEREST-EXPENSE> 8,938<F1>
<GROSS-EXPENSE> 9,646,069<F1>
<AVERAGE-NET-ASSETS> 1,290,047,822
<PER-SHARE-NAV-BEGIN> 19,631
<PER-SHARE-NII> 0.710
<PER-SHARE-GAIN-APPREC> 0.371
<PER-SHARE-DIVIDEND> (0.720)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.956
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 199,100<F1>
<AVG-DEBT-PER-SHARE> 0.003<F1>
<FN>
<F1>This item relates to the Fund on a composite
basis and not or a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> INSURED TF CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,287,475,348<F1>
<INVESTMENTS-AT-VALUE> 1,430,623,524<F1>
<RECEIVABLES> 46,065,562<F1>
<ASSETS-OTHER> 26,238<F1>
<OTHER-ITEMS-ASSETS> 15,577<F1>
<TOTAL-ASSETS> 1,476,730,901<F1>
<PAYABLE-FOR-SECURITIES> 40,154,755<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,992,561<F1>
<TOTAL-LIABILITIES> 44,147,316<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,091,721
<SHARES-COMMON-STOCK> 3,601,092
<SHARES-COMMON-PRIOR> 3,572,287
<ACCUMULATED-NII-CURRENT> (521,990)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 15,232,609<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 143,148,176<F1>
<NET-ASSETS> 71,867,314
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 58,756,607<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (9,646,069)<F1>
<NET-INVESTMENT-INCOME> 49,110,538<F1>
<REALIZED-GAINS-CURRENT> 15,077,312<F1>
<APPREC-INCREASE-CURRENT> 12,112,058<F1>
<NET-CHANGE-FROM-OPS> 76,299,908<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,215,435)
<DISTRIBUTIONS-OF-GAINS> (128,797)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 517,918
<NUMBER-OF-SHARES-REDEEMED> (552,971)
<SHARES-REINVESTED> 63,858
<NET-CHANGE-IN-ASSETS> 1,730,780
<ACCUMULATED-NII-PRIOR> 164,030<F1>
<ACCUMULATED-GAINS-PRIOR> 2,556,582<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,135,396<F1>
<INTEREST-EXPENSE> 8,938<F1>
<GROSS-EXPENSE> 9,646,069<F1>
<AVERAGE-NET-ASSETS> 71,341,680
<PER-SHARE-NAV-BEGIN> 19.634
<PER-SHARE-NII> 0.598
<PER-SHARE-GAIN-APPREC> 0.370
<PER-SHARE-DIVIDEND> (0.609)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.957
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 199,100<F1>
<AVG-DEBT-PER-SHARE> 0.003<F1>
<FN>
<F1>This item relates to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> INSURED TF CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,287,475,348<F1>
<INVESTMENTS-AT-VALUE> 1,430,623,524<F1>
<RECEIVABLES> 46,065,562<F1>
<ASSETS-OTHER> 26,238<F1>
<OTHER-ITEMS-ASSETS> 15,577<F1>
<TOTAL-ASSETS> 1,476,730,901<F1>
<PAYABLE-FOR-SECURITIES> 40,154,755<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,992,561<F1>
<TOTAL-LIABILITIES> 44,147,316<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,791,943
<SHARES-COMMON-STOCK> 342,562
<SHARES-COMMON-PRIOR> 284,125
<ACCUMULATED-NII-CURRENT> (521,990)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 15,232,609<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 143,148,176<F1>
<NET-ASSETS> 6,834,924
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 58,756,607<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (9,646,069)<F1>
<NET-INVESTMENT-INCOME> 49,110,538<F1>
<REALIZED-GAINS-CURRENT> 15,077,312<F1>
<APPREC-INCREASE-CURRENT> 12,112,058<F1>
<NET-CHANGE-FROM-OPS> 76,299,908<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (183,649)
<DISTRIBUTIONS-OF-GAINS> (9,846)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 621,935
<NUMBER-OF-SHARES-REDEEMED> (570,061)
<SHARES-REINVESTED> 6,563
<NET-CHANGE-IN-ASSETS> 1,257,572
<ACCUMULATED-NII-PRIOR> 164,030<F1>
<ACCUMULATED-GAINS-PRIOR> 2,556,582<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,135,396<F1>
<INTEREST-EXPENSE> 8,938<F1>
<GROSS-EXPENSE> 9,646,069<F1>
<AVERAGE-NET-ASSETS> 5,908,367
<PER-SHARE-NAV-BEGIN> 19.630
<PER-SHARE-NII> 0.594
<PER-SHARE-GAIN-APPREC> 0.373
<PER-SHARE-DIVIDEND> (0.609)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.952
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 199,100<F1>
<AVG-DEBT-PER-SHARE> 0.003<F1>
<FN>
<F1>This item relates to the fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> T.F.H.I. CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,048,931,160<F1>
<INVESTMENTS-AT-VALUE> 1,117,693,268<F1>
<RECEIVABLES> 39,909,411<F1>
<ASSETS-OTHER> 38,608<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,157,641,287<F1>
