<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 25
Statement of Operations.......................... 26
Statement of Changes in Net Assets............... 27
Financial Highlights............................. 28
Notes to Financial Statements.................... 31
</TABLE>
TFIN SAR 8/98
<PAGE> 2
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal [PHOTO]
name to Van Kampen Funds Inc.
You can be assured that the
change in your fund's name will not
affect its management or daily DENNIS J. MCDONNELL AND DON G. POWELL
operations. You will begin seeing the
application of this change with this report. In addition, as of August 31, your
fund will be listed in the daily newspapers by share class under the heading
"Van Kampen Funds." For your convenience, we have enclosed a separate brochure
that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies were beginning to
recover. When weakness in the Japanese yen undercut that recovery, long-term
interest rates resumed their decline.
Continued on page two
1
<PAGE> 3
4
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
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 JUNE 30, 1998
VAN KAMPEN INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)..... 2.30% 1.92% 1.92%
Six-month total return(2).................. (2.57%) (2.07%) .92%
One-year total return(2)................... 3.01% 3.31% 6.31%
Five-year average annual total return(2)... 4.68% 4.62% N/A
Ten-year average annual total return(2).... 7.40% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.83% 4.94% 4.73%
Commencement Date.......................... 12/14/84 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution Rate(3)....................... 4.67% 4.15% 4.15%
Taxable Equivalent Distribution Rate(4).... 7.30% 6.48% 6.48%
SEC Yield(5)............................... 4.12% 3.62% 3.63%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 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.
3
<PAGE> 5
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 6
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 7
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 first half of the Fund's fiscal year. The team includes Joseph A.
Piraro, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries.
The difference between the yields on securities of varying credit quality
has been very narrow. An example of this "yield spread" is the municipal bond
issue brought to market by Long Island Power Authority (LIPA) in May to finance
its takeover of the Long Island Lighting Company. This $3.4 billion issue--the
largest municipal bond issue in history--was split among two credit ratings: a
portion of the issue was insured and had a AAA rating, while the remaining
uninsured portion came to market with LIPA's BBB rating.
6
<PAGE> 8
The yield spread between the insured, AAA-rated portion and the BBB-rated
securities was only 17 basis points (0.17 percentage points).
Q HOW HAVE THESE CONDITIONS AFFECTED THE WAY YOU MANAGE THE FUND?
A The heavy supply has benefited mutual fund portfolio managers; there are
plenty of attractive bond issues from which to choose. Insured bonds make
up around 50 percent of the available municipal market supply, though this
has probably hit a plateau. The cost of insuring a bond issue has gone up,
making it less beneficial to the issuer--although some issues need to be insured
in order to improve their acceptance and liquidity in the marketplace. At the
same time, as the economy continues to do well, the need for insurance seems
less urgent.
In general, we didn't make any significant shifts in the portfolio over the
last six months, although our focus on various sectors changed from time to time
depending on what was available. We tried to keep around 20 to 25 percent of the
Fund's assets in hospital bonds, because we see good relative value in that
sector. From a regional perspective, the three states that are most widely
represented in the Fund are California, at about 20 percent of the portfolio,
followed by Illinois and New York.
Stable in-flows of cash enabled us to stay active in the market, taking
advantage of whatever opportunities we saw, but overall we made only minor
adjustments in the Fund's exposure to various market sectors. For additional
Fund portfolio highlights, please refer to page nine.
Q HOW WELL DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund was a solid performer during the first half of the year,
finishing in the top half of its Lipper peer group. It generated a
year-to-date total return through June 30, 1998, of 2.30 percent(1) (Class
A shares at net asset value). By comparison, the Lehman Brothers Municipal Bond
Index produced a total return of 2.69 percent over the same period. This is a
broad-based statistical composite of municipal bonds and does not reflect any
commissions that would be paid by an investor purchasing the securities or
investments they represent.
The Fund's dividend was unchanged over the reporting period, and its
distribution rate was 4.67 percent(3) as of June 30, 1998. The
taxable-equivalent distribution rate for an investor in the 36 percent federal
income tax bracket would be 7.30 percent(4). Please refer to the chart on page
three for additional Fund performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the impact of raising
7
<PAGE> 9
interest rates in the second half of the year if the economy gains steam and
threatens to drive inflation higher.
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion set in 1993. A drop in rates of 25 basis points
(0.25 percentage points) could spark further refunding of outstanding bond
issues and bring new bond issues into the marketplace ahead of their original
schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
municipal bonds and lend support to bond prices.
Thus far, the impact of Asia's financial crisis has been relatively
contained, as we have seen very few repercussions to date. The economy remains
moderately strong, yet we don't see any real inflationary pressure that might
prompt the Fed to lift interest rates. In any case, uncertainty in the minds of
investors tends to be good for the insured market. We believe we can look
forward to another six months of solid performance.
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG.]
Joseph A. Piraro
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INSURED TAX FREE INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
California..................................... 19.6%
Illinois....................................... 16.9%
New York....................................... 9.0%
Pennsylvania................................... 5.7%
Texas.......................................... 5.1%
Florida........................................ 3.6%
Ohio........................................... 3.6%
Georgia........................................ 3.4%
Michigan....................................... 3.1%
Kansas......................................... 3.1%
</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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Health Care........... 24.7% Health Care........... 28.5%
Public Education...... 11.1% Public Building....... 9.9%
Public Building....... 10.4% Public Education...... 8.9%
Retail / Electric / Gas Retail / Electric /
/ Telephone......... 10.3% Gas / Telephone..... 8.8%
General Purpose....... 9.9% General Purpose....... 8.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C>
Duration 7.52 years 7.07 years
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 98.4%
ALABAMA 2.1%
$ 2,250 Alabama St Brd Edl Rev Shelton St Cmnty College
(MBIA Insd).................................... 6.000% 10/01/14 $ 2,467,349
1,955 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................. 6.750 08/15/17 2,192,630
1,900 Birmingham-Carraway, AL Methodist Hlth Sys Ser
A (Connie Lee Insd)............................ 5.875 08/15/25 2,011,226
2,500 Jefferson Cnty, AL Brd Edl Cap Outlay Sch
(AMBAC Insd)................................... 5.875 02/15/20 2,639,925
2,000 Lauderdale Cnty & Florence AL Hlthcare Auth Rev
Eliza Coffee Mem Hosp Rfdg (MBIA Insd)......... 5.750 07/01/19 2,122,600
5,500 Morgan Cnty Decatur, AL Hlthcare Auth Hosp Rev
Decatur Genl Hosp Rfdg (Connie Lee Insd)....... 6.250 03/01/13 5,998,300
2,400 Muscle Shoals, AL Util Brd Wtr & Swr Rev (FSA
Insd).......................................... 6.500 04/01/16 2,681,760
1,500 Northeast, Al Wtr Swr & Fire Protection Dist
Wtr Rev (FSA Insd)............................. 5.125 05/15/28 1,500,030
5,390 Walker Cnty, AL Pub Bldg Auth Wts Waler Cnty
Jail Proj (AMBAC Insd)......................... 5.000 12/01/16 5,310,067
1,400 West Morgan East Lawrence Wtr Auth AL Wtr Rev
(FGIC Insd).................................... 5.625 08/15/21 1,471,610
1,000 West Morgan East Lawrence Wtr Auth AL Wtr Rev
(FGIC Insd).................................... 5.625 08/15/25 1,051,150
--------------
29,446,647
--------------
ALASKA 0.2%
2,355 Ketchikan, AK Muni Util Rev Ser R (FSA Insd)... 6.600 12/01/07 2,621,939
--------------
ARIZONA 1.3%
11,000 Arizona St Ctfs Partn Ser B Rfdg (AMBAC
Insd).......................................... 6.250 09/01/10 11,906,290
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 2,353,283
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.000 09/01/12 2,038,856
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.125 09/01/17 1,910,755
--------------
18,209,184
--------------
CALIFORNIA 19.3%
4,290 Antioch Area, CA Pub Fac Fin Agy Cmnty Fac Dist
No 1989 (FGIC Insd)............................ 5.300 08/01/15 4,390,086
2,835 Bay Area Govt Assn CA Rev Tax Alloc CA Redev
Agy Pool Rev Ser A (FSA Insd).................. 6.000 12/15/14 3,126,977
2,555 Berkeley, CA Uni Sch Dist Ser C (AMBAC Insd)... 5.875 08/01/12 2,779,074
1,985 Berkeley, CA Uni Sch Dist Ser C (AMBAC Insd)... 5.875 08/01/14 2,133,220
5,000 Beverly Hills, CA Pub Fin Auth Lease Rev Ser A
(MBIA Insd).................................... 5.650 06/01/15 5,210,450
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$10,000 California Hlth Fac Fin Auth Rev Sutter Hosp
Ser A Rfdg (AMBAC Insd)........................ 6.700% 01/01/13 $ 10,227,100
3,415 California Pub Cap Impt Fin Auth Rev Pooled
Proj Ser B (BIGI Insd)......................... 8.100 03/01/18 3,494,740
10,000 California St Pub Wks Brd Lease Rev Dept of
Corrections CA St Prison D Susanville (MBIA
Insd).......................................... 5.375 06/01/18 10,114,600
10,000 California Statewide Cmntys Dev Auth Rev
Sherman Oaks Project A Rfdg (AMBAC Insd)....... 5.000 08/01/22 9,916,600
16,770 Capistrano, CA Uni Pub Fin Auth Spl Tax Rev
First Lien Ser A Rfdg (AMBAC Insd)............. 5.700 09/01/16 17,806,889
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)..... 6.200 09/01/18 3,303,750
220 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd)................... 8.000 07/01/18 228,752
805 Corona Norco, CA Uni Sch Dist Lease Rev Partn
Insd Land Acquis Ser A (FSA Insd).............. 6.000 04/15/19 874,190
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs Partn Fac
Refin (FGIC Insd).............................. 6.300 09/01/12 1,344,325
425 Earlimart, CA Elem Sch Dist Ser 1 (AMBAC
Insd).......................................... 6.700 08/01/21 524,811
5,675 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts Rfdg (AMBAC Insd)............ * 09/01/17 1,810,098
6,500 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd).................................... * 11/15/21 1,449,890
10,000 Imperial, CA Irrig Dist Elec Rev Sys Rfdg (MBIA
Insd) (a)...................................... 5.000 11/01/18 9,855,000
1,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd)................................ 6.500 11/01/12 1,095,650
7,000 La Habra, CA Ctfs Partn Pk La Habra & Viewpark
Proj (FSA Insd)................................ 6.625 11/01/22 7,712,460
3,500 Los Angeles Cnty, CA Cap Asset Lease Corp
Leasehold Rev Rfdg (AMBAC Insd)................ 6.000 12/01/16 3,796,485
13,480 Los Angeles Cnty, CA MetroTran Prop A Second
Tier Rfdg (MBIA Insd).......................... 6.000 07/01/21 14,603,962
3,000 Los Angeles, CA Cmnty Redev Agy Tax Alloc
Bunker Hill Ser H Rfdg (FSA Insd).............. 6.500 12/01/14 3,357,360
1,830 Los Angeles, CA Ser A (FGIC Insd).............. 6.125 09/01/13 1,996,109
2,500 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd).................................... 6.125 03/15/23 2,815,675
7,500 Manteca, CA Redev Agy Tax Alloc Redev Proj No 1
Ser A Rfdg (MBIA Insd)......................... 6.700 10/01/21 8,320,425
1,290 Martinez, CA Uni Sch Dist Guar Ctfs Elig Rfdg
(FSA Insd)..................................... 6.000 08/01/09 1,367,207
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev Ser F Rfdg
(AMBAC Insd)................................... 6.000 07/01/20 2,167,420
1,755 New Haven, CA Uni Sch Dist Cap Apprec Ser D
(FGIC Insd).................................... * 08/01/12 828,448
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$13,610 Norco, CA Redev Agy Tax Alloc Norco Redev Proj
Area No 1 Rfdg (MBIA Insd)..................... 6.250% 03/01/19 $ 14,738,813
1,500 North City West, CA Sch Fac Fin Auth Spl Tax
Ser B Rfdg (FSA Insd).......................... 6.000 09/01/19 1,636,980
2,860 Orange Cnty, CA Ctfs Partn Juvenile Justice
Cent Fac Rfdg (AMBAC Insd)..................... 6.000 06/01/17 3,072,269
2,760 Palmdale, CA Civic Auth Rev Merged Redev Proj
Areas Ser A (MBIA Insd)........................ 6.000 09/01/15 3,123,326
2,160 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).......................................... 6.250 08/01/11 2,370,708
2,295 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).......................................... 6.250 08/01/12 2,518,877
2,435 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).......................................... 6.250 08/01/13 2,672,534
2,585 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).......................................... 6.250 08/01/14 2,837,167
2,750 Paramount, CA Redev Agy Tax Alloc (MBIA
Insd).......................................... 6.250 08/01/15 3,018,263
2,000 Perris, CA Pub Fin Auth Local Agy Rev Parity
Ser F (FSA Insd)............................... 5.850 09/01/24 2,139,840
1,400 Reedley, CA Pub Fin Auth Lease Rev Wastewtr
Treatment Plant Proj (AMBAC Insd).............. 6.050 05/01/15 1,482,110
7,000 Riverside, CA Elec Rev Rfdg (AMBAC Insd)....... 5.000 10/01/18 6,898,640
2,945 Rubidoux, CA Cmnty Svcs Dist Ctfs Partn Wtr Sys
Impt Rfdg (AMBAC Insd)......................... 5.050 12/01/17 2,981,341
4,170 Rubidoux, CA Cmnty Svcs Dist Ctfs Partn Wtr Sys
Impt Rfdg (AMBAC Insd)......................... 5.100 12/01/24 4,249,063
3,900 Sacramento, CA Muni Util Dist Elec Rev Ser A
Rfdg (MBIA Insd)............................... 5.750 08/15/13 4,097,925
13,800 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd).................... 7.450 07/01/16 14,678,508
1,000 San Jose, CA Fin Auth Rev Convention Cent Proj
Ser C Rfdg (FSA Insd).......................... 6.300 09/01/09 1,084,780
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 2,914,200
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist Rfdg &
Impt (AMBAC Insd).............................. 6.200 07/02/09 1,088,430
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg (FGIC
Insd).......................................... 6.200 09/01/09 2,165,420
2,510 Solano Cnty, CA Ctfs Partn Solano Park Hosp
Proj (FSA Insd)................................ 5.750 08/01/14 2,694,460
12,600 Southern CA Pub Pwr Auth Transmission Proj Rev
(FSA Insd)..................................... 6.000 07/01/12 13,569,948
3,370 Stockton, CA Pub Fin Auth Rev Ser A Rfdg (FSA
Insd).......................................... 5.875 09/02/16 3,654,394
2,500 Temecula Vly, CA Uni Sch Dist Ctfs Partn Rfdg
(FSA Insd)..................................... 6.000 09/01/25 2,724,750
1,000 Temecula Vly, CA Uni Sch Dist Ser B Rfdg (FGIC
Insd).......................................... 6.000 09/01/12 1,076,160
2,460 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd).................................... 6.750 01/01/12 2,490,110
10,000 University of CA Rev Multi-Purp Proj Ser F
(AMBAC Insd) (a)............................... 5.000 09/01/22 9,786,500
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$10,000 University of CA Rev Resh Facs Ser C Rfdg (FSA
Insd).......................................... 5.000% 09/01/24 $ 9,763,900
3,845 Vista, CA Uni Sch Dist Ctfs Partn Ser A Rfdg
(FSA Insd)..................................... * 11/01/17 1,264,890
2,000 William S Hart CA Jt Sch Fin Auth Spl Tax Rev
Cmnty Fac Rfdg (FSA Insd)...................... 6.500 09/01/14 2,275,680
--------------
265,721,739
--------------
COLORADO 2.2%
2,090 Colorado Hlth Fac Auth Rev Sisters of Charity
Hlthcare Ser A (MBIA Insd)..................... 6.000 05/15/13 2,202,923
17,750 Denver, CO City & Cnty Arpt Rev Ser A (MBIA
Insd).......................................... 5.700 11/15/25 18,758,200
5,500 Denver, CO City & Cnty Arpt Rev Ser D Rfdg
(MBIA Insd).................................... 5.500 11/15/25 5,699,870
10 Jefferson Cnty, CO Single Family Mtg Rev Ser A
Rfdg (MBIA Insd)............................... 8.875 10/01/13 10,678
2,050 Thornton, CO Rfdg (FGIC Insd).................. * 12/01/11 1,088,981
1,100 Thornton, CO Rfdg (FGIC Insd).................. * 12/01/15 463,782
2,000 Westminster, CO Wtr & Wastewtr Util Enterprise
Rev (AMBAC Insd)............................... 6.250 12/01/14 2,196,680
--------------
30,421,114
--------------
DISTRICT OF COLUMBIA 0.0%
250 District of Columbia Ser B Rfdg (MBIA Insd).... * 06/01/04 192,550
--------------
FLORIDA 3.6%
1,350 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd).......................................... 5.500 05/01/25 1,398,128
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd).......................................... 8.000 10/01/03 1,191,477
690 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd).......................................... 8.000 10/01/04 831,333
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd).......................................... 8.000 10/01/05 1,448,214
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd).......................................... 8.000 10/01/06 1,592,156
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg (MBIA
Insd).......................................... 8.000 10/01/07 1,744,779
2,095 Dade Cnty, FL Util Pub Impt Rfdg (FGIC Insd)... 12.000 10/01/04 2,965,975
185 Duval Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Ser C (FGIC Insd).......................... 7.650 09/01/10 196,020
800 Duval Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Ser C (FGIC Insd).......................... 7.700 09/01/24 846,624
1,410 Florida St Dept Corrections Ctfs Partn
Okeechobee Correctional (AMBAC Insd)........... 6.250 03/01/15 1,561,321
2,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA
Insd).......................................... 6.100 10/01/18 2,213,180
1,000 Key West, FL Util Brd Elec Rev Ser D (AMBAC
Insd).......................................... * 10/01/13 477,180
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev (Inverse
Fltg) (MBIA Insd).............................. 9.276 04/01/20 4,695,000
6,000 Orange Cnty, FL Hlth Fac Auth Rev (Inverse
Fltg) (MBIA Insd).............................. 8.796 10/29/21 7,132,500
2,000 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 08/01/04) (AMBAC Insd).......... 6.375 08/01/15 2,246,360
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,090 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd).......................... 6.500% 10/01/14 $ 1,243,003
10,000 Tallahassee, FL Hlth Fac Rev Tallahassee Mem
Regl Med Ser A Rfdg (MBIA Insd)................ 6.625 12/01/13 11,251,500
1,750 Tampa, FL Rev Hlth Sys Catholic Hlth Ser A1
(MBIA Insd).................................... 4.875 11/15/23 1,676,203
5,000 Tampa, FL Rev Hlth Sys Catholic Hlth Ser A3
(MBIA Insd).................................... 4.750 11/15/28 4,668,850
--------------
49,379,803
--------------
GEORGIA 3.3%
1,250 Atlanta, GA Ctfs Partn Atlanta Pretrial
Detention Cent (MBIA Insd)..................... 6.250 12/01/08 1,371,000
1,750 Atlanta, GA Ctfs Partn Atlanta Pretrial
Detention Cent (MBIA Insd)..................... 6.250 12/01/17 1,904,595
5,000 Georgia Local Govt Ctfs Partn Grantor Trust Ser
A (MBIA Insd) (a).............................. 4.750 06/01/28 4,708,600
15,550 Georgia Muni Elec Auth Pwr Rev Ser Y (AMBAC
Insd).......................................... 6.400 01/01/13 18,074,698
6,500 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI
Insd).......................................... * 01/01/07 4,444,895
4,750 Georgia Muni Elec Auth Pwr Rev Genl Ser B (BIGI
Insd).......................................... * 01/01/08 3,086,075
10,000 Muni Elec Auth GA Spl Oblig Fifth Crossover Ser
Proj One (MBIA Insd)........................... 6.500 01/01/17 11,844,000
--------------
45,433,863
--------------
HAWAII 1.0%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg (MBIA
Insd).......................................... 6.400 07/01/08 14,188,665
--------------
ILLINOIS 16.7%
1,000 Berwyn, IL (MBIA Insd)......................... 7.000 11/15/10 1,082,690
5,000 Chicago, IL (FGIC Insd)........................ 5.500 01/01/21 5,170,200
5,000 Chicago, IL Lakefront Millennium Parking Fac
(MBIA Insd).................................... 5.000 01/01/18 4,905,350
1,000 Chicago, IL Brd of Ed Chicago Sch Reform Ser A
(AMBAC Insd)................................... 5.250 12/01/22 999,270
20,750 Chicago, IL Brd of Ed Chicago Sch Reform Ser A
(AMBAC Insd)................................... 5.250 12/01/30 20,732,985
1,400 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd).......................................... 5.750 12/01/20 1,492,330
25,725 Chicago, IL Brd of Ed Chicago Sch Reform (MBIA
Insd).......................................... 6.000 12/01/26 27,971,307
16,000 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd).......................................... 5.750 12/01/27 16,912,320
2,720 Chicago, IL Pub Bldg Comm Bldg Rev Chicago
Transit Auth (AMBAC Insd)...................... 6.600 01/01/15 3,035,710
3,480 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd).......................................... * 01/01/06 2,492,167
3,105 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd).......................................... * 01/01/07 2,118,014
4,150 Chicago, IL Skyway Toll Brdg Rev (MBIA Insd)... 5.500 01/01/23 4,281,970
2,000 Chicago, IL Wastewtr Transmission Rev (FGIC
Insd).......................................... 5.125 01/01/25 1,968,660
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd) (b)..................... 8.400 01/01/01 1,101,570
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 5,550 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750% 01/01/03 $ 6,558,047
8,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750 01/01/04 10,253,689
2,460 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750 01/01/05 3,052,885
3,500 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750 01/01/07 4,520,670
1,280 Cook Cnty, IL Cmnty High Sch Dist No 233
Homewood & Flossmor (AMBAC Insd)............... * 12/01/05 919,398
8,280 Cook Cnty, IL Cnty Juvenile Detention Ser A
(AMBAC Insd)................................... * 11/01/08 5,174,586
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA
Insd).......................................... 8.200 12/01/14 2,061,534
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn South (FSA
Insd).......................................... 8.100 12/01/16 2,436,738
1,115 Evanston, IL Residential Mtg Rev (AMBAC
Insd).......................................... 6.375 01/01/09 1,180,785
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev Comwlth
Edison Co Proj Ser D Rfdg (AMBAC Insd)......... 6.750 03/01/15 11,265,000
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 40,659,850
5,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A Rfdg (MBIA Insd).................... 5.400 03/01/28 5,047,250
2,000 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 (FSA Insd)............................. 6.650 02/01/11 2,377,560
5,025 Illinois Dev Fin Auth Rev Sch Dist Pgm Rockford
Sch 205 Rfdg (FSA Insd)........................ 6.650 02/01/12 5,741,012
1,022 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled
Pgm Ser B (MBIA Insd).......................... 7.900 08/15/03 1,035,634
220 Illinois Hlth Fac Auth Rev Cmnty Prov Pooled
Pgm Ser B Rfdg (MBIA Insd)..................... 7.900 08/15/03 251,533
5,000 Illinois Hlth Fac Auth Rev Hosp Sisters Svcs
(Inverse Fltg) (MBIA Insd)..................... 9.477 06/19/15 5,981,250
5,000 Illinois Hlth Fac Auth Rev Methodist Hlth Proj
(Inverse Fltg) (AMBAC Insd).................... 9.770 05/18/21 5,943,750
3,400 Illinois Hlth Fac Auth Rev Rush Presbyterian
Saint Luke Hosp (Inverse Fltg) (MBIA Insd)..... 9.666 10/01/24 4,024,750
3,000 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln
Hlth Rfdg (AMBAC Insd)......................... 6.000 01/01/27 3,232,950
1,320 Kane Cnty, IL Sch Dist No 129 Aurora West Side
(FSA Insd)..................................... 5.000 02/01/14 1,310,773
1,830 Kane Cnty, IL Sch Dist No 129 Aurora West Side
(FSA Insd)..................................... 5.000 02/01/15 1,810,602
6,110 Rosemont, IL Tax Increment 3 (FGIC Insd)....... * 12/01/06 4,179,973
3,000 Rosemont, IL Tax Increment 3 (FGIC Insd)....... * 12/01/07 1,952,880
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA Insd).... 8.000 12/01/05 1,573,701
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,185 Saint Clair Cnty, IL Ctfs Partn Indl Dev Rev
(MBIA Insd).................................... 8.000% 12/01/04 $ 1,424,571
1,500 Will Cnty, IL Cmnty Unit Sch Dist No 201 Ser C
(FSA Insd)..................................... * 10/01/13 699,960
1,000 Will Cnty, IL Cmnty Unit Sch Dist No 201 Ser C
(FSA Insd)..................................... * 10/01/14 440,390
--------------
229,376,264
--------------
INDIANA 0.7%
2,000 Indiana Bond Bank Spl Pgm Ser A (AMBAC Insd)... 9.750 08/01/09 2,648,680
5,000 Indiana Hlth Fac Fin Auth Hosp Rev Cmnty Hosps
Proj Rfdg & Impt (MBIA Insd)................... 6.400 05/01/12 5,393,700
1,000 Marion Cnty, IN Convention & Recrtnl Fac Auth
Excise Tax Rev Lease Rental Ser A (AMBAC
Insd).......................................... 7.000 06/01/21 1,088,360
--------------
9,130,740
--------------
KANSAS 3.1%
38,750 Burlington, KS Pollutn Ctl Rev KS Gas & Elec Co
Proj Rfdg (MBIA Insd) (b)...................... 7.000 06/01/31 42,173,950
--------------
KENTUCKY 0.3%
35 Kentucky Cntys Single Family Mtg Presbyterian
Homes Ser A Rfdg (MBIA Insd)................... 8.625 09/01/15 35,782
2,000 Kentucky Econ Dev Fin Auth Hosp Fac Rev Rfdg
(Connie Lee Insd).............................. 5.700 02/01/28 2,111,380
1,995 Warren Cnty, KY Hosp Fac Rev Med Cent Bowling
Green (FSA Insd)............................... 4.750 04/01/15 1,913,564
--------------
4,060,726
--------------
LOUISIANA 1.7%
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 4,691,051
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 6,516,607
310 Louisiana Pub Fac Auth Rev Med Cent LA at New
Orleans Proj (Connie Lee Insd)................. 6.250 10/15/10 330,187
4,150 Louisiana Pub Fac Auth Rev Pgm Hlth & Edl Cap
Fac Our Lady Med Cent Ser C (BIGI Insd) (b).... 8.200 12/01/15 4,307,285
5,000 Louisiana Pub Fac Auth Rev Tulane Univ of LA
(AMBAC Insd)................................... 6.050 10/01/25 5,476,350
10,000 New Orleans, LA Home Mtg Auth Single Family Mtg
Rev 1985 Ser A (MBIA Insd)..................... * 09/15/16 1,542,100
--------------
22,863,580
--------------
MAINE 0.4%
2,750 Easton, ME Indl Dev McCain Food Inc Proj Ser
1985 (AMBAC Insd).............................. 9.200 08/01/99 2,759,790
1,750 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA
Insd).......................................... 7.100 07/01/14 2,016,823
--------------
4,776,613
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS 1.4%
$ 1,700 Massachusetts St Hlth & Edl Fac Auth Rev Mt
Auburn Hosp Ser B1 (MBIA Insd)................. 6.250% 08/05/14 $ 1,871,955
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Univ
Hosp Ser C (MBIA Insd)......................... 7.250 07/01/19 1,073,600
2,980 Massachusetts St Hlth Edl Fac Boston Med Cent
Ser A (MBIA Insd) (a).......................... 5.000 07/01/19 2,898,795
4,750 Massachusetts St Indl Fin Agy Rev Suffolk Univ
(AMBAC Insd)................................... 5.250 07/01/27 4,767,717
3,250 Massachusetts St Wtr Res Auth Genl Ser A (FGIC
Insd).......................................... 5.500 11/01/21 3,365,083
3,750 Massachusetts St Wtr Res Auth Houston Ind Inc
Proj Ser A (FSA Insd).......................... 4.750 08/01/37 3,489,600
1,920 Worcester, MA (MBIA Insd)...................... 5.000 08/01/17 1,897,824
--------------
19,364,574
--------------
MICHIGAN 3.1%
2,325 Bay City, MI (AMBAC Insd)...................... * 06/01/15 996,611
1,000 Bay City, MI (AMBAC Insd)...................... * 06/01/16 404,170
3,250 Central MI Univ Rev (FGIC Insd)................ 5.625 10/01/22 3,398,623
1,100 Central MI Univ Rev (FGIC Insd)................ 5.500 10/11/26 1,137,235
2,675 Clintondale, MI Cmnty Sch Rfdg (FSA Insd)...... 5.125 05/01/28 2,638,567
2,000 Durand, MI Area Schs (FGIC Insd)............... 5.375 05/01/23 2,036,440
5,000 Ecorse, MI Pub Sch Dist (FGIC Insd)............ 5.500 05/01/27 5,183,500
6,000 Ferris St Univ MI Rev Genl (AMBAC Insd)........ 5.000 10/01/18 5,868,720
3,075 Ferris St Univ MI Rev Genl (AMBAC Insd)........ 5.000 10/01/28 2,992,928
3,000 Lake Shore, MI Pub Schs Macomb Cnty (FSA
Insd).......................................... 5.500 05/01/20 3,093,960
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC Insd).... * 05/01/21 5,438,160
5,000 Michigan St Hosp Fin Auth Rev Hosp Sparrow
Oblig Group (MBIA Insd)........................ 6.000 11/15/36 5,435,050
2,000 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(Embedded Swap) (AMBAC Insd)................... 4.850 04/01/04 2,012,520
5,000 Mount Clemens, MI Cmnty Sch Dist Cap Apprec
(Prerefunded @ 05/01/07) (MBIA Insd)........... * 05/01/17 1,686,000
--------------
42,322,484
--------------
MINNESOTA 0.5%
1,000 Brainerd, MN Rev Evangelical Lutheran Ser B
Rfdg (FSA Insd)................................ 6.650 03/01/17 1,091,020
5,600 Minneapolis-Saint Paul, MN Hsg & Redev Auth
Hlthcare Sys Rev Hlth One Ser A (MBIA Insd).... 7.400 08/15/11 6,056,848
--------------
7,147,868
--------------
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 1,379,050
--------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI 0.5%
$ 1,985 Green Cnty, MO Single Family Mtg Rev (AMBAC
Insd).......................................... * 12/01/16 $ 325,242
1,065 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Rfdg (MBIA Insd)............................... 6.250% 06/01/16 1,165,046
4,585 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Rfdg (MBIA Insd)............................... 6.250 06/01/16 4,957,531
230 Saint Louis Cnty, MO Single Family Mtg Rev
(AMBAC Insd)................................... 9.250 10/01/16 245,976
--------------
6,693,795
--------------
NEVADA 1.0%
1,000 Carson City, NV Hosp Rev Ser B (AMBAC Insd).... 5.400 03/01/17 1,017,630
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser
C Rfdg (AMBAC Insd)............................ 7.200 10/01/22 2,236,500
2,935 Reno, NV Hosp Rev Dates Saint Mary's Hosp Inc
Ser B (Prerefunded @ 01/01/00) (BIGI Insd)..... 7.750 07/01/15 3,140,685
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 4,682,627
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA Insd)........ * 07/01/07 2,476,701
--------------
13,554,143
--------------
NEW HAMPSHIRE 0.6%
5,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
(AMBAC Insd)................................... 6.000 10/01/26 5,441,650
2,500 New Hampshire St Tpk Sys Rev Rfdg (Inverse
Fltg) (FGIC Insd).............................. 9.769 11/01/17 3,303,125
--------------
8,744,775
--------------
NEW JERSEY 1.2%
5,500 Howell Twp, NJ Rfdg (FGIC Insd)................ 6.800 01/01/14 6,029,925
3,625 Morristown, NJ Rfdg (FSA Insd)................. 6.400 08/01/14 4,086,934
2,500 New Jersey Hlth Care Fac Hackensack Univ Med
Cent A Rfdg (MBIA Insd) (a).................... 5.000 01/01/28 2,434,175
3,940 New Jersey St Hsg & Mtg Fin Agy Rev Home Mtg
Ser B (MBIA Insd).............................. 8.100 10/01/17 4,064,858
--------------
16,615,892
--------------
NEW YORK 8.8%
8,000 Metropolitan Tran Auth NY Commuter Fac Rev Ser
A (MBIA Insd).................................. 5.625 07/01/27 8,401,920
7,000 Metropolitan Tran Auth NY Dedicated Tax Fund
Ser A (FGIC Insd).............................. 5.000 04/01/23 6,839,140
2,090 New York City Ser G (MBIA Insd)................ 5.750 02/01/14 2,223,718
4,350 New York City Indl Dev Agy Civic Fac Rev USTA
Natl Tennis Cent Proj (FSA Insd)............... 6.375 11/15/14 4,832,154
50 New York City Ser C Subser C1 (FSA Insd)....... 6.250 08/01/09 54,581
18,000 New York City Ser G (FGIC Insd)................ 5.750 02/01/14 19,151,640