<PAYABLE-FOR-SECURITIES> 20,696,273<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 22,738,083<F1>
<TOTAL-LIABILITIES> 43,434,356<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 814,716,102
<SHARES-COMMON-STOCK> 51,164,482
<SHARES-COMMON-PRIOR> 47,576,526
<ACCUMULATED-NII-CURRENT> (9,019,837)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (95,598,361)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 68,326,173<F1>
<NET-ASSETS> 771,367,472
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 51,036,492<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (8,881,386)<F1>
<NET-INVESTMENT-INCOME> 42,155,106<F1>
<REALIZED-GAINS-CURRENT> (861,253)<F1>
<APPREC-INCREASE-CURRENT> 17,628,426<F1>
<NET-CHANGE-FROM-OPS> 58,922,279<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (30,895,725)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,418,156
<NUMBER-OF-SHARES-REDEEMED> (4,753,839)
<SHARES-REINVESTED> 923,639
<NET-CHANGE-IN-ASSETS> 65,092,734
<ACCUMULATED-NII-PRIOR> (9,046,242)<F1>
<ACCUMULATED-GAINS-PRIOR> (94,737,108)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,672,538<F1>
<INTEREST-EXPENSE> 132,020<F1>
<GROSS-EXPENSE> 8,881,386<F1>
<AVERAGE-NET-ASSETS> 730,577,765
<PER-SHARE-NAV-BEGIN> 14.845
<PER-SHARE-NII> 0.643
<PER-SHARE-GAIN-APPREC> 0.217
<PER-SHARE-DIVIDEND> (0.629)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.076
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 3,003,400<F1>
<AVG-DEBT-PER-SHARE> 2,079,005<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> T.F.H.I. CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,048,931,160<F1>
<INVESTMENTS-AT-VALUE> 1,117,693,268<F1>
<RECEIVABLES> 39,909,411<F1>
<ASSETS-OTHER> 38,608<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,157,641,287<F1>
<PAYABLE-FOR-SECURITIES> 20,696,273<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 22,738,083<F1>
<TOTAL-LIABILITIES> 43,434,356<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273,821,581
<SHARES-COMMON-STOCK> 18,554,723
<SHARES-COMMON-PRIOR> 15,466,416
<ACCUMULATED-NII-CURRENT> (9,019,837)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (95,598,361)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 68,326,173<F1>
<NET-ASSETS> 279,631,431
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 51,036,492<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (8,881,386)<F1>
<NET-INVESTMENT-INCOME> 42,155,106<F1>
<REALIZED-GAINS-CURRENT> (861,253)<F1>
<APPREC-INCREASE-CURRENT> 17,628,426<F1>
<NET-CHANGE-FROM-OPS> 58,922,279<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (9,369,462)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,566,294
<NUMBER-OF-SHARES-REDEEMED> (1,723,537)
<SHARES-REINVESTED> 245,550
<NET-CHANGE-IN-ASSETS> 50,055,443
<ACCUMULATED-NII-PRIOR> (9,046,242)<F1>
<ACCUMULATED-GAINS-PRIOR> (94,737,108)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,672,538<F1>
<INTEREST-EXPENSE> 132,020<F1>
<GROSS-EXPENSE> 8,881,386<F1>
<AVERAGE-NET-ASSETS> 255,082,605
<PER-SHARE-NAV-BEGIN> 14.844
<PER-SHARE-NII> 0.545
<PER-SHARE-GAIN-APPREC> 0.229
<PER-SHARE-DIVIDEND> (0.547)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.071
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 3,003,400<F1>
<AVG-DEBT-PER-SHARE> 753,948<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> T.F.H.I. CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 1,048,931,160<F1>
<INVESTMENTS-AT-VALUE> 1,117,693,268<F1>
<RECEIVABLES> 39,909,411<F1>
<ASSETS-OTHER> 38,608<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,157,641,287<F1>
<PAYABLE-FOR-SECURITIES> 20,696,273<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 27,738,083<F1>
<TOTAL-LIABILITIES> 43,434,356<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,961,273
<SHARES-COMMON-STOCK> 4,194,703
<SHARES-COMMON-PRIOR> 2,602,078
<ACCUMULATED-NII-CURRENT> (9,019,837)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (95,598,361)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 68,326,173<F1>
<NET-ASSETS> 63,208,028
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 51,036,492<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (8,881,386)<F1>
<NET-INVESTMENT-INCOME> 42,155,106<F1>
<REALIZED-GAINS-CURRENT> (861,253)<F1>
<APPREC-INCREASE-CURRENT> 17,628,426<F1>