3,000 New York St Dorm Auth Lease Rev Muni Hlth Fac
Impt Pgm Ser A (FSA Insd)...................... 5.500 05/15/25 3,102,840
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 3,950 New York St Dorm Auth Rev City Univ Sys Ser C
(FGIC Insd).................................... 7.000% 07/01/14 $ 4,237,758
4,700 New York St Dorm Auth Rev Insd Pace Univ Rfdg
(MBIA Insd).................................... 5.750 07/01/26 5,005,782
170 New York St Med Care Fac Fin Agy Rev IBC Mental
Hlth Svcs Ser A (MBIA Insd).................... 7.750 08/05/10 182,605
1,000 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Ser E (FSA Insd)..................... 6.500 08/05/15 1,111,520
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 27,263,415
3,400 New York St Muni Bond Bank Agy Spl Pgm Rev
Rochester Ser A (MBIA Insd).................... 6.625 03/15/06 3,718,308
1,500 New York St Urban Dev Corp Rev Correctional Fac
Rfdg (AMBAC Insd).............................. 5.250 01/01/18 1,506,150
15,000 New York, NY Ser I (MBIA Insd)................. 5.000 05/15/23 14,654,700
20,000 New York, NY Ser I (MBIA Insd)................. 5.000 05/15/28 19,499,200
--------------
121,785,431
--------------
NORTH CAROLINA 0.1%
1,250 Franklin Cnty, NC Ctfs Partn Jail & Sch Projs
(FGIC Insd).................................... 6.625 06/01/14 1,394,075
2,500 North Carolina Med Care Comm Catholic Hlth East
Ser C (AMBAC Insd) (a)......................... 5.000 11/15/28 2,425,775
--------------
3,819,850
--------------
NORTH DAKOTA 0.8%
4,595 Grand Forks, ND Sales Tax Rev Aurora Proj Ser A
(MBIA Insd).................................... 5.625 12/15/29 4,800,442
5,000 Mercer Cnty, ND Pollutn Ctl Rev Antelope Vly
Station Rfdg (AMBAC Insd)...................... 7.200 06/30/13 6,169,200
--------------
10,969,642
--------------
OHIO 3.5%
5,000 Clermont Cnty, OH Hosp Fac Rev Muni (Inverse
Fltg) (AMBAC Insd)............................. 9.441 10/05/21 5,987,500
2,010 Cleveland, OH (Prerefunded @ 11/15/04) (MBIA
Insd).......................................... 6.500 11/15/09 2,295,119
2,285 Cleveland, OH (Prerefunded @ 11/15/04) (MBIA
Insd).......................................... 6.500 11/15/10 2,609,127
13,100 Franklin Cnty, OH Convention Fac Auth Tax Lease
Rev Antic (MBIA Insd).......................... 5.000 12/01/27 12,793,722
20,700 Hamilton Cnty, OH Sales Tax Hamilton Cnty
Football Proj B (MBIA Insd).................... 5.000 12/01/18 20,425,518
1,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl
Cleveland Co Proj Rfdg (FGIC Insd)............. 8.000 12/01/13 1,722,090
2,500 Ohio St Air Quality Dev Auth Rev Pollutn Ctl OH
Edison Ser A Rfdg (FGIC Insd).................. 7.450 03/01/16 2,672,325
--------------
48,505,401
--------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OKLAHOMA 0.3%
$ 1,760 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd).......................................... 5.250% 12/01/20 $ 1,767,498
2,755 Oklahoma Hsg Fin Agy Single Family Rev Mtg Ser
A (MBIA Insd).................................. 7.200 03/01/11 2,908,040
--------------
4,675,538
--------------
OREGON 0.1%
1,000 Wasco Cnty, OR Vets Home (FSA Insd)............ 6.200 06/01/13 1,092,930
--------------
PENNSYLVANIA 5.6%
4,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hlth Sys
Catholic Hlth East A (AMBAC Insd).............. 4.875 11/15/26 3,793,840
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev Pittsburgh
Mercy Hlth Sys Inc (AMBAC Insd)................ 5.625 08/15/26 5,321,257
2,985 Butler, PA Area Sch Dist Cap Apprec
(Prerefunded @ 11/15/07) (FGIC Insd)........... * 11/15/23 776,787
5,650 Butler, PA Area Sch Dist Cap Apprec
(Prerefunded @ 11/15/07) (FGIC Insd)........... * 11/15/26 1,225,372
31,250 Dauphin Cnty, PA Genl Auth Hlth Sys Rev
Pinnacle Hlth Sys Proj Rfdg (MBIA Insd)........ 5.500 05/15/27 32,321,250
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev Hapsco
Phoenixville Hosp Proj Ser B (FGIC Insd)....... 6.125 07/01/10 2,215,320
1,295 Deer Lakes Sch Dist PA Ser A (FSA Insd)........ 5.250 01/15/17 1,309,012
1,000 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool
Pgm Ser B Var Rate Cpn (BIGI Insd)............. 8.000 05/15/18 1,010,040
1,250 Lehigh Cnty, PA Genl Purp Auth Rev Good
Shepherd Rehab Hosp Rfdg (AMBAC Insd).......... 5.250 11/15/27 1,252,575
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 1,097,160
3,750 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn
Ctl Ser E Rfdg (MBIA Insd)..................... 6.700 12/01/21 4,080,487
1,000 New Kensington Arnold, PA Sch Dist (FGIC
Insd).......................................... 5.500 05/15/26 1,031,440
10,015 Northeastern PA Hosp & Edl Auth Wyoming Vly
Hlthcare Ser A (AMBAC Insd).................... 5.250 01/01/26 10,027,018
1,000 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Bryn Mawr College (MBIA Insd)......... 5.625 12/01/27 1,049,910
2,250 Philadelphia, PA Gas Wks Rev 14th Ser A Rfdg
(FSA Insd)..................................... 6.375 07/01/14 2,484,878
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Saint Mary Ser A (MBIA Insd)... 6.500 07/01/22 1,089,640
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA Rev
Franciscan Hlth Sys Ser B (MBIA Insd).......... 6.500 07/01/12 1,089,640
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,000 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset
Fin Pgm Ser H2 (AMBAC Insd).................... 7.625% 12/01/15 $ 1,075,060
3,750 Southmoreland Sch Dist PA (AMBAC Insd)......... 5.250 10/01/17 3,789,412
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 1,111,650
--------------
77,151,748
--------------
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 2,364,300
18,000 Rhode Island St Hlth & Edl Bldg Corp Rev RI
Hosp (Inverse Fltg) (FGIC Insd)................ 9.766 08/15/21 21,600,000
--------------
23,964,300
--------------
SOUTH CAROLINA 0.1%
70 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd).......................................... 6.875 06/01/14 78,964
1,430 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)........... 6.875 06/01/14 1,650,535
--------------
1,729,499
--------------
SOUTH DAKOTA 0.8%
5,205 South Dakota St Lease Rev Trust Ctfs Ser A (FSA
Insd).......................................... 6.625 09/01/12 6,193,794
4,000 South Dakota St Lease Rev Trust Ctfs Ser A (FSA
Insd).......................................... 6.700 09/01/17 4,816,880
--------------
11,010,674
--------------
TENNESSEE 0.5%
2,000 Chattanooga-Hamilton Cnty, TN Hosp Auth Hosp
Rev Erlanger Med Cent Ser B (Inverse Fltg)
(Prerefunded @ 05/01/01) (FSA Insd)............ 9.824 05/25/21 2,372,500
3,320 Johnson City, TN Sch Sales Tax (Prerefunded @
05/01/06) (AMBAC Insd)......................... 6.700 05/01/18 3,843,896
--------------
6,216,396
--------------
TEXAS 5.0%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd)......... 9.058 01/01/22 3,506,250
1,000 Austin, TX Util Sys Rev (Prerefunded @
05/15/02) (BIGI Insd).......................... 8.625 11/15/12 1,160,720
2,500 Austin, TX Util Sys Rev Rfdg (AMBAC Insd)
(a)............................................ 6.500 11/15/05 2,813,475
12,500 Austin, TX Util Sys Rev Ser A Rfdg (MBIA
Insd).......................................... * 11/15/10 6,950,000
5,000 Brazos River Auth TX Rev Houston Inds Proj B
(AMBAC Insd)................................... 5.125 11/01/20 4,927,700
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 3,782,738
6,780 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd).......................................... * 02/15/08 3,642,216
7,705 Dallas Cnty, TX Util & Reclamation Dist (MBIA
Insd).......................................... * 02/15/09 3,825,070
5,000 Dallas, TX Civic Cent Convention Rfdg & Impt
(AMBAC Insd)................................... 5.000 08/15/28 4,866,900
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,000 Dallas, TX Rev Spl Tax Ser A (AMBAC Insd)
(a)............................................ 5.000% 08/15/20 $ 4,911,050
6,490 El Paso, TX Hsg Fin Corp Mtg Rev Single Family
(FGIC Insd).................................... * 11/01/16 952,343
1,250 Harris Cnty, TX Hlth Fac Dev Corp Thermal Util
Rev Teco Proj Ser A (AMBAC Insd)............... 7.250 02/15/15 1,330,725
4,615 Harris Cnty, TX Toll Rd Tax & Sub Lien Ser A
Rfdg (FGIC Insd)............................... * 08/15/07 3,047,469
7,000 Harris Cnty, TX Toll Rd Sr Lien Rfdg (MBIA
Insd).......................................... 5.000 08/15/24 6,825,140
245 Henderson, TX (AMBAC Insd)..................... 9.125 05/15/04 306,644
2,505 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd).......................................... * 03/01/15 1,062,245
1,000 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd).......................................... * 03/01/16 399,200
1,305 Montgomery Cnty, TX Cap Apprec Rfdg (MBIA
Insd).......................................... * 03/01/17 490,784
5,000 North Cent, TX Hlth Fac Dev TX Hlth Res Sys Ser
B (MBIA Insd).................................. 5.375 02/15/26 5,073,100
2,250 Odessa, TX Junior College Dist Rev Rfdg & Impt
Ser A (MBIA Insd).............................. 5.000 12/01/19 2,202,143
1,085 Port Port Arthur, TX Navigation Dist Port Rev
(AMBAC Insd)................................... 4.750 03/01/18 1,033,582
1,000 San Antonio, TX Indpt Sch Dist Pub Fac Corp
Lease Rev (AMBAC Insd)......................... 5.850 10/15/10 1,090,000
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp Hlth Sys Rev
Ser B (FGIC Insd).............................. 5.000 09/01/15 1,753,868
--------------
68,676,191
--------------
UTAH 2.9%
21,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)............................... 5.750 07/01/19 22,366,260
2,415 Payson City, UT Cnty UT Elec Pwr Rev (BIGI
Insd).......................................... 8.000 08/15/03 2,475,665
750 Provo, UT Elec Rev 1984 Ser A Rfdg (AMBAC
Insd).......................................... 10.375 09/15/15 1,111,448
3,500 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Inverse Fltg) (AMBAC Insd).................... 9.566 05/15/20 4,134,375
7,385 Utah St Muni Fin Co-op Local Govt Rev Pool Cap
Salt Lake (FSA Insd)........................... * 03/01/09 4,493,994
2,000 Washington Cnty/St George Interlocal Agy UT
Lease Rev (AMBAC Insd)......................... 5.125 12/01/22 1,975,220
3,115 West Jordan, UT Multi-Family Rev Broadmoor
Village Apts Proj Ser A Rfdg (FSA Insd)........ 6.800 01/01/15 3,349,715
--------------
39,906,677
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA 0.6%
$ 3,000 Danville, VA Indl Dev Auth Hosp Rev Danville
Regl Med Cent (AMBAC Insd)..................... 5.200% 10/01/18 $ 3,067,920
4,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)......... 6.800 03/01/14 4,481,320
750 Univ of VA Hosp Rev Ser C Rfdg (Prerefunded @
06/01/00) (AMBAC Insd)......................... 9.375 06/01/07 832,358
--------------
8,381,598
--------------
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 1,363,987
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 3,266,796
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 2,523,108
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 1,434,336
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 1,107,574
350 Pierce Cnty, WA Swr Rev Ser A (MBIA Insd)...... 9.000 02/01/05 423,202
1,000 Snohomish Cnty, WA Solid Waste Rev (MBIA
Insd).......................................... 7.000 12/01/10 1,112,240
5,000 Spokane, WA Regl Solid Waste Mgmt Sys Rev
(AMBAC Insd)................................... 6.250 12/01/11 5,431,150
160 Univ of WA Univ Rev (MBIA Insd)................ 7.000 12/01/21 175,877
3,090 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser A Rfdg (AMBAC Insd)............... 5.700 07/01/09 3,332,040
3,015 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev Ser C Rfdg (MBIA Insd)................ * 07/01/04 2,297,400
--------------
22,467,710
--------------
WISCONSIN 1.1%
12,490 Wisconsin St Hlth & Edl Fac Auth Rev Aurora Med
Group Inc Proj (FSA Insd)...................... 5.750 11/15/25 13,117,872
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med
College of WI Inc Proj (MBIA Insd)............. 5.500 03/01/17 1,024,660
1,000 Wisconsin St Hlth & Edl Fac Auth Rev Med
College of WI Inc Proj (MBIA Insd)............. 5.750 03/01/27 1,062,630
--------------
15,205,162
--------------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp Proj (AMBAC
Insd).......................................... 6.700 05/01/12 2,196,920
--------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <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 $ 3,334,470
--------------
TOTAL LONG-TERM INVESTMENTS 98.4%
(Cost $1,236,968,993)..................................................... 1,354,910,095
SHORT-TERM INVESTMENTS 3.6%
(Cost $49,100,000)........................................................ 49,100,000
--------------
TOTAL INVESTMENTS 102.0%
(Cost $1,286,068,993)..................................................... 1,404,010,095
LIABILITIES IN EXCESS OF OTHER ASSETS (2.0%)............................... (24,758,119)
--------------
NET ASSETS 100.0%.......................................................... $1,379,251,976
==============
</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
24
<PAGE> 26
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,286,068,993)..................... $1,404,010,095
Cash........................................................ 279,831
Receivables:
Interest.................................................. 18,591,844
Investments Sold.......................................... 4,473,846
Fund Shares Sold.......................................... 874,680
Other....................................................... 40,481
--------------
Total Assets.......................................... 1,428,270,777
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 43,267,381
Fund Shares Repurchased................................... 2,257,824
Income Distributions...................................... 1,797,959
Distributor and Affiliates................................ 761,376
Investment Advisory Fee................................... 563,308
Accrued Expenses............................................ 233,346
Trustees' Deferred Compensation and Retirement Plans........ 137,607
--------------
Total Liabilities..................................... 49,018,801
--------------
NET ASSETS.................................................. $1,379,251,976
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,249,470,367
Net Unrealized Appreciation................................. 117,941,102
Accumulated Net Realized Gain............................... 11,900,001
Accumulated Distributions in Excess of Net Investment
Income.................................................... (59,494)
--------------
NET ASSETS.................................................. $1,379,251,976
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,301,549,952 and 66,542,873 shares of
beneficial interest issued and outstanding)............. $ 19.56
Maximum sales charge (4.75%* of offering price)......... .98
--------------
Maximum offering price to public........................ $ 20.54
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $71,419,276 and 3,650,989 shares of
beneficial interest issued and outstanding)............. $ 19.56
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $6,282,748 and 321,242 shares of
beneficial interest issued and outstanding)............. $ 19.56
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
25
<PAGE> 27
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 39,086,093
------------
EXPENSES:
Investment Advisory Fee..................................... 3,384,925
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of
$1,549,989, $353,162 and $28,068, respectively)........... 1,931,219
Shareholder Services........................................ 589,398
Insurance................................................... 36,563
Legal....................................................... 36,200
Custody..................................................... 27,150
Trustees' Fees and Expenses................................. 21,909
Other....................................................... 259,199
------------
Total Expenses.......................................... 6,286,563
------------
NET INVESTMENT INCOME....................................... $ 32,799,530
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 13,825,184
Futures................................................... (2,080,498)
------------
Net Realized Gain........................................... 11,744,686
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 131,036,118
End of the Period:
Investments............................................. 117,941,102
------------
Net Unrealized Depreciation During the Period............... (13,095,016)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (1,350,330)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 31,449,200
============
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 32,799,530 $ 68,037,607
Net Realized Gain...................................... 11,744,686 8,525,006
Net Unrealized Appreciation/Depreciation During the
Period............................................... (13,095,016) 31,101,903
-------------- --------------
Change in Net Assets from Operations................... 31,449,200 107,664,516
-------------- --------------
Distributions from Net Investment Income............... (32,963,560) (67,785,067)
Distributions in Excess of Net Investment Income....... (59,494) -0-
-------------- --------------
Distributions from and in Excess of Net Investment
Income*.............................................. (33,023,054) (67,785,067)
Distributions from Net Realized Gain*.................. (2,401,267) (11,111,608)
-------------- --------------
Total Distributions.................................. (35,424,321) (78,896,675)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... (3,975,121) 28,767,841
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.............................. 333,383,070 631,717,458
Net Asset Value of Shares Issued Through Dividend
Reinvestment......................................... 24,337,335 54,493,315
Cost of Shares Repurchased............................. (333,712,581) (716,001,683)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... 24,007,824 (29,790,910)
-------------- --------------
TOTAL INCREASE/DECREASE IN NET ASSETS.................. 20,032,703 (1,023,069)
NET ASSETS:
Beginning of the Period................................ 1,359,219,273 1,360,242,342
-------------- --------------
End of the Period (Including accumulated undistributed
net investment income of $(59,494) and $164,030,
respectively)........................................ $1,379,251,976 $1,359,219,273
============== ==============
</TABLE>
<TABLE>
<CAPTION>
*Distributions Six Months Ended Year Ended
by Class June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares....................................... $31,429,587 $64,607,170
Class B Shares....................................... 1,475,768 2,965,479
Class C Shares....................................... 117,699 212,418
----------- -----------
$33,023,054 $67,785,067
=========== ===========
Distributions from Net Realized Gain:
Class A Shares....................................... $ 2,262,624 $10,489,973
Class B Shares....................................... 128,797 580,452
Class C Shares....................................... 9,846 41,183
----------- -----------
$ 2,401,267 $11,111,608
=========== ===========
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -----------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $ 19.631 $ 19.238 $ 19.549 $ 17.572 $ 19.857
-------- -------- -------- -------- --------
Net Investment Income............ .477 .974 .980 1.021 1.051
Net Realized and Unrealized
Gain/Loss...................... (.032) .551 (.304) 1.982 (2.280)
-------- -------- -------- -------- --------
Total from Investment Operations... .445 1.525 .676 3.003 (1.229)
-------- -------- -------- -------- --------
Less:
Distributions from and in Excess
of Net Investment Income....... .480 .971 .987 1.026 1.056
Distributions from Net Realized
Gain........................... .036 .161 -0- -0- -0-
-------- -------- -------- -------- --------
Total Distributions................ .516 1.132 .987 1.026 1.056
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period........................... $ 19.560 $ 19.631 $ 19.238 $ 19.549 $ 17.572
======== ======== ======== ======== ========
Total Return (a)................... 2.30%* 8.19% 3.65% 17.49% (6.31%)
Net Assets at End of the Period (In
millions)........................ $1,301.5 $1,283.5 $1,283.7 $1,365.4 $1,110.2
Ratio of Expenses to Average Net
Assets (b)....................... .89% .92% .95% .88% .88%
Ratio of Net Investment Income to
Average
Net Assets (b)................... 4.91% 5.07% 5.11% 5.44% 5.70%
Portfolio Turnover................. 42%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
28
<PAGE> 30
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................... $19.634 $19.240 $19.549 $17.563 $19.824
------- ------- ------- ------- -------
Net Investment Income................... .403 .826 .832 .890 .899
Net Realized and Unrealized Gain/Loss... (.033) .551 (.304) 1.978 (2.276)
------- ------- ------- ------- -------
Total from Investment Operations.......... .370 1.377 .528 2.868 (1.377)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income..................... .406 .822 .837 .882 .884
Distributions from Net Realized Gain.... .036 .161 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions....................... .442 .983 .837 .882 .884
------- ------- ------- ------- -------
Net Asset Value, End of the Period........ $19.562 $19.634 $19.240 $19.549 $17.563
======= ======= ======= ======= =======
Total Return (a).......................... 1.92%* 7.36% 2.83% 16.67% (7.03%)
Net Assets at End of the Period (In
millions).............................. $71.4 $70.1 $71.6 $75.3 $30.0
Ratio of Expenses to Average Net Assets
(b)..................................... 1.65% 1.69% 1.74% 1.67% 1.71%
Ratio of Net Investment Income to Average
Net Assets (b).......................... 4.15% 4.29% 4.38% 4.69% 4.88%
Portfolio Turnover........................ 42%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sale charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
29
<PAGE> 31
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................... $19.630 $19.239 $19.548 $17.568 $19.823
------- ------- ------- ------- -------
Net Investment Income................... .400 .822 .830 .883 .908
Net Realized and Unrealized Gain/Loss... (.030) .552 (.302) 1.979 (2.279)
------- ------- ------- ------- -------
Total from Investment Operations.......... .370 1.374 .528 2.862 (1.371)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income..................... .406 .822 .837 .882 .884
Distributions from Net Realized Gain.... .036 .161 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions....................... .442 .983 .837 .882 .884
------- ------- ------- ------- -------
Net Asset Value, End of the Period........ $19.558 $19.630 $19.239 $19.548 $17.568
======= ======= ======= ======= =======
Total Return (a).......................... 1.92%* 7.36% 2.83% 16.60% (6.98%)
Net Assets at End of the Period (In
millions)............................... $6.3 $5.6 $4.9 $5.1 $3.5
Ratio of Expenses to Average Net Assets
(b)..................................... 1.64% 1.69% 1.74% 1.67% 1.70%
Ratio of Net Investment Income to Average
Net Assets (b).......................... 4.15% 4.29% 4.37% 4.68% 4.89%
Portfolio Turnover........................ 42%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Insured Tax Free Income Fund, formerly known as Van Kampen American
Capital 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.
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
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 differ for financial reporting and tax purposes as a
result of losses from wash sales and losses recognized for tax purposes on open
futures positions at December 31, 1997.
At June 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $1,286,068,993; the aggregate gross unrealized
appreciation is $118,328,151 and the aggregate gross unrealized depreciation is
$387,049, resulting in net unrealized appreciation of $117,941,102.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
F. INSURANCE EXPENSES--The Fund typically invests in insured bonds. Any
portfolio securities not specifically covered by a primary insurance policy are
insured secondarily through the Fund's portfolio insurance policy. Insurance
premiums are based on the daily balances of uninsured bonds in the portfolio of
investments and are charged to expense on an accrual basis. The insurance policy
guarantees the timely payment of principal and interest on the securities in the
Fund's portfolio.
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
% 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 six months ended June 30, 1998, the Fund recognized expenses of
approximately $20,400 representing legal expenses provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $197,300 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting, cash management 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 six months ended
June 30, 1998, the Fund recognized expenses of approximately $393,800. 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.
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 June 30, 1998, capital aggregated $1,174,015,875, $69,078,569 and
$6,375,923 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................. 16,431,139 $ 320,560,508
Class B............................. 295,527 5,797,145
Class C............................. 359,701 7,025,417
----------- -------------
Total Sales........................... 17,086,367 $ 333,383,070
=========== =============
Dividend Reinvestment:
Class A............................. 1,196,517 $ 23,392,198
Class B............................. 44,021 860,524
Class C............................. 4,329 84,613
----------- -------------
Total Dividend Reinvestment........... 1,244,867 $ 24,337,335
=========== =============
Repurchases:
Class A............................. (16,464,903) $(322,210,767)
Class B............................. (260,846) (5,102,805)
Class C............................. (326,913) (6,399,009)
----------- -------------
Total Repurchases..................... (17,052,662) $(333,712,581)
=========== =============
</TABLE>
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $1,152,273,936, $67,523,705 and
$5,664,902 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................. 32,247,420 $ 617,534,974
Class B................................. 410,394 7,887,393
Class C................................. 324,754 6,295,091
----------- -------------
Total Sales............................. 32,982,568 $ 631,717,458
=========== =============
Dividend Reinvestment:
Class A................................. 2,721,901 $ 52,405,367
Class B................................. 99,148 1,908,983
Class C................................. 9,300 178,965
----------- -------------
Total Dividend Reinvestment............. 2,830,349 54,493,315
=========== =============
Repurchases:
Class A................................. (36,316,268) $(697,389,583)
Class B................................. (660,311) (12,665,655)
Class C................................. (306,866) (5,946,445)
----------- -------------
Total Repurchases....................... (37,283,445) $(716,001,683)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares 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>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $71,400
35
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
and CDSC on redeemed shares of approximately $53,600. Sales charges do not
represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $569,910,567 and $591,140,861,
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. 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).
36
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997............................ 300
Futures Opened.............................................. 6,952
Futures Closed.............................................. (7,252)
---
Outstanding at June 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 six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $407,800.
37
<PAGE> 39
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
Global Equity
Global Equity Allocation
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 and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
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.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a 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.VAN-KAMPEN.COM and selecting Investors' Place
38
<PAGE> 40
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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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 December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
39
<PAGE> 41
VAN KAMPEN INSURED TAX FREE INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
40
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 24
Statement of Operations.......................... 25
Statement of Changes in Net Assets............... 26
Financial Highlights............................. 27
Notes to Financial Statements.................... 30
</TABLE>
TFHI SAR 8/98
<PAGE> 43
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of [PHOTO]
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc.
You can be assured that the DENNIS J. MCDONNELL AND DON G. POWELL
change in your fund's name will not
affect its management or daily
operations. You will begin seeing the
application of this change with this report. In addition, as of August 31, your
fund will be listed in the daily newspapers by share class under the heading
"Van Kampen Funds." For your convenience, we have enclosed a separate brochure
that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies
Continued on page two
1
<PAGE> 44
were beginning to recover. When weakness in the Japanese yen undercut that
recovery, long-term interest rates resumed their decline.
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment
Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment
Advisory Corp.
2
<PAGE> 45
PERFORMANCE RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998
VAN KAMPEN TAX FREE HIGH INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV(1)... 2.88% 2.50% 2.43%
Six-month total return(2)................ (2.01%) (1.50%) 1.43%
One-year total return(2)................. 3.55% 3.90% 6.83%
Five-year average annual total
return(2).............................. 5.69% 5.63% N/A
Ten-year average annual total
return(2).............................. 6.26% N/A N/A
Life-of-Fund average annual total
return(2).............................. 7.58% 6.06% 5.63%
Commencement date........................ 06/28/85 05/01/93 08/13/93
DISTRIBUTION RATES
Distribution rate(3)..................... 5.31% 4.85% 4.86%
Taxable equivalent distribution
rate(4)................................ 8.30% 7.58% 7.59%
SEC Yield(5)............................. 4.99% 4.54% 4.58%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 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.
3
<PAGE> 46
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 47
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 48
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 first half of the Fund's fiscal year. The team includes David C.
Johnson, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries.
The difference between the yields on securities of varying credit quality
has been very narrow. An example of this "yield spread" is the municipal bond
issue brought to market by Long Island Power Authority (LIPA) in May to finance
its takeover of the Long Island Lighting Company. This $3.4 billion issue--the
largest municipal bond issue in history--was split among two credit ratings: a
portion of the issue was insured and had a AAA rating, while the remaining
uninsured portion came to market with LIPA's BBB rating. The
6
<PAGE> 49
yield spread between the insured, AAA-rated portion and the BBB-rated securities
was only 17 basis points (0.17 percentage points).
Q HOW HAS THE PORTFOLIO CHANGED OVER THE LAST SIX MONTHS?
A The Fund gained approximately $66 million in new assets during the first
half of the year, attracting fixed-income investors who seek a somewhat
higher yield than that available on higher-rated municipal issues.
There were no significant changes in our allocations to the various market
sectors or in the overall quality profile of the portfolio. We continued to
pursue a portfolio structure that concentrates assets at the high end and the
low end of the quality spectrum. As of June 30, 1998, 26 percent of long-term
investments were invested in securities rated AAA, and 16 percent were in
BBB-rated issues (41 percent were non-rated).