<NET-CHANGE-FROM-OPS> 58,922,279<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,863,514)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,827,970
<NUMBER-OF-SHARES-REDEEMED> (306,853)
<SHARES-REINVESTED> 71,508
<NET-CHANGE-IN-ASSETS> 24,586,748
<ACCUMULATED-NII-PRIOR> (9,046,242)<F1>
<ACCUMULATED-GAINS-PRIOR> (94,737,108)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,672,538<F1>
<INTEREST-EXPENSE> 132,020<F1>
<GROSS-EXPENSE> 8,881,386<F1>
<AVERAGE-NET-ASSETS> 50,962,553
<PER-SHARE-NAV-BEGIN> 14.842
<PER-SHARE-NII> 0.549
<PER-SHARE-GAIN-APPREC> 0.225
<PER-SHARE-DIVIDEND> (0.547)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.069
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 3,003,400<F1>
<AVG-DEBT-PER-SHARE> 170,447<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> CAL INS CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 175,013,797<F1>
<INVESTMENTS-AT-VALUE> 194,052,785<F1>
<RECEIVABLES> 2,390,498<F1>
<ASSETS-OTHER> 19,046<F1>
<OTHER-ITEMS-ASSETS> 189,076<F1>
<TOTAL-ASSETS> 196,651,405<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 757,272<F1>
<TOTAL-LIABILITIES> 757,272<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 135,566,795
<SHARES-COMMON-STOCK> 8,043,260
<SHARES-COMMON-PRIOR> 7,688,471
<ACCUMULATED-NII-CURRENT> 252,535<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (2,188,087)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 19,038,988<F1>
<NET-ASSETS> 150,959,105
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 7,517,715<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,410,770)<F1>
<NET-INVESTMENT-INCOME> 6,106,945<F1>
<REALIZED-GAINS-CURRENT> 1,695,395<F1>
<APPREC-INCREASE-CURRENT> 3,409,163<F1>
<NET-CHANGE-FROM-OPS> 11,211,503<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,158,867)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 896,618
<NUMBER-OF-SHARES-REDEEMED> (709,317)
<SHARES-REINVESTED> 167,488
<NET-CHANGE-IN-ASSETS> 10,304,495
<ACCUMULATED-NII-PRIOR> 486,148<F1>
<ACCUMULATED-GAINS-PRIOR> (3,883,482)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 648,214<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,410,770<F1>
<AVERAGE-NET-ASSETS> 143,035,989
<PER-SHARE-NAV-BEGIN> 18.294
<PER-SHARE-NII> 0.638
<PER-SHARE-GAIN-APPREC> 0.498
<PER-SHARE-DIVIDEND> (0.662)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.768
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 32
<NAME> CAL INS CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 175,013,797<F1>
<INVESTMENTS-AT-VALUE> 194,052,785<F1>
<RECEIVABLES> 2,390,498<F1>
<ASSETS-OTHER> 19,046<F1>
<OTHER-ITEMS-ASSETS> 189,076<F1>
<TOTAL-ASSETS> 196,651,405<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 757,272<F1>
<TOTAL-LIABILITIES> 757,272<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,277,053
<SHARES-COMMON-STOCK> 2,140,606
<SHARES-COMMON-PRIOR> 1,696,407
<ACCUMULATED-NII-CURRENT> 252,535<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (2,188,087)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 19,038,988<F1>
<NET-ASSETS> 40,153,059
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 7,517,715<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,410,770)<F1>
<NET-INVESTMENT-INCOME> 6,106,945<F1>
<REALIZED-GAINS-CURRENT> 1,695,395<F1>
<APPREC-INCREASE-CURRENT> 3,409,163<F1>
<NET-CHANGE-FROM-OPS> 11,211,503<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,050,450)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 595,781
<NUMBER-OF-SHARES-REDEEMED> (188,629)
<SHARES-REINVESTED> 37,047
<NET-CHANGE-IN-ASSETS> 9,126,884
<ACCUMULATED-NII-PRIOR> 486,148<F1>
<ACCUMULATED-GAINS-PRIOR> (3,883,482)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 648,214<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,410,770<F1>
<AVERAGE-NET-ASSETS> 34,327,820
<PER-SHARE-NAV-BEGIN> 18.289
<PER-SHARE-NII> 0.526
<PER-SHARE-GAIN-APPREC> 0.506
<PER-SHARE-DIVIDEND> (0.563)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.758
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class
basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 33
<NAME> CAL INS CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 175,013,797<F1>
<INVESTMENTS-AT-VALUE> 194,052,785<F1>
<RECEIVABLES> 2,390,498<F1>
<ASSETS-OTHER> 19,046<F1>
<OTHER-ITEMS-ASSETS> 189,076<F1>
<TOTAL-ASSETS> 196,651,405<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 757,272<F1>