At the end of the reporting period, the market sectors that made up the
largest share of the portfolio were industrial revenue, health care,
multi-family housing, other care, and general purpose issues. Our largest
holdings included bonds issued by Chicago's O'Hare Airport and Denver
International Airport, as well as Dade County, Florida, New York City, Atlanta,
and New York State.
Our strategy of broad diversification is designed to help buffer the
impact of credit quality problems that might arise from time to time. In the
past quarter, the Fund has diversified significantly, and now holds more
than 400 individual bond issues--up from roughly 300 issues as of March 31. For
additional Fund portfolio highlights, please refer to page nine.
Q HAS THIS IMPROVED THE FUND'S PERFORMANCE?
A We believe it helped to stabilize the Fund to a certain degree. Thus far
in 1998, its total return performance places it in the middle of the pack
relative to its Lipper peer group. As of June 30, year-to-date total
return was 2.88 percent(1) (Class A shares at net asset value). By comparison,
the Lehman Brothers Municipal Bond Index produced a total return of 2.69 percent
for the same period. This index is a broad-based statistical composite of
municipal bonds and does not reflect any commissions that would be paid by an
investor purchasing the securities it represents.
In March, the Fund's dividend was reduced to $0.069 per Class A share,
down from $0.073 per share. At the end of the reporting period, the Fund's
distribution rate stood at 5.31 percent(3), which translates into a
taxable-equivalent return of 8.30 percent(4) for an investor in the 36 percent
federal income tax bracket. Please refer to the chart on page three for
additional Fund performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While low
inflation and controlled
7
<PAGE> 50
economic growth have been the norm, the Fed will continue to weigh the impact of
raising interest rates in the second half of the year if the economy gains steam
and threatens to drive inflation higher.
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion set in 1993. A drop in rates of 25 basis points
(0.25 percentage points) could spark further refunding of outstanding bond
issues and bring new bond issues into the marketplace ahead of their original
schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
municipal bonds and lend support to bond prices.
Because of the low interest-rate environment, we would expect to have a
number of securities pre-refunded (that is, scheduled for early repayment)
during the months ahead. Pre-refunding can benefit us in the near term, as it
usually improves the evaluation of the security and lets us know when that
security will be removed from the portfolio. Going forward, our focus will be on
refining the portfolio's composition in terms of maturity and call dates, as
well as managing the Fund's sensitivity to potential interest rate changes.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
David C. Johnson
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 51
PORTFOLIO HIGHLIGHTS
VAN KAMPEN TAX FREE HIGH INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Florida ................. 9.6%
New York ................ 9.5%
Illinois ................ 9.3%
Texas ................... 7.6%
Pennsylvania ............ 7.3%
Colorado ................ 6.7%
California .............. 6.0%
Tennessee ............... 4.8%
Michigan ................ 4.2%
Massachusetts ........... 3.0%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA.............. 25.6% AAA.............. 28.9%
AA............... 8.3% AA............... 3.8%
A................ 7.3% [PIE CHART] A................ 2.9% [PIE CHART]
BBB.............. 15.8% BBB.............. 21.3%
BB............... 2.1% BB............... 2.6%
Non-Rated........ 40.9% 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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Industrial Revenue ........ 17.4% Industrial Revenue ........ 17.5%
Health Care ............... 15.6% Health Care ............... 16.5%
Multi-Family Housing ...... 9.8% Other Care ................ 9.5%
Other Care ................ 9.6% Multi-Family Housing ...... 9.0%
General Purpose ........... 8.2% General Purpose ........... 7.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 7.80 years 7.47 years
</TABLE>
9
<PAGE> 52
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.1%
ALABAMA 0.7%
$ 250 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg................ 6.950% 01/01/20 $ 125,000
2,150 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem
Hosp Ser A..................................... 5.650 11/01/22 2,155,160
1,395 Valley, AL Spl Care Fac Fin Auth Rev Lanier Mem
Hosp Ser A..................................... 5.600 11/01/16 1,399,534
1,000 West Jefferson Cnty, AL Amusement & Pub Park
Auth........................................... 7.500 12/01/08 1,067,190
3,000 West Jefferson Cnty, AL Amusement & Pub Park
Auth........................................... 8.000 12/01/26 3,215,130
--------------
7,962,014
--------------
ALASKA 1.1%
2,250 Seward, AK Rev AK Sealife Cent Proj............ 7.650 10/01/16 2,420,190
8,750 Valdez, AK Marine Term Rev Pipelines Inc Proj
Ser C Rfdg..................................... 5.650 12/01/28 8,954,312
--------------
11,374,502
--------------
ARIZONA 1.8%
6,250 Chandler, AZ Indl Dev Auth Rev Chandler Finl
Cent Proj Ser 1986 (c) (g)..................... 9.875 12/01/16 5,312,341
4,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev........................................ 6.625 07/01/33 3,991,880
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr Living Fac
Rev............................................ 7.750 04/01/15 2,804,595
2,700 Maricopa Cnty, AZ Uni Sch Dist No 41 Gilbert
Rfdg (FGIC Insd)............................... *..... 01/01/08 1,746,063
2,160 Pima Cnty, AZ Indl Dev Auth Multi-Family Rev... 6.625 10/01/28 2,168,705
825 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A..... 11.000 07/01/00 884,837
2,000 Red Hawk Canyon Cmnty Facs Dist No 2 AZ Dist
Assmt Rev...................................... 6.500 12/01/12 1,984,180
--------------
18,892,601
--------------
CALIFORNIA 5.9%
12,800 Anaheim, CA Pub Fing Auth Lease Cap Apprec Sub
Pub Impts Proj Ser C (FSA Insd)................ * 09/01/29 2,533,504
9,590 Anaheim, CA Pub Fing Auth Lease Cap Apprec Sub
Pub Impts Proj Ser C (FSA Insd)................ * 09/01/30 1,802,057
16,080 Anaheim, CA Pub Fing Auth Lease Cap Apprec Sub
Pub Impts Proj Ser C (FSA Insd)................ * 03/01/37 2,155,363
1,310 California Edl Fac Auth Rev Univ of La Verne... 6.375 04/01/13 1,395,333
1,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist Spl
Tax............................................ 7.100 09/01/21 1,105,060
1,500 Colton, CA Pub Fin Auth Rev Elec Sys Impts
(Prerefunded @ 10/01/03)....................... 7.500 10/01/20 1,741,920
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd).................................... * 09/01/17 1,922,050
2,500 Corona, CA Ctfs Partn Vista Hosp Sys Inc Ser
C.............................................. 8.375 07/01/11 2,826,350
2,000 Culver City, CA Redev Fin Auth Rev Tax Alloc
Rfdg (AMBAC Insd).............................. 5.500 11/01/14 2,154,780
3,465 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd)................. * 09/01/15 1,271,967
</TABLE>
See Notes to Financial Statements
10
<PAGE> 53
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 3,480 Escondido, CA Jt Pwrs Fin Auth Lease Rev CA
Cent for the Arts (AMBAC Insd)................. * 09/01/18 $ 1,038,223
1,000 Indio, CA Pub Fin Auth Rev Tax Increment....... 6.500% 08/15/27 1,037,140
1,450 Irwindale, CA Pub Fin Auth Spl Cmnty Facs Dist
No 1 Rfdg...................................... 6.000 11/01/20 1,465,617
2,000 Lake Elsinore, CA Pub Fin Auth Local Agy Rev... 7.100 09/01/20 2,157,600
1,500 Millbrae, CA Residential Fac Rev Magnolia of
Millbrae Proj Ser A............................ 7.375 09/01/27 1,559,070
2,495 Palm Desert, CA Fin Auth Tax Alloc Rev (MBIA
Insd).......................................... 5.150 04/01/11 2,569,825
6,350 Riverside Cnty, CA Air Force Vlg West Inc Ser A
Rfdg........................................... 8.125 06/15/20 6,958,266
7,500 Riverside Cnty, CA Asset Leasing Corp Leasehold
Rev (MBIA Insd)................................ * 06/01/22 2,179,950
8,255 Riverside Cnty, CA Asset Leasing Corp Leasehold
Rev (MBIA Insd)................................ * 06/01/26 1,934,559
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC Insd)..... 5.500 08/15/10 2,150,140
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC Insd)..... 5.500 08/15/11 2,031,518
7,625 San Francisco, CA City & Cnty Redev Agy Lease
Rev Gains (Crossover Rfdg @ 07/01/04) (h)...... 0/8.500 07/01/14 6,781,523
3,300 San Francisco, CA City & Cnty Redev Fin Auth
Tax Alloc Rev.................................. 5.250 08/01/21 3,308,547
1,000 San Luis Obispo, CA Ctfs Partn Vista Hosp Sys
Inc............................................ 8.375 07/01/29 1,112,120
3,000 Santa Ana, CA Cmnty Redev Agy Tax Alloc Ser B
Rfdg........................................... 7.500 09/01/16 3,126,000
3,000 Westminster, CA Redev Agy Tax Alloc Rev
Commercial Redev Proj No 1 (Prerefunded @
08/01/02)...................................... 6.200 08/01/23 3,298,050
--------------
61,616,532
--------------
COLORADO 6.6%
11,920 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
(Prerefunded @ 08/31/05)....................... * 08/31/10 6,204,122
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)...... * 08/31/26 2,887,620
66 Arapahoe Cnty, CO Centennial Downs Metro Dist
Cash Payment Deficiency Bond (g)............... 8.090 12/01/34 63,044
378 Arapahoe Cnty, CO Centennial Downs Metro Dist
Int Ctf (e)(g)................................. 6.000 12/01/34 358,843
650 Arapahoe Cnty, CO Centennial Downs Metro Dist
Ltd Tax Bond Ser 1993 Rfdg (g)................. 8.090 12/01/34 617,869
1,000 Bowles Metro Dist CO........................... 7.750 12/01/15 1,062,350
2,000 Colorado Hlth Fac Auth Rev Baptist Home Assn
Ser A.......................................... 6.375 08/15/24 2,104,040
1,590 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj.................................... 6.850 01/01/15 1,683,158
1,060 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj.................................... 7.050 01/01/19 1,143,369
6,200 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj.................................... 9.000 01/01/25 7,325,362
</TABLE>
See Notes to Financial Statements
11
<PAGE> 54
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 6,310 Colorado Hlth Fac Auth Rev Christian Living
Campus Proj (Prerefunded @ 01/01/99) (b)....... 10.500% 01/01/19 $ 6,710,559
425 Colorado Hsg Fin Auth Single Family Residential
Rev Ser C Rfdg................................. 8.750 09/01/17 434,286
1,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 6.900 11/15/98 1,011,850
1,175 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.400 11/15/98 1,195,351
2,205 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.875 11/15/12 2,531,583
865 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)....................... 8.500 11/15/23 969,094
795 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)....................... 8.875 11/15/12 928,560
2,500 Denver, CO City & Cnty Arpt Rev Ser D.......... 7.750 11/15/13 3,139,875
795 East River Regl Santn Dist CO Var Rfdg (Var
Rate Cpn) (g).................................. 5.000 12/01/08 568,544
5,715 Greeley, CO Multi-Family Rev Hsg Mtg Creek
Stone (FHA Guaranteed)......................... 6.050 07/01/37 5,875,991
2,816 Gunnison Cnty, CO Indl Rev Bond Crested Butte
Mtn Resort Inc................................. 9.250 10/01/07 2,898,790
4,163 Himalaya Wtr & Santn Dist Adams Cnty, CO Genl
Oblig Ltd Tax Bond Ser 1995 (d)(g)............. 9.500 12/01/24 2,778,692
2,130 Lafayette, CO Indl Dev Rev Rocky Medium Term Nt
Instr Proj A................................... 7.000 10/01/18 2,137,668
2,000 Northern Metro Dist CO Adams Cnty Rfdg......... 6.500 12/01/16 2,116,460
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 9,256,927
--------------
69,299,059
--------------
CONNECTICUT 2.2%
3,740 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Windsor Proj (b).................. 7.125 11/01/24 4,301,898
3,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A (Prerefunded @ 09/01/07) (f)....... 6.400 09/01/11 3,455,100
12,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144A (f)................................ 5.750 09/01/27 12,211,800
3,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144A (f)................................ 6.400 09/01/11 3,295,290
--------------
23,264,088
--------------
DISTRICT OF COLUMBIA 0.4%
2,000 District of Columbia Ser E (FSA Insd).......... 6.000 06/01/11 2,172,380
1,615 District of Columbia A-1 Rfdg (MBIA Insd)...... 6.500 06/01/10 1,864,308
85 District of Columbia Prerefunded A-1 Rfdg...... 6.500 06/01/10 99,815
--------------
4,136,503
--------------
FLORIDA 9.5%
2,700 Brevard Cnty, FL Sch Brd Ctfs Ser A (AMBAC
Insd).......................................... 5.100 07/01/07 2,850,552
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)......................... * 02/01/18 9,411,920
4,780 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev
Cent (g)....................................... 10.250 07/01/11 4,541,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 55
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 2,010 Escambia Cnty, FL Rev ICF/MR Pensacola Care Dev
Cent Ser A (g)................................. 10.250% 07/01/11 $ 1,909,500
1,135 Fishhawk Cmnty, FL Dev Dist Spl Assmt Rev...... 7.625 05/01/18 1,224,007
3,000 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apts
Ser C.......................................... 6.610 07/01/38 3,007,380
4,000 Florida Hsg Fin Corp Rev Hsg Westchase Apts
B.............................................. 6.610 07/01/38 4,009,840
7,315 Florida St Muni Pwr Agy Rev (AMBAC Insd)....... 4.500 10/01/27 6,594,765
1,000 Heritage Harbor Cmnty Dev Dist Spl Assmt Ser
A.............................................. 6.700 05/01/19 1,000,230
1,300 Heritage Harbor Cmnty Dev Dist FL Rev Rectl.... 7.750 05/01/19 1,297,127
5,000 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj
Rfdg........................................... 5.750 04/01/18 5,087,600
980 Lake Saint Charles, FL Cmnty Dev Dist Spl Assmt
Rev............................................ 7.875 05/01/17 1,049,384
3,000 Leon Cnty, FL Edl Facs Auth Rev Southgate
Residence Hall Ser A Rfdg...................... 6.750 09/01/28 3,027,360
5,500 Miramar, FL Wastewater Impt Assmt Rev (FGIC
Insd).......................................... 6.750 10/01/25 6,218,740
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 3,758,834
1,250 North Springs, FL Impt Dist Spl Assmt Rev...... 6.250 05/01/05 1,275,538
2,640 Northern Palm Beach Cnty Impt Dist FL Wtr Ctl &
Impt Unit Dev 5A Rfdg.......................... 6.000 08/01/10 2,661,278
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Tower......................... 8.750 07/01/26 1,778,700
1,300 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg...................... 8.625 07/01/20 1,534,104
2,395 Pinellas Cnty, FL Edl Fac Auth Rev College
Harbor Proj Ser A.............................. 8.250 12/01/21 2,638,260
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth Fac
Sunnyside Prty................................. 6.700 07/01/25 6,335,580
5,175 Seminole Cnty, FL Sch Brd Ctfs Partn Ser A
(MBIA Insd).................................... 4.875 07/01/15 5,104,413
16,065 Sun N Lake of Sebring, FL Impt Dist Spl Assmt
Ser A (d)(g)................................... 10.000 12/15/11 8,032,500
10,000 Sunrise, FL Utility Sys Rev Rfdg (AMBAC
Insd).......................................... 5.000 10/01/28 9,983,700
880 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 8.500 05/01/17 973,315
1,870 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg...................................... 7.500 11/01/16 2,074,522
2,000 Volusia Cnty, FL Indl Dev Auth Bishops Glen
Proj Rfdg...................................... 7.625 11/01/26 2,227,960
--------------
99,608,109
--------------
GEORGIA 2.3%
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 20,009,660
4,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev............................................ 6.500 02/01/28 4,009,400
--------------
24,019,060
--------------
IDAHO 1.4%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc Rfdg
(Inverse Fltg)................................. 8.700 02/15/21 9,724,080
</TABLE>
See Notes to Financial Statements
13
<PAGE> 56
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
IDAHO (CONTINUED)
$ 4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev Rev
Envirosafe Services of ID Inc.................. 8.250% 11/01/02 $ 4,558,215
--------------
14,282,295
--------------
ILLINOIS 9.1%
1,850 Bridgeview, IL Tax Increment Rev Rfdg.......... 9.000 01/01/11 2,154,232
3,375 Chicago, IL O'Hare Intl Arpt Spl Fac Rev....... 6.450 05/01/18 3,574,530
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Ser A.................. 7.875 11/01/25 3,262,650
23,470 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84A......................... 8.850 05/01/18 25,828,031
2,625 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Ser B................................ 8.950 05/01/18 2,938,530
3,875 Chicago, IL Rev Chatham Ridge Tax Increment.... 10.250 01/01/07 4,039,765
1,000 Chicago, IL Tax Increment...................... 7.250 01/01/14 1,083,730
300 Crestwood, IL Tax Increment Rev Bank Qualified
Rfdg........................................... 6.000 12/01/99 305,076
1,015 Du Page Cnty, IL Sch Dist Cap Apprec (FGIC
Insd).......................................... * 02/01/14 462,292
1,000 Du Page Cnty, IL Sch Dist Cap Apprec (FGIC
Insd).......................................... * 02/01/18 361,710
2,000 Huntley, IL Increment Alloc Rev Huntley Redev
Proj Ser A..................................... 8.500 12/01/15 2,341,380
3,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A Rfdg (MBIA Insd).................... 5.400 03/01/28 3,028,350
1,405 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................... 8.000 11/15/16 1,569,048
7,200 Illinois Dev Fin Auth Rev Mercy Hsg Corp Proj
Rfdg (Prerefunded @ 08/01/04).................. 7.000 08/01/24 8,231,760
1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries
Proj........................................... 7.500 08/15/26 1,086,050
3,730 Illinois Edl Fac Auth Rev Trinity Med Cent (FSA
Insd).......................................... 6.000 07/01/28 4,031,459
3,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Ser A Rfdg..................................... 7.400 08/15/23 3,398,280
4,550 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D.......................................... 9.500 11/15/15 5,303,571
1,000 Illinois Hlth Fac Auth Rev Lifelink Corp Oblig
Group Ser B (Prerefunded @ 02/15/05)........... 8.000 02/15/25 1,205,820
4,905 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj (Prerefunded @ 11/15/04)........ 8.100 11/15/14 5,998,324
1,135 Mill Creek Wtr Reclamation Dist IL Sewage
Rev............................................ 8.000 03/01/10 1,298,792
685 Mill Creek Wtr Reclamation Dist IL Wtrwks
Rev............................................ 8.000 03/01/10 783,852
1,500 Palatine, IL Tax Increment Rev Rand/Dundee Cent
Proj........................................... 7.750 01/01/17 1,593,240
1,800 Peoria, IL Spl Tax Weaver Ridge Spl Svc Area... 8.050 02/01/17 1,990,836
2,095 Regional Tran Auth IL Ser B (AMBAC Insd)....... 8.000 06/01/17 2,864,389
7,000 Robbins, IL Res Recovery Rev................... 8.375 10/15/16 7,323,540
--------------
96,059,237
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 57
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA 0.5%
$ 825 Crawfordsville, IN Redev Comm Redev Dist Tax
Increment Rev.................................. 7.000% 02/01/12 $ 851,375
2,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14..................................... 6.700 11/01/12 2,220,960
3,190 Kokomo, IN School Bldg Corp First Mtg (AMBAC
Insd).......................................... 4.125 07/15/17 2,794,376
--------------
5,866,711
--------------
KANSAS 0.2%
985 Kansas City, KS Crawford Cnty Leavenworth
Single Family Mtg Rev (AMBAC Insd)............. * 04/01/16 148,046
1,000 Lawrence, KS Coml Dev Rev Holiday Inn Sr Ser
A.............................................. 8.000 07/01/16 1,098,210
1,000 Manhattan, KS Coml Dev Rev Holiday Inn Sr Ser A
Rfdg........................................... 8.000 07/01/16 1,078,360
--------------
2,324,616
--------------
KENTUCKY 0.3%
2,700 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys
Proj (Inverse Fltg) (MBIA Insd)................ 8.820 10/09/08 3,186,000
--------------
LOUISIANA 0.7%
4,000 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A............................... 7.125 01/01/28 3,963,480
1,910 Louisiana Pub Fac Auth Rev Student Ln Subser
A3............................................. 7.000 09/01/06 2,035,048
1,435 Webster Parish, LA Pollutn Ctl Rev Intl Paper
Co Proj Ser B Rfdg............................. 5.200 03/01/13 1,458,505
--------------
7,457,033
--------------
MAINE 0.1%
1,250 Maine Hlth & Higher Edl Fac Auth Rev Ser B (FSA
Insd).......................................... 7.000 07/01/24 1,434,075
--------------
MARYLAND 0.6%
1,440 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Multi-Family Hsg Rev Ser A Rfdg............ 8.300 05/15/17 1,459,599
1,725 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Rev Single Family Pgm Seventh Ser.......... 7.300 04/01/25 1,851,839
3,000 Prince Georges Cnty, MD Spl Oblig Spl Assmt
Woodview Ser A................................. 8.000 07/01/26 3,223,470
--------------
6,534,908
--------------
MASSACHUSETTS 3.0%
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 6,824,370
1,670 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Anne's Hosp Ser A.............................. 9.375 07/01/14 1,675,962
2,099 Massachusetts St Hsg Fin Agy Hsg Rev Insd
Rental Ser A Rfdg (AMBAC Insd)................. 6.650 07/01/19 2,266,729
1,360 Massachusetts St Indl Fin Agy Greater Lynn
Mental Hlth.................................... 6.200 06/01/08 1,367,018
2,965 Massachusetts St Indl Fin Agy Greater Lynn
Mental Hlth.................................... 6.375 06/01/18 2,982,019
1,650 Massachusetts St Indl Fin Agy Rev Wentworth
Inst Technology................................ 5.750 10/01/28 1,682,571
4,000 Massachusetts St Indl Fin Agy Rev Cent For
Autism......................................... 9.500 11/01/17 4,347,200
575 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent...................................... 8.000 12/01/06 655,000
1,085 Massachusetts St Indl Fin Agy Rev Dimmock Cmnty
Hlth Cent...................................... 8.375 12/01/13 1,279,193
</TABLE>
See Notes to Financial Statements
15
<PAGE> 58
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 $ 799,267
6,400 Massachusetts St Indl Fin Agy Rev Swr Fac Res
Ctl Composting (g)............................. 9.250 08/01/10 6,692,928
1,000 Massachusetts St Indl Fin Agy Solid Waste Disp
Rev Res Recovery Sys........................... 9.200 12/01/99 900,000
--------------
31,472,257
--------------
MICHIGAN 4.1%
2,000 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @ 05/01/04)......... 7.600 05/01/16 2,364,500
1,000 Detroit, MI Local Dev Fin Auth Ser C........... 6.850 05/01/21 1,034,590
5,000 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser A
(MBIA Insd).................................... 5.000 07/01/21 4,883,100
5,000 Detroit, MI Wtr Supply Sys Rev Rfdg (FGIC
Insd).......................................... 5.000 07/01/23 4,878,050
2,390 Meridian, MI Econ Dev Corp Ltd Oblig Rev First
Mtg Burcham Hills Ser A........................ 7.500 07/01/13 2,613,823
3,430 Meridian, MI Econ Dev Corp Ltd Oblig Rev First
Mtg Burcham Hills Ser A........................ 7.750 07/01/19 3,793,203
3,000 Michigan St Hosp Fin Auth Rev Oakwood Oblig
Group Ser A (FSA Insd)......................... 5.000 08/15/31 2,875,830
2,250 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd)............................ 5.500 10/01/18 2,294,257
9,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd)............................ 5.500 10/01/27 9,123,660
7,682 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fiber Proj........................ 8.000 12/01/27 7,343,236
1,000 Michigan St Strategic Fd Res Recovery Ltd Oblig
Rev Central Wayne Energy Rec Ser A............. 7.000 07/01/27 1,005,720
650 Saint Clair Cnty, MI Econ Dev Corp Kmart
Proj........................................... 9.500 02/01/06 651,840
--------------
42,861,809
--------------
MINNESOTA 2.0%
1,425 Columbia Heights, MN Multi-Family Crest View
Corp Proj...................................... 6.000 03/01/33 1,431,085
5,490 Eden Prairie, MN Multi-Family Hsg Rev Sterling
Ponds Proj Ser A (g)........................... 10.000 01/15/20 5,490,000
495 Eden Prairie, MN Multi-Family Hsg Rev Sterling
Ponds Proj Ser B Cap Apprec (g)................ * 01/15/20 777,051
850 Little Canada, MN Fac Rev Hsg Alt Dev Co Proj
Ser A.......................................... 6.100 12/01/17 854,786
1,450 Little Canada, MN Fac Rev Hsg Alt Dev Co Proj
Ser A.......................................... 6.250 12/01/27 1,458,106
1,750 Minnesota St Hsg Fin Agy Single Family Mtg Ser
D.............................................. 8.800 07/01/16 1,785,087
9,750 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser
A Rfdg (MBIA Insd)............................. 4.750 01/01/16 9,374,332
--------------
21,170,447
--------------
MISSISSIPPI 0.1%
1,000 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy
Res Inc Rfdg................................... 7.300 05/01/25 1,056,200
--------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 59
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI 1.2%
$ 615 Ferguson, MO Tax Increment Rev Crossings At
Halls Ferry Proj............................... 7.250% 04/01/07 $ 622,755
3,095 Ferguson, MO Tax Increment Rev Crossings At
Halls Ferry Proj............................... 7.625 04/01/17 3,155,817
675 Ferguson, MO Tax Increment Rev Crossings At
Halls Ferry Proj............................... 7.625 04/01/18 688,264
955 Jefferson Cnty, MO Indl Dev Auth Indl Rev
Cedars Hlthcare Cent Proj Ser A Rfdg........... 8.250 12/01/15 1,072,971
4,565 Missouri St Hlth & Edl Fac Auth Hlth Fac Rev
Skaggs Cmnty Hosp Rfdg......................... 9.500 05/15/13 4,670,543
1,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)......... 6.000 06/01/15 1,130,430
1,000 West Plains, MO Indl Dev Auth Hosp Rev Ozark
Med Cent....................................... 5.600 11/15/17 1,011,680
--------------
12,352,460
--------------
NEBRASKA 0.5%
2,100 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 9.862 10/17/23 2,354,625
2,200 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 11.500 09/10/30 2,466,750
--------------
4,821,375
--------------
NEVADA 0.2%
1,945 Reno, NV Redev Agy Tax Alloc Downtown Redev
Proj Ser E Rfdg................................ 5.600 09/01/09 2,082,648
--------------
NEW HAMPSHIRE 1.4%
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights..................... 7.350 01/01/18 2,193,240
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Havenwood-Heritage Heights..................... 7.450 01/01/25 2,205,200
4,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Hosp Catholic Med Cent Rfdg.................... 8.250 07/01/13 4,194,640
3,390 New Hampshire Higher Edl & Hlth Fac Auth Rev
Vly Regl Hosp.................................. 7.350 04/01/23 3,412,984
2,000 New Hampshire St Business Fin Auth Pollutn Ctl
& Solid Waste Disposal Rev..................... 7.750 01/01/22 2,326,840
--------------
14,332,904
--------------
NEW JERSEY 1.9%
2,240 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrigerated................................... 8.400 04/01/24 2,531,693
1,250 New Jersey Econ Dev Auth Rev First Mortgage
Keswick Pines Rfdg (a)......................... 5.700 01/01/18 1,261,125
1,875 New Jersey Econ Dev Auth Rev Kullman Assoc Proj
Ser A.......................................... 6.125 06/01/18 1,880,700
6,420 New Jersey Econ Dev Auth Rev First Mtg Gross
Rev Oakridge Manor Proj Rfdg................... 9.500 11/01/14 6,622,230
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A (a)................... 8.500 11/01/16 1,109,000
1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A (a)................... 8.625 11/01/25 1,670,160
3,000 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A..................................... 8.750 05/15/26 3,536,610
</TABLE>
See Notes to Financial Statements
17
<PAGE> 60
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,275 New Jersey St Edl Fac Auth Rev Felician College
of Lodi Ser D.................................. 7.375% 11/01/22 $ 1,328,231
--------------
19,939,749
--------------
NEW MEXICO 0.7%
2,250 Albuquerque, NM Retirement Fac Rev La Vida
Liena Proj Ser A Rfdg.......................... 8.850 02/01/23 2,473,042
1,000 Bernalillo Cnty, NM Multi-Family Rev Hsg Topke
Commons/Arbors Proj Ser D...................... 7.700 04/01/27 1,028,530
3,600 Farmington, NM Pollutn Ctl Rev Pub Svc Co San
Juan Proj D Rfdg............................... 6.375 04/01/22 3,914,748
--------------
7,416,320
--------------
NEW YORK 9.4%
1,195 Clifton Springs, NY Hosp & Clinic Ser B Rfdg &
Impt........................................... 7.000 01/01/05 1,255,610
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg................... 7.500 03/01/26 1,668,330
6,845 Long Island Pwr Auth NY Elec Sys Rev Genl Ser
A.............................................. 5.250 12/01/26 6,789,761
1,000 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev
Empire Sports Proj Ser A....................... 6.250 03/01/28 1,005,410
1,500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj........................................... 7.950 01/01/28 1,751,505
5,000 New York City Ser A............................ 7.000 08/01/07 5,819,300
3,000 New York City Ser D Rfdg....................... 8.000 02/01/05 3,574,680
10,330 New York City Subser A1 (Embedded Swap)........ 6.080 08/01/12 10,717,995
4,250 New York City Tran Auth Tran Fac Livingston
Plaza Proj Rfdg (FSA Insd)..................... 5.400 01/01/18 4,449,367
10,000 New York City Tran Fin Auth Rev................ 4.750 11/15/23 9,416,200
5,000 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 5,137,250
5,000 New York St Dorm Auth Rev City Univ Ser F...... 5.000 07/01/20 4,803,350
3,000 New York St Energy Resh & Dev Auth Gas Fac Rev
(MBIA Insd) (Inverse Fltg)..................... 7.427 07/08/26 3,135,000
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg)................................. 8.690 04/01/20 3,121,875
225 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Ser
B.............................................. 5.500 04/01/00 230,299
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 1,033,660
750 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Ser
B.............................................. 5.250 04/01/02 774,398
1,500 New York St Thruway Auth Hwy & Brdg Tr Fund Ser
A (Prerefunded @ 04/01/04)..................... 6.000 04/01/14 1,657,380
18,000 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg....................................... 5.000 01/01/20 17,390,340
3,000 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd).......... 6.250 11/15/06 3,363,360
</TABLE>
See Notes to Financial Statements
18
<PAGE> 61
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,500 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd).......... 6.375% 11/15/07 $ 1,696,530
2,000 New York, NY City Indl Dev Agy Civic Fac Rev
USTA Natl Tennis Cent Proj (FSA Insd).......... 6.500 11/15/09 2,275,860
7,775 Triborough Bridge & Tunnel Auth NY Rev Ser
1994A.......................................... 4.750 01/01/19 7,388,738
--------------
98,456,198
--------------
NORTH CAROLINA 0.8%
7,855 Eastern Band Cherokee Indians NC Spl Oblig Rev
Carolina Mirror Co Proj........................ 10.250 09/01/09 7,855,000
1,000 North Carolina Muni Pwr Agy No 1 Catawba
Electric Rev (MBIA Insd) (g)................... 5.125 01/01/17 995,270
--------------
8,850,270
--------------
NORTH DAKOTA 0.2%
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj........................................... 6.250 12/01/34 1,010,560
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly Square
Proj........................................... 6.375 12/01/34 1,036,810
--------------
2,047,370
--------------
OHIO 2.3%
2,000 Cleveland, OH Arpt Spl Rev Ref Continental
Airlines Inc (a)............................... 5.700 12/01/19 1,972,380
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 2,281,960
6,050 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) (GNMA Collateralized)........... 9.740 03/31/31 6,791,125
1,500 Ohio St Solid Waste Rev CSC Ltd Proj........... 8.500 08/01/22 1,597,455
3,700 Ohio St Solid Waste Rev Republic Engineered
Steels Proj.................................... 8.250 10/01/14 3,841,303
1,000 Ohio St Solid Waste Rev Republic Engineered
Steels Proj.................................... 9.000 06/01/21 1,079,790
4,490 Reynoldsburg, OH Hlth Care Fac Rev Wesley Ridge
Proj (GNMA Collateralized)..................... 6.150 10/20/38 4,856,204
--------------
23,965,217
--------------
OKLAHOMA 0.1%
1,000 Oklahoma Cnty, OK Fin Auth Epworth Villa Proj
Ser A Rfdg..................................... 7.000 04/01/25 1,045,600
--------------
OREGON 0.3%
1,245 Clatsop Care Cent Hlth Dist Oregon Rev Senior
Hsg............................................ 6.000 08/01/14 1,249,271
2,145 Clatsop Care Cent Hlth Dist Oregon Rev Senior
Hsg............................................ 6.875 08/01/28 2,151,971
--------------
3,401,242
--------------
PENNSYLVANIA 7.1%
5,255 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Usx Proj Rfdg............... 6.100 01/15/18 5,586,696