<TOTAL-LIABILITIES> 757,272<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,946,849
<SHARES-COMMON-STOCK> 254,972
<SHARES-COMMON-PRIOR> 206,908
<ACCUMULATED-NII-CURRENT> 252,535<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (2,188,087)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 19,038,988<F1>
<NET-ASSETS> 4,781,969
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 7,517,715<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,410,770)<F1>
<NET-INVESTMENT-INCOME> 6,106,945<F1>
<REALIZED-GAINS-CURRENT> 1,695,395<F1>
<APPREC-INCREASE-CURRENT> 3,409,163<F1>
<NET-CHANGE-FROM-OPS> 11,211,503<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (131,241)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114,887
<NUMBER-OF-SHARES-REDEEMED> (70,739)
<SHARES-REINVESTED> 3,916
<NET-CHANGE-IN-ASSETS> 998,406
<ACCUMULATED-NII-PRIOR> 486,148<F1>
<ACCUMULATED-GAINS-PRIOR> (3,883,482)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 648,214<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,410,770<F1>
<AVERAGE-NET-ASSETS> 4,280,818
<PER-SHARE-NAV-BEGIN> 18.286
<PER-SHARE-NII> 0.529
<PER-SHARE-GAIN-APPREC> 0.502
<PER-SHARE-DIVIDEND> (0.563)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.754
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a
class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 41
<NAME> MUNI INC CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 951,139,270<F1>
<INVESTMENTS-AT-VALUE> 1,042,279,757<F1>
<RECEIVABLES> 21,665,500<F1>
<ASSETS-OTHER> 18,002<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,063,963,259<F1>
<PAYABLE-FOR-SECURITIES> 19,611,246<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 42,176,796<F1>
<TOTAL-LIABILITIES> 61,788,042<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 718,935,008
<SHARES-COMMON-STOCK> 49,321,491
<SHARES-COMMON-PRIOR> 48,593,827
<ACCUMULATED-NII-CURRENT> 2,282,049<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (11,247,639)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 90,902,720<F1>
<NET-ASSETS> 788,717,387
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 48,555,300<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (7,801,638)<F1>
<NET-INVESTMENT-INCOME> 40,753,662<F1>
<REALIZED-GAINS-CURRENT> 6,553,399<F1>
<APPREC-INCREASE-CURRENT> 6,332,209<F1>
<NET-CHANGE-FROM-OPS> 53,639,270<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (31,284,803)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,662,126
<NUMBER-OF-SHARES-REDEEMED> (32,937,857)
<SHARES-REINVESTED> 1,003,395
<NET-CHANGE-IN-ASSETS> 22,552,481
<ACCUMULATED-NII-PRIOR> 535,106<F1>
<ACCUMULATED-GAINS-PRIOR> (17,801,038)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,545,745<F1>
<INTEREST-EXPENSE> 252,574<F1>
<GROSS-EXPENSE> 7,801,638<F1>
<AVERAGE-NET-ASSETS> 776,555,325
<PER-SHARE-NAV-BEGIN> 15.767
<PER-SHARE-NII> 0.664
<PER-SHARE-GAIN-APPREC> 0.195
<PER-SHARE-DIVIDEND> (0.635)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.991
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 5,707,000<F1>
<AVG-DEBT-PER-SHARE> 0.091<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> MUNI INC CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 951,139,270<F1>
<INVESTMENTS-AT-VALUE> 1,042,279,757<F1>
<RECEIVABLES> 21,665,500<F1>
<ASSETS-OTHER> 18,002<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,063,963,259<F1>
<PAYABLE-FOR-SECURITIES> 19,611,246<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 42,176,796<F1>
<TOTAL-LIABILITIES> 61,788,042<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 186,604,874
<SHARES-COMMON-STOCK> 12,385,888
<SHARES-COMMON-PRIOR> 13,395,856
<ACCUMULATED-NII-CURRENT> 2,282,049<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (11,247,639)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 90,902,720<F1>
<NET-ASSETS> 197,947,399
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 48,555,300<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (7,801,638)<F1>
<NET-INVESTMENT-INCOME> 40,753,662<F1>
<REALIZED-GAINS-CURRENT> 6,553,399<F1>
<APPREC-INCREASE-CURRENT> 6,332,209<F1>
<NET-CHANGE-FROM-OPS> 53,639,270<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (7,203,055)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 929,950
<NUMBER-OF-SHARES-REDEEMED> (2,179,386)
<SHARES-REINVESTED> 239,468