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Collateral Toledo Edison Co Proj Ser A Rfdg.... 7.750 05/01/20 6,945,120
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Berks Vlg
Inc Proj Rfdg.................................. 7.700 05/15/22 1,121,600
</TABLE>
See Notes to Financial Statements
19
<PAGE> 62
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 4,000 Cambria Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Bethlehem Steel Corp Proj Rfdg................. 7.500% 09/01/15 $ 4,500,800
1,670 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj (Prerefunded @ 07/01/01)............. 8.500 07/01/13 1,876,145
2,000 Cumberland Cnty, PA Auth Rev First Mtg Carlisle
Hosp & Hlth Rfdg............................... 6.800 11/15/14 2,188,440
3,000 Dauphin Cnty, PA Genl Auth Rev Office & Pkg
Riverfront Office.............................. 6.000 01/01/25 2,998,020
1,500 Delaware Cnty, PA Auth First Mtg Rev Riddle Vlg
Proj........................................... 7.000 06/01/21 1,583,700
2,890 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd)... * 09/01/21 875,757
2,405 Harrisburg, PA Cap Apprec Rfdg Notes Ser F
(AMBAC Insd)................................... * 03/15/16 982,442
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd).................................... 7.570 01/08/98 2,831,250
2,000 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00).......... 8.875 10/01/20 2,239,100
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 9,344,241
500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg........................ 7.000 12/01/10 538,155
2,500 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The Meadowood Corp Rfdg........................ 7.250 12/01/15 2,712,300
6,000 Montgomery Cnty, PA Indl Dev Auth Rev First Mtg
The
Meadowood Corp Rfdg............................ 7.400 12/01/20 6,513,840
1,000 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy............................. 7.750 09/01/24 1,115,110
3,000 Pennsylvania Econ Dev Fin Auth Exempt Fac Rev
MacMillan Ltd Partnership Proj................. 7.600 12/01/20 3,356,280
3,000 Pennsylvania Econ Dev Fin Auth Res Recovery Rev
Colver Proj Ser D.............................. 7.050 12/01/10 3,346,110
5,000 Philadelphia, PA Auth for Indl Dev Rev
Long-Term Care Maplewood....................... 8.000 01/01/24 5,560,100
5,170 Pittsburgh, PA Wtr & Swr Auth Wtr & Swr Sys Rev
(FSA Insd)..................................... 5.000 09/01/19 5,080,197
1,500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Rfdg........................................... 7.250 01/15/17 1,636,665
2,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Rfdg........................................... 7.350 01/15/22 2,195,420
--------------
75,127,488
--------------
RHODE ISLAND 0.2%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A...... 8.000 09/01/24 2,207,460
--------------
SOUTH CAROLINA 0.7%
115 Charleston Cnty, SC Ctfs Partn Ser B (MBIA
Insd).......................................... 7.000 06/01/19 130,463
2,385 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA Insd)........... 7.000 06/01/19 2,766,934
1,000 Oconee Cnty, SC Indl Rev Bond Johnson Ctl Inc
Ser 84 (Var Rate Cpn).......................... 6.157 06/15/04 1,000,000
</TABLE>
See Notes to Financial Statements
20
<PAGE> 63
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 4,000 South Carolina St Hsg Fin & Dev Auth
Multi-Family Rev............................... 6.750% 05/01/28 $ 4,041,720
--------------
7,939,117
--------------
SOUTH DAKOTA 0.2%
805 Keystone, SD Econ Dev Rev Wtr Quality Mgmt Corp
Ser A.......................................... 5.500 12/15/08 809,114
1,810 Keystone, SD Econ Dev Rev Wtr Quality Mgmt Corp
Ser A.......................................... 6.000 12/15/18 1,818,380
--------------
2,627,494
--------------
TENNESSEE 4.7%
2,750 Chattanooga, TN Hlth Edl & Hsg Fac Board Rev... 5.000 12/01/18 2,699,840
21,130 Chattanooga, TN Hlth Edl & Hsg Fac Board Rev... 5.000 12/01/28 20,408,622
3,000 SCA Tax Exempt Trust Multi-Family Mtg Memphis
Hlth Edl Rev Bond Receipt Ser A6 (FSA Insd).... 7.350 01/01/30 3,305,700
4,550 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
ICF/MR Open Arms Dev Cent Ser A................ 9.750 08/01/19 4,823,091
4,610 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
ICF/MR Open Arms Dev Cent Ser C................ 9.750 08/01/19 4,886,692
2,000 Springfield, TN Hlth & Edl Fac Brd Hosp Rev
Jesse Holman Jones Hosp Proj................... 8.250 04/01/12 2,316,980
6,185 Sullivan Cnty, TN Hlth Edl & Hsg Facs Board
Rev............................................ 8.410 11/01/19 7,143,231
1,160 Trenton, TN Hlth & Edl Facs Board Rev.......... 10.000 11/01/20 1,044,000
3,240 Trenton, TN Hlth & Edl Facs Board Rev
Rha/Trenton Mr Inc Proj Ser A.................. 10.000 11/01/19 2,916,000
--------------
49,544,156
--------------
TEXAS 7.5%
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev High Plains
Baptist Hosp (Inverse Fltg) (FSA Insd)......... 9.058 01/01/22 2,337,500
2,000 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev................................... 7.600 12/01/17 2,021,240
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd)............. 6.000 11/15/12 1,119,080
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev Rfdg
Baptist Hlth Sys Ser A (MBIA Insd)............. 6.000 11/15/13 2,654,589
9,000 Brazos River Auth TX Rev Houston Inds Proj B... 5.125 11/01/20 8,869,860
665 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg....... * 08/01/00 569,340
1,165 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg....... * 08/01/01 924,486
335 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg....... * 08/01/02 246,647
1,825 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg....... * 08/01/11 652,602
775 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg....... 8.750 08/01/11 803,148
2,670 Dallas Cnty, TX Flood Ctl Dist No 1 Rfdg....... 8.750 08/01/12 2,766,974
1,635 Garland, TX Independent Sch Dist............... 4.000 02/15/15 1,427,437
2,500 Garland, TX Indl Dev Auth Rev Bond Ashland Oil
Proj Ser 84 Rfdg (Var Rate Cpn)................ 5.3625 04/01/04 2,501,850
</TABLE>
See Notes to Financial Statements
21
<PAGE> 64
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,500 Houston, TX Arpt Sys Rev Spl Fac Continental
Airl Term Impt Ser B........................... 6.125% 07/15/27 $ 2,622,775
6,500 Lewisville, TX Indpt Sch Dist.................. 5.000 08/15/18 6,390,345
7,750 Lewisville, TX Indpt Sch Dist.................. 5.000 08/15/20 7,592,055
5,000 Lower Neches Vly Auth TX Indl Dev Corp Rev..... 5.550 03/01/33 5,144,650
3,000 Matagorda Cnty, TX Nav Dist No 1 Rev (MBIA
Insd).......................................... 5.150 11/01/29 2,960,730
1,070 Mc Allen, TX Dev Corp Inc Sales Tax Rev (FSA
Insd).......................................... 5.250 02/15/18 1,067,978
1,000 Nacogdoches, TX Indl Dev Auth Inc Pollutn Ctl
Rev............................................ 5.300 12/01/11 1,031,000
1,180 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg... * 08/15/17 423,856
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg... * 08/15/20 355,872
1,175 Pottsboro, TX Indpt Sch Dist Cap Apprec Rfdg... * 08/15/23 299,778
6,000 Rockwall, TX Indpt Sch Dist Cap Apprec Rfdg
(a)............................................ * 08/15/18 2,039,700
2,563 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs........................................... 7.250 08/15/11 2,616,286
8,000 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev
(GNMA Collateralized).......................... 6.900 07/02/24 8,961,280
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (FGIC Insd)...... 6.750 01/01/15 2,310,060
2,000 Texas St Tpk Auth Dallas North Thruway Rev
Addison Arpt Toll Tunnel Proj (FGIC Insd)...... 6.600 01/01/23 2,293,180
5,000 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics....... 8.200 03/15/21 5,529,850
--------------
78,534,148
--------------
UTAH 1.5%
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/15 1,059,590
1,165 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 8.000 09/01/20 1,250,197
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/25 1,058,360
4,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)............................... 5.750 07/01/19 4,260,240
260 Saint George, UT Indl Dev Rev Kmart Corp Ser
1984A.......................................... 10.750 10/15/08 263,328
3,270 Salt Lake Cnty, UT Hsg Auth Multi-Family Hsg
Rev (FHA Gtd).................................. 6.375 11/01/33 3,474,440
2,500 Tooele Cnty, UT Pollutn Ctl Rev Rfdg Laidlaw
Environmental Ser A............................ 7.550 07/01/27 2,778,675
1,395 Utah St Hsg Fin Agy Single Family Mtg Mezz A1
(AMBAC Insd)................................... 6.100 07/01/13 1,475,338
--------------
15,620,168
--------------
VIRGINIA 1.7%
1,000 Dulles Town Cent Cmnty Dev Auth Dulles Town
Cent Proj...................................... 6.250 03/01/26 1,013,960
12,500 Fairfax Cnty, VA Indl Dev Auth Hlth Inova Hlth
Ser A Rfdg..................................... 5.000 08/15/25 12,111,500
2,650 Fairfax Cnty, VA Park Auth Park Fac Rev........ 6.625 07/15/20 2,860,728
1,500 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt
Fac Ser A...................................... 7.450 01/01/09 1,661,970
--------------
17,648,158
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 65
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WASHINGTON 0.3%
$ 1,000 Spokane Cnty, WA Indl Dev Corp Solid Waste Disp
Rev............................................ 7.600% 03/01/27 $ 1,133,360
5,500 Washington St Pub Pwr Supply Comp Interest Ser
C Rfdg (MBIA Insd)............................. * 07/01/17 2,012,945
--------------
3,146,305
--------------
WISCONSIN 1.5%
800 Baldwin, WI Hosp Rev Mtg Ser A................. 6.125 12/01/18 807,928
2,590 Baldwin, WI Hosp Rev Mtg Ser A................. 6.375 12/01/28 2,615,382
1,000 Oconto Falls, WI Cmnty Dev Oconto Falls Tissue
Inc Proj....................................... 7.750 12/01/22 1,051,390
4,105 Wisconsin St Hlth & Edl Fac Auth Rev Chippewa
Vly Hosp Ser F Rfdg............................ 9.500 11/15/12 4,765,987
2,070 Wisconsin St Hlth & Edl Fac Auth Rev Eau Claire
Manor.......................................... 9.625 06/01/13 2,097,283
1,500 Wisconsin St Hlth & Edl Facs Auth Rev
Franciscan Sisters Christian Ser A............. 5.500 02/15/28 1,506,930
3,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home
Proj........................................... 7.500 07/01/26 3,311,430
--------------
16,156,330
--------------
PUERTO RICO 1.1%
1,647 Centro de Recaudaciones de Ingresos Muni Ctfs
Partn PR....................................... 6.850 10/17/03 1,712,273
10,000 Puerto Rico Comwlth Hwy & Tran Auth Tran Rev
Ser A.......................................... 4.750 07/01/38 9,429,600
--------------
11,141,873
--------------
TOTAL LONG-TERM INVESTMENTS 98.1%
(Cost $977,409,074)....................................................... 1,032,282,106
SHORT-TERM INVESTMENTS 0.6%
(Cost $6,178,571)......................................................... 6,071,428
--------------
TOTAL INVESTMENTS 98.7%
(Cost $983,587,645)....................................................... 1,038,353,534
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%................................. 13,508,448
--------------
NET ASSETS 100.0%.......................................................... $1,051,861,982
==============
</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
23
<PAGE> 66
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $983,587,645)....................... $1,038,353,534
Cash........................................................ 251,714
Receivables:
Interest.................................................. 19,402,875
Fund Shares Sold.......................................... 4,287,348
Investments Sold.......................................... 738,849
Other....................................................... 43,136
--------------
Total Assets.......................................... 1,063,077,456
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,878,498
Income Distributions...................................... 2,603,362
Fund Shares Repurchased................................... 1,003,103
Distributor and Affiliates................................ 1,002,767
Investment Advisory Fee................................... 406,616
Accrued Expenses............................................ 189,542
Trustees' Deferred Compensation and Retirement Plans........ 131,586
--------------
Total Liabilities..................................... 11,215,474
--------------
NET ASSETS.................................................. $1,051,861,982
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,105,408,074
Net Unrealized Appreciation................................. 54,765,889
Accumulated Distributions in Excess of Net Investment
Income.................................................... (10,189,453)
Accumulated Net Realized Loss............................... (98,122,528)
--------------
NET ASSETS.................................................. $1,051,861,982
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $733,567,065 and 49,433,838 shares of
beneficial interest issued and outstanding)........... $ 14.84
Maximum sales charge (4.75%* of offering price)......... .74
--------------
Maximum offering price to public........................ $ 15.58
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $261,951,697 and 17,656,586 shares of
beneficial interest issued and outstanding)........... $ 14.84
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $56,343,220 and 3,798,213 shares of
beneficial interest issued and outstanding)........... $ 14.83
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
24
<PAGE> 67
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $32,271,647
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,387,788
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $869,996, $1,227,103 and $233,394,
respectively)............................................. 2,330,493
Shareholder Services........................................ 616,723
Legal....................................................... 26,288
Custody..................................................... 20,715
Trustees Fees and Expenses.................................. 6,786
Other....................................................... 288,532
-----------
Total Expenses.......................................... 5,677,325
-----------
NET INVESTMENT INCOME....................................... $26,594,322
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $42,088)....................................... $(1,451,804)
Options................................................... 604,754
Futures................................................... (2,538,370)
-----------
Net Realized Loss........................................... (3,385,420)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 50,697,747
-----------
End of the Period:
Investments............................................. 54,765,889
-----------
Net Unrealized Appreciation During the Period............... 4,068,142
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 682,722
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $27,277,044
===========
</TABLE>
See Notes to Financial Statements
25
<PAGE> 68
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 26,594,322 $ 53,336,303
Net Realized Gain/Loss.............................. (3,385,420) 391,354
Net Unrealized Appreciation During the Period....... 4,068,142 24,022,309
-------------- -------------
Change in Net Assets from Operations................ 27,277,044 77,749,966
-------------- -------------
Distributions from Net Investment Income............ (26,594,322) (53,336,303)
Distributions in Excess of Net Investment Income.... (1,143,211) (664,960)
-------------- -------------
Total Distributions from and in Excess of Net
Investment Income*.............................. (27,737,533) (54,001,263)
-------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (460,489) 23,748,703
-------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 129,744,674 198,765,477
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 12,066,184 23,168,036
Cost of Shares Repurchased.......................... (63,960,393) (135,758,091)
-------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... 77,850,465 86,175,422
-------------- -------------
TOTAL INCREASE IN NET ASSETS........................ 77,389,976 109,924,125
NET ASSETS:
Beginning of the Period............................. 974,472,006 864,547,881
-------------- -------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $10,189,453 and $9,046,242, respectively)...... $1,051,861,982 $ 974,472,006
============== =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $ (20,471,505) $(41,926,549)
Class B Shares.................................... (6,109,335) (10,667,625)
Class C Shares.................................... (1,156,693) (1,407,089)