<NET-CHANGE-IN-ASSETS> (13,218,950)
<ACCUMULATED-NII-PRIOR> 535,106<F1>
<ACCUMULATED-GAINS-PRIOR> (17,801,038)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,545,745<F1>
<INTEREST-EXPENSE> 252,574<F1>
<GROSS-EXPENSE> 7,801,638<F1>
<AVERAGE-NET-ASSETS> 206,568,470
<PER-SHARE-NAV-BEGIN> 15.764
<PER-SHARE-NII> 0.572
<PER-SHARE-GAIN-APPREC> 0.195
<PER-SHARE-DIVIDEND> (0.549)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.982
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 5,707,000<F1>
<AVG-DEBT-PER-SHARE> 0.091<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 43
<NAME> MUNI INC CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 951,139,270<F1>
<INVESTMENTS-AT-VALUE> 1,042,279,757<F1>
<RECEIVABLES> 21,665,500<F1>
<ASSETS-OTHER> 18,002<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,063,963,259<F1>
<PAYABLE-FOR-SECURITIES> 19,611,246<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 42,176,796<F1>
<TOTAL-LIABILITIES> 61,788,042<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,698,205
<SHARES-COMMON-STOCK> 971,576
<SHARES-COMMON-PRIOR> 970,252
<ACCUMULATED-NII-CURRENT> 2,282,049<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (11,247,639)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 90,902,720<F1>
<NET-ASSETS> 15,510,431
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 48,555,300<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (7,801,638)<F1>
<NET-INVESTMENT-INCOME> 40,753,662<F1>
<REALIZED-GAINS-CURRENT> 6,553,399<F1>
<APPREC-INCREASE-CURRENT> 6,332,209<F1>
<NET-CHANGE-FROM-OPS> 53,639,270<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (518,861)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 198,389
<NUMBER-OF-SHARES-REDEEMED> (216,155)
<SHARES-REINVESTED> 19,090
<NET-CHANGE-IN-ASSETS> 231,431
<ACCUMULATED-NII-PRIOR> 535,106<F1>
<ACCUMULATED-GAINS-PRIOR> (17,801,038)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 3,545,745<F1>
<INTEREST-EXPENSE> 252,574<F1>
<GROSS-EXPENSE> 7,801,638<F1>
<AVERAGE-NET-ASSETS> 14,854,123
<PER-SHARE-NAV-BEGIN> 15.747
<PER-SHARE-NII> 0.570
<PER-SHARE-GAIN-APPREC> 0.196
<PER-SHARE-DIVIDEND> (0.549)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.964
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 5,707,000<F1>
<AVG-DEBT-PER-SHARE> 0.091<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 51
<NAME> INTER TERM MUNI A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 37,650,751<F1>
<INVESTMENTS-AT-VALUE> 40,735,204<F1>
<RECEIVABLES> 583,482<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 113,467<F1>
<TOTAL-ASSETS> 41,432,153<F1>
<PAYABLE-FOR-SECURITIES> 2,026,300<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 345,638<F1>
<TOTAL-LIABILITIES> 2,371,938<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,411,810
<SHARES-COMMON-STOCK> 1,918,546
<SHARES-COMMON-PRIOR> 1,226,471
<ACCUMULATED-NII-CURRENT> 32,934<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (300,052)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,084,453<F1>
<NET-ASSETS> 20,581,162
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,654,380<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (469,855)<F1>
<NET-INVESTMENT-INCOME> 1,184,525<F1>
<REALIZED-GAINS-CURRENT> 38,354<F1>
<APPREC-INCREASE-CURRENT> 650,720<F1>
<NET-CHANGE-FROM-OPS> 1,873,599<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (625,738)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,074,637
<NUMBER-OF-SHARES-REDEEMED> (425,765)
<SHARES-REINVESTED> 43,203
<NET-CHANGE-IN-ASSETS> 7,658,720
<ACCUMULATED-NII-PRIOR> 33,324<F1>
<ACCUMULATED-GAINS-PRIOR> (338,406)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 139,295<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 469,855<F1>
<AVERAGE-NET-ASSETS> 18,259,549
<PER-SHARE-NAV-BEGIN> 10.536
<PER-SHARE-NII> 0.358
<PER-SHARE-GAIN-APPREC> 0.199
<PER-SHARE-DIVIDEND> (0.365)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.728
<EXPENSE-RATIO> 1.30
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 52
<NAME> INTER TERM MUNI B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 37,650,751
<INVESTMENTS-AT-VALUE> 40,735,204<F1>
<RECEIVABLES> 583,482<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 113,467<F1>
<TOTAL-ASSETS> 41,432,153<F1>
<PAYABLE-FOR-SECURITIES> 2,026,300<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 345,638<F1>
<TOTAL-LIABILITIES> 2,371,938<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,023,192
<SHARES-COMMON-STOCK> 1,417,778
<SHARES-COMMON-PRIOR> 1,559,757
<ACCUMULATED-NII-CURRENT> 32,934<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (300,052)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,084,453<F1>
<NET-ASSETS> 15,189,684
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,654,380<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (469,855)<F1>
<NET-INVESTMENT-INCOME> 1,184,525<F1>
<REALIZED-GAINS-CURRENT> 38,354<F1>
<APPREC-INCREASE-CURRENT> 650,720<F1>
<NET-CHANGE-FROM-OPS> 1,873,599<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (469,656)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 130,358
<NUMBER-OF-SHARES-REDEEMED> (297,555)
<SHARES-REINVESTED> 25,218
<NET-CHANGE-IN-ASSETS> (1,228,798)
<ACCUMULATED-NII-PRIOR> 33,324<F1>
<ACCUMULATED-GAINS-PRIOR> (338,406)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 139,295<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 469,855<F1>
<AVERAGE-NET-ASSETS> 15,977,137
<PER-SHARE-NAV-BEGIN> 10.526
<PER-SHARE-NII> 0.308
<PER-SHARE-GAIN-APPREC> 0.191
<PER-SHARE-DIVIDEND> (0.311)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.714
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 53
<NAME> INTER TERM MUNI C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 37,650,751<F1>
<INVESTMENTS-AT-VALUE> 40,735,204<F1>
<RECEIVABLES> 583,482<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 113,467<F1>
<TOTAL-ASSETS> 41,432,153<F1>
<PAYABLE-FOR-SECURITIES> 2,206,300<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 345,638<F1>
<TOTAL-LIABILITIES> 2,371,938<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,807,878
<SHARES-COMMON-STOCK> 307,071
<SHARES-COMMON-PRIOR> 290,114
<ACCUMULATED-NII-CURRENT> 32,934<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (300,052)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,084,453<F1>
<NET-ASSETS> 3,289,369
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,654,380<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (469,855)<F1>
<NET-INVESTMENT-INCOME> 1,184,525<F1>
<REALIZED-GAINS-CURRENT> 38,354<F1>
<APPREC-INCREASE-CURRENT> 650,720<F1>
<NET-CHANGE-FROM-OPS> 1,873,599<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (89,521)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 59,963
<NUMBER-OF-SHARES-REDEEMED> (50,238)
<SHARES-REINVESTED> 7,232
<NET-CHANGE-IN-ASSETS> 235,825
<ACCUMULATED-NII-PRIOR> 33,324<F1>
<ACCUMULATED-GAINS-PRIOR> (338,406)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 139,295<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 469,855<F1>
<AVERAGE-NET-ASSETS> 3,046,759
<PER-SHARE-NAV-BEGIN> 10.525
<PER-SHARE-NII> 0.308
<PER-SHARE-GAIN-APPREC> 0.190
<PER-SHARE-DIVIDEND> (0.311)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.712
<EXPENSE-RATIO> 2.06
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 61
<NAME> FL INSD A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 50,755,943<F1>
<INVESTMENTS-AT-VALUE> 55,346,292<F1>
<RECEIVABLES> 2,083,067<F1>
<ASSETS-OTHER> 11,532<F1>
<OTHER-ITEMS-ASSETS> 125,992<F1>
<TOTAL-ASSETS> 57,566,883<F1>
<PAYABLE-FOR-SECURITIES> 4,806,234<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 409,888<F1>
<TOTAL-LIABILITIES> 5,216,122<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,924,266
<SHARES-COMMON-STOCK> 1,703,029
<SHARES-COMMON-PRIOR> 1,887,297
<ACCUMULATED-NII-CURRENT> (58,071)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (282,787)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 4,590,349<F1>
<NET-ASSETS> 27,113,986
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,048,317<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (359,261)<F1>
<NET-INVESTMENT-INCOME> 1,689,056<F1>
<REALIZED-GAINS-CURRENT> 310,611<F1>
<APPREC-INCREASE-CURRENT> 952,580<F1>
<NET-CHANGE-FROM-OPS> 2,952,247<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (981,519)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 352,234
<NUMBER-OF-SHARES-REDEEMED> (566,619)
<SHARES-REINVESTED> 30,117
<NET-CHANGE-IN-ASSETS> (2,233,035)
<ACCUMULATED-NII-PRIOR> (4,556)<F1>
<ACCUMULATED-GAINS-PRIOR> (593,398)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 188,173<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 623,272<F1>
<AVERAGE-NET-ASSETS> 26,327,927
<PER-SHARE-NAV-BEGIN> 15.550
<PER-SHARE-NII> 0.564
<PER-SHARE-GAIN-APPREC> 0.388
<PER-SHARE-DIVIDEND> (0.581)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.921
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 62
<NAME> FL INSD B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 50,755,943<F1>
<INVESTMENTS-AT-VALUE> 55,346,292<F1>
<RECEIVABLES> 2,083,067<F1>
<ASSETS-OTHER> 11,532<F1>
<OTHER-ITEMS-ASSETS> 125,992<F1>
<TOTAL-ASSETS> 57,566,883<F1>
<PAYABLE-FOR-SECURITIES> 4,806,234<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 409,888<F1>
<TOTAL-LIABILITIES> 5,216,122<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,619,168
<SHARES-COMMON-STOCK> 1,482,836
<SHARES-COMMON-PRIOR> 1,446,624
<ACCUMULATED-NII-CURRENT> (58,071)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (282,787)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 4,590,349<F1>
<NET-ASSETS> 23,614,356
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,048,317<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (359,261)<F1>
<NET-INVESTMENT-INCOME> 1,689,056<F1>
<REALIZED-GAINS-CURRENT> 310,611<F1>
<APPREC-INCREASE-CURRENT> 952,580<F1>
<NET-CHANGE-FROM-OPS> 2,952,247<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (722,360)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 320,092
<NUMBER-OF-SHARES-REDEEMED> (303,798)
<SHARES-REINVESTED> 19,918
<NET-CHANGE-IN-ASSETS> 1,112,419
<ACCUMULATED-NII-PRIOR> (4,556)<F1>
<ACCUMULATED-GAINS-PRIOR> (593,398)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 188,173<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 623,272<F1>
<AVERAGE-NET-ASSETS> 22,759,739
<PER-SHARE-NAV-BEGIN> 15.554
<PER-SHARE-NII> 0.478
<PER-SHARE-GAIN-APPREC> 0.388
<PER-SHARE-DIVIDEND> (0.495)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.925
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>
This item relates to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 63
<NAME> FL INSD C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 50,755,943<F1>
<INVESTMENTS-AT-VALUE> 55,346,292<F1>
<RECEIVABLES> 2,083,067<F1>
<ASSETS-OTHER> 11,532<F1>
<OTHER-ITEMS-ASSETS> 125,992<F1>
<TOTAL-ASSETS> 57,566,883<F1>
<PAYABLE-FOR-SECURITIES> 4,806,234<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 409,888<F1>
<TOTAL-LIABILITIES> 5,216,122<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,557,836
<SHARES-COMMON-STOCK> 101,774
<SHARES-COMMON-PRIOR> 76,703
<ACCUMULATED-NII-CURRENT> (58,071)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (282,787)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 4,590,349<F1>
<NET-ASSETS> 1,622,419
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,048,317<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (359,261)<F1>
<NET-INVESTMENT-INCOME> 1,689,056<F1>
<REALIZED-GAINS-CURRENT> 310,611<F1>
<APPREC-INCREASE-CURRENT> 952,580<F1>
<NET-CHANGE-FROM-OPS> 2,952,247<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (38,692)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,525
<NUMBER-OF-SHARES-REDEEMED> (40,958)
<SHARES-REINVESTED> 1,504
<NET-CHANGE-IN-ASSETS> 427,334
<ACCUMULATED-NII-PRIOR> (4,556)<F1>
<ACCUMULATED-GAINS-PRIOR> (593,398)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 188,173<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 623,272<F1>
<AVERAGE-NET-ASSETS> 1,228,115
<PER-SHARE-NAV-BEGIN> 15.581
<PER-SHARE-NII> 0.483
<PER-SHARE-GAIN-APPREC> 0.372
<PER-SHARE-DIVIDEND> (0.495)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.941
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 81
<NAME> N.Y.T.F. CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 44,561,936<F1>
<INVESTMENTS-AT-VALUE> 47,728,067<F1>
<RECEIVABLES> 769,114<F1>
<ASSETS-OTHER> 12,522<F1>
<OTHER-ITEMS-ASSETS> 21,300<F1>
<TOTAL-ASSETS> 48,531,003<F1>
<PAYABLE-FOR-SECURITIES> 1,265,208<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 172,582<F1>
<TOTAL-LIABILITIES> 1,437,790<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23,341,371
<SHARES-COMMON-STOCK> 1,541,195
<SHARES-COMMON-PRIOR> 1,142,337
<ACCUMULATED-NII-CURRENT> (15,670)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 271,913<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,166,131<F1>
<NET-ASSETS> 25,002,174
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,605,334<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (218,613)<F1>
<NET-INVESTMENT-INCOME> 1,386,721<F1>
<REALIZED-GAINS-CURRENT> 271,958<F1>
<APPREC-INCREASE-CURRENT> 1,080,991<F1>
<NET-CHANGE-FROM-OPS> 2,739,670<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (809,026)
<DISTRIBUTIONS-OF-GAINS> (22,100)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 520,265
<NUMBER-OF-SHARES-REDEEMED> (160,416)
<SHARES-REINVESTED> 39,009
<NET-CHANGE-IN-ASSETS> 7,027,835
<ACCUMULATED-NII-PRIOR> 28<F1>
<ACCUMULATED-GAINS-PRIOR> 40,951<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 178,001<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 529,240<F1>
<AVERAGE-NET-ASSETS> 21,479,868
<PER-SHARE-NAV-BEGIN> 15.734
<PER-SHARE-NII> 0.596
<PER-SHARE-GAIN-APPREC> 0.509
<PER-SHARE-DIVIDEND> (0.599)
<PER-SHARE-DISTRIBUTIONS> (0.017)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.223
<EXPENSE-RATIO> 0.39
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 82
<NAME> N.Y.T.F. CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 44,561,936<F1>
<INVESTMENTS-AT-VALUE> 47,728,067<F1>
<RECEIVABLES> 769,114<F1>
<ASSETS-OTHER> 12,522<F1>
<OTHER-ITEMS-ASSETS> 21,300<F1>
<TOTAL-ASSETS> 48,531,003<F1>
<PAYABLE-FOR-SECURITIES> 1,265,208<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 172,582<F1>
<TOTAL-LIABILITIES> 1,437,790<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,309,186
<SHARES-COMMON-STOCK> 1,169,362
<SHARES-COMMON-PRIOR> 833,648
<ACCUMULATED-NII-CURRENT> (15,670)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 271,913<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,166,131<F1>
<NET-ASSETS> 18,953,004
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,605,334<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (218,613)<F1>
<NET-INVESTMENT-INCOME> 1,386,721<F1>
<REALIZED-GAINS-CURRENT> 271,958<F1>
<APPREC-INCREASE-CURRENT> 1,080,991<F1>
<NET-CHANGE-FROM-OPS> 2,739,670
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (523,570)
<DISTRIBUTIONS-OF-GAINS> (16,870)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 391,237
<NUMBER-OF-SHARES-REDEEMED> (72,177)
<SHARES-REINVESTED> 16,654
<NET-CHANGE-IN-ASSETS> 5,842,527
<ACCUMULATED-NII-PRIOR> 28<F1>
<ACCUMULATED-GAINS-PRIOR> 40,951<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 178,001<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 529,240<F1>
<AVERAGE-NET-ASSETS> 16,119,325
<PER-SHARE-NAV-BEGIN> 15.727
<PER-SHARE-NII> 0.509
<PER-SHARE-GAIN-APPREC> 0.507
<PER-SHARE-DIVIDEND> (0.518)
<PER-SHARE-DISTRIBUTIONS> (0.017)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.208
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 83
<NAME> N.Y.T.F. CLASS C
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 44,561,936<F1>
<INVESTMENTS-AT-VALUE> 47,728,067<F1>
<RECEIVABLES> 769,114<F1>
<ASSETS-OTHER> 12,522<F1>
<OTHER-ITEMS-ASSETS> 21,300<F1>
<TOTAL-ASSETS> 48,531,003<F1>
<PAYABLE-FOR-SECURITIES> 1,265,208<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 172,582<F1>
<TOTAL-LIABILITIES> 1,437,790<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,020,282
<SHARES-COMMON-STOCK> 193,648
<SHARES-COMMON-PRIOR> 65,610
<ACCUMULATED-NII-CURRENT> (15,670)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 271,913<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,166,131<F1>
<NET-ASSETS> 3,138,035
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,605,334<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (218,613)<F1>
<NET-INVESTMENT-INCOME> 1,386,721<F1>
<REALIZED-GAINS-CURRENT> 271,958<F1>
<APPREC-INCREASE-CURRENT> 1,080,991<F1>
<NET-CHANGE-FROM-OPS> 2,739,670<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (69,823)
<DISTRIBUTIONS-OF-GAINS> (2,026)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 135,402
<NUMBER-OF-SHARES-REDEEMED> (9,896)
<SHARES-REINVESTED> 2,532
<NET-CHANGE-IN-ASSETS> 2,106,263
<ACCUMULATED-NII-PRIOR> 28<F1>
<ACCUMULATED-GAINS-PRIOR> 40,951<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 178,001<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 529,240<F1>
<AVERAGE-NET-ASSETS> 2,159,760
<PER-SHARE-NAV-BEGIN> 15.726
<PER-SHARE-NII> 0.515
<PER-SHARE-GAIN-APPREC> 0.498
<PER-SHARE-DIVIDEND> (0.518)
<PER-SHARE-DISTRIBUTIONS> (0.017)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.204
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