--------------- ------------
$ (27,737,533) $(54,001,263)
=============== ============
</TABLE>
See Notes to Financial Statements
26
<PAGE> 69
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $14.845 $14.474 $14.984 $13.848 $15.629
------- ------- ------- ------- -------
Net Investment Income.......... .413 .895 .963 1.024 .956
Net Realized and Unrealized
Gain/Loss.................... .003 .376 (.513) 1.072 (1.717)
------- ------- ------- ------- -------
Total from Investment
Operations..................... .416 1.271 .450 2.096 (.761)
Less Distributions from and in
Excess of Net Investment
Income......................... .422 .900 .960 .960 1.020
------- ------- ------- ------- -------
Net Asset Value, End of the
Period......................... $14.839 $14.845 $14.474 $14.984 $13.848
======= ======= ======= ======= =======
Total Return (a)................. 2.88%* 9.05% 3.21% 15.52% (4.93%)
Net Assets at End of the Period
(In millions).................. $733.6 $706.3 $671.9 $665.8 $603.0
Ratio of Expenses to Average Net
Assets (b)..................... .91% .94% .99% .95% .87%
Ratio of Net Investment Income to
Average Net Assets (b)......... 5.51% 6.09% 6.60% 7.05% 6.48%
Portfolio Turnover............... 50%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(a) 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
27
<PAGE> 70
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $14.844 $14.474 $14.983 $13.850 $15.621
------- ------- ------- ------- -------
Net Investment Income................... .350 .774 .843 .908 .841
Net Realized and Unrealized Gain/Loss... .009 .384 (.506) 1.071 (1.718)
------- ------- ------- ------- -------
Total from Investment Operations.......... .359 1.158 .337 1.979 (.877)
Less Distributions from and in Excess of
Net Investment Income................... .367 .788 .846 .846 .894
------- ------- ------- ------- -------
Net Asset Value, End of the Period........ $14.836 $14.844 $14.474 $14.983 $13.850
======= ======= ======= ======= =======
Total Return (a).......................... 2.50%* 8.23% 2.40% 14.62% (5.69%)
Net Assets at End of the Period (In
millions)............................... $262.0 $229.6 $173.8 $137.9 $112.4
Ratio of Expenses to Average Net Assets
(b)..................................... 1.67% 1.71% 1.75% 1.70% 1.64%
Ratio of Net Investment Income to Average
Net Assets (b).......................... 4.74% 5.30% 5.84% 6.25% 5.70%
Portfolio Turnover........................ 50%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
28
<PAGE> 71
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $14.842 $14.474 $14.987 $13.846 $15.610
------- ------- ------- ------- -------
Net Investment Income................... .353 .778 .851 .910 .824
Net Realized and Unrealized Gain/Loss... .006 .378 (.518) 1.077 (1.694)
------- ------- ------- ------- -------
Total from Investment Operations.......... .359 1.156 .333 1.987 (.870)
Less Distributions from and in Excess of
Net Investment Income................... .367 .788 .846 .846 .894
------- ------- ------- ------- -------
Net Asset Value, End of the Period........ $14.834 $14.842 $14.474 $14.987 $13.846
======= ======= ======= ======= =======
Total Return (a).......................... 2.43%* 8.23% 2.33% 14.70% (5.62%)
Net Assets at End of the Period (In
millions)............................... $56.3 $38.6 $18.8 $9.5 $7.6
Ratio of Expenses to Average Net Assets
(b)..................................... 1.66% 1.71% 1.75% 1.69% 1.64%
Ratio of Net Investment Income to Average
Net Assets (b).......................... 4.71% 5.24% 5.84% 6.19% 5.71%
Portfolio Turnover........................ 50%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
29
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Tax Free High Income Fund, formerly known as Van Kampen American
Capital Tax Free High Income Fund, (the "Fund") is organized as a series of the
Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income taxes primarily
through investment in a diversified portfolio of medium and lower grade
municipal securities. The Fund commenced investment operations on June 28, 1985.
The distribution of the Fund's Class B and Class C shares commenced on May 1,
1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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
30
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $92,653,257 which expires between December 31,
1999 and December 31, 2005. Net realized gains or losses may differ for
financial reporting and tax purposes primarily as a result of the deferral of
past October 31 losses and the capitalization of reorganization and
restructuring costs for tax purposes.
At June 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $985,940,421, the aggregate gross unrealized
appreciation is $70,051,592 and the aggregate gross unrealized depreciation is
$17,638,479, resulting in net unrealized appreciation of $52,413,113.
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.
31
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------
<S> <C>
First $500 million...................................... .50 of 1%
Over $500 million....................................... .45 of 1%
</TABLE>
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $12,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $102,800 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting, cash management 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 six months ended
June 30, 1998, the Fund recognized expenses of approximately $426,000. 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.
32
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 June 30, 1998, capital aggregated $788,911,394, $260,451,038 and
$56,045,642 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 4,233,096 $ 62,831,334
Class B............................... 3,180,368 47,229,458
Class C............................... 1,327,094 19,683,882
----------- -------------
Total Sales............................. 8,740,558 $ 129,744,674
=========== =============
Dividend Reinvestment:
Class A............................... 610,338 $ 9,052,515
Class B............................... 158,750 2,354,235
Class C............................... 44,480 659,434
----------- -------------
Total Dividend Reinvestment............. 813,568 $ 12,066,184
=========== =============
Repurchases:
Class A............................... (2,986,122) $ (44,311,356)
Class B............................... (1,148,948) (17,049,285)
Class C............................... (175,439) (2,599,752)
----------- -------------
Total Repurchases....................... (4,310,509) $ (63,960,393)
=========== =============
</TABLE>
33
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $761,338,901, $227,916,630 and
$38,302,078 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................ 6,584,725 $ 95,897,790
Class B................................ 5,414,821 78,851,895
Class C................................ 1,645,028 24,015,792
---------- -------------
Total Sales.............................. 13,644,574 $ 198,765,477
========== =============
Dividend Reinvestment:
Class A................................ 1,260,959 $ 18,367,805
Class B................................ 276,853 4,036,121
Class C................................ 52,358 764,110
---------- -------------
Total Dividend Reinvestment.............. 1,590,170 $ 23,168,036
========== =============
Repurchases:
Class A................................ (6,688,927) $ (97,347,533)
Class B................................ (2,235,801) (32,600,924)
Class C................................ (397,427) (5,809,634)
---------- -------------
Total Repurchases........................ (9,322,155) $(135,758,091)
========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the 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>
34
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, Van Kampen, as distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $208,400 and CDSC on redeemed shares of approximately $323,600.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $575,779,555 and $501,935,057,
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 on the following page 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.
35
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997........... -0- $ -0-
Options Written and Purchased (Net)........ 9,650 858,791
Options Terminated in Closing Transactions
(Net).................................... (4,550) (485,893)
Options Expired (Net)...................... (5,100) (372,898)
------- -------------
Outstanding at June 30, 1998............... -0- $ -0-
======= =============
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997......................... 448
Futures Opened........................................... 7,462
Futures Closed........................................... (7,910)
------
Outstanding at June 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,
36
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended June 30, 1998 are payments retained by Van Kampen
of approximately $1,062,700.
37
<PAGE> 80
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
Global Equity
Global Equity Allocation
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 and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
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.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a 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.VAN-KAMPEN.COM and selecting Investors' Place
38
<PAGE> 81
VAN KAMPEN TAX FREE HIGH INCOME FUND
BOARD OF 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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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 December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
39
<PAGE> 82
VAN KAMPEN TAX FREE HIGH INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
40
<PAGE> 83
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
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
</TABLE>
CAI SAR 8/98
<PAGE> 84
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc. [PHOTO]
You can be assured that the
change in your fund's name will not
affect its management or daily
operations. You will begin seeing the DENNIS J. MCDONNELL AND DON G. POWELL
application of this change with this
report. In addition, as of August 31,
your fund will be listed in the daily newspapers by share class under the
heading "Van Kampen Funds." For your convenience, we have enclosed a separate
brochure that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies
Continued on page two
1
<PAGE> 85
were beginning to recover. When weakness in the Japanese yen undercut that
recovery, long-term interest rates resumed their decline.
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
Sincerely,
[sig]
Don G. Powell
Chairman
Van Kampen
Investment Advisory Corp.
[sig]
Dennis J. McDonnell
President
Van Kampen
Investment Advisory Corp.
2
<PAGE> 86
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV(1).... 2.61% 2.18% 2.18%
Six-month total return(2)................. (0.70%) (0.82%) 1.18%
One-year total return(2).................. 5.12% 4.79% 6.79%
Five-year average annual total
return(2)............................... 5.03% 4.90% N/A
Ten-year average annual total return(2)... 7.74% N/A N/A
Life-of-Fund average annual total
return(2)............................... 7.86% 5.26% 4.74%
Commencement date......................... 12/13/85 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)...................... 4.66% 4.10% 4.10%
Taxable equivalent distribution rate(4)... 8.03% 7.07% 7.07%
SEC Yield(5).............................. 4.00% 3.42% 3.37%
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 June 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.
3
<PAGE> 87
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 88
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 89
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 first half of the Fund's fiscal year. The team includes Joseph A.
Piraro, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries. In addition, the
difference between the yields on municipal securities of varying credit quality
has been very narrow.
Q ARE THERE ANY MARKET CONDITIONS SPECIFIC TO CALIFORNIA THAT INFLUENCED THE
FUND?
A California has a robust economy, as reflected by the uptrends in real
estate, construction, and tourism. It seems that the Asian crisis has had
a limited effect on California's economy. The employment picture has
improved, and other factors--such as the deregulation of utilities--have had a
minimal impact on credit concerns. We can't
6
<PAGE> 90
even blame anything on El Nino, because there hasn't been serious crop damage or
any weather-related disasters.
Still, California market participants tend to pay close attention to
credit quality because of the memories of the Orange County crisis. But even
without this bias, you can see why investors would be attracted to tax-exempt
municipal bonds. As we mentioned, with long-term AAA-rated insured municipals
providing around 93 percent of the yield available on 30-year Treasuries, which
are taxable, you're getting nearly as much income--even before the tax
advantage--and you're not giving up much in terms of credit quality.
Q HOW HAVE THESE CONDITIONS AFFECTED THE WAY YOU MANAGE THE FUND?
A The strong supply of municipal bonds benefited mutual fund portfolio
managers, as there were plenty of quality bond issues from which to
choose. Insured issuance accounted for about 63 percent of the state's
supply through the end of the first quarter, allowing us ample opportunity to
keep the portfolio well-diversified.
We are always on the lookout for signs that would indicate a change in a
sector's relative value. We believe it's too early to completely write off the
impact of Asia's financial turmoil, for example. With California's proximity to
that region, and its status as a shipping and import/export hub, any ripples
that rock Asia are likely to be felt to some extent in California.
Having said that, we really haven't seen any repercussions that would
require immediate action. The portfolio structure was not radically altered, as
you can see by our top five allocations by sector as of June 30, 1998: tax
district issues (21 percent), public education (17 percent), public building (15
percent), general purpose issues (12 percent), and water & sewer (11 percent).
For additional portfolio highlights, please refer to page nine.
Q WERE YOU PLEASED WITH THE FUND'S PERFORMANCE DURING THE REPORTING PERIOD?
A For the most part, yes. We've put together a string of fairly solid
quarters, placing the Fund in the middle to upper portion of its peer
group. For the first two quarters through June 30, 1998, the Fund achieved
a total return of 2.61 percent(1) (Class A shares at net asset value). By
comparison, the Lehman Brothers Municipal Bond Index produced a total return of
2.69 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 dividend of $0.0735 was unchanged during the reporting period.
The Fund's distribution rate was 4.66 percent(3) as of June 30, 1998, which
means the taxable-equivalent distribution rate for an investor in the 42 percent
combined federal and state income tax bracket would be 8.03 percent(4). Please
refer to the chart on page three for additional Fund performance results.
7
<PAGE> 91
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE
FUND?
A We believe the low interest-rate environment will continue in the near
term, but we are not overly bullish on the market as a whole. While low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the impact of raising interest rates in the second half of the
year if the economy gains steam and threatens to drive inflation higher.
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion set in 1993, and the California market will
probably play a big role in this surge of volume.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
bonds and lend support to bond prices.
The nation's economy remains moderately strong, yet we don't see any real
inflationary pressure, so we're at a stalemate with regard to whether the Fed
will be moved to lift interest rates. In any case, uncertainty in the minds of
investors tends to be good for the insured market. We believe we can look
forward to another six months of solid performance.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Joseph A. Piraro
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 92
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TOP TEN HOLDINGS AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
San Joaquin Hills, CA Transportation Corridor Agency Toll Road Revenue ...................... 4.0%
San Jose, CA Finance Authority Revenue Convention Project ................................... 3.5%
Corona, CA Redevelopment Agency Tax Allocation Redevelopment Project Area A ................. 3.2%
Modesto, CA Irrigation District Financing Authority Revenue Domestic Water Project .......... 2.8%
South Orange County, CA Public Finance Authority Special Tax Revenue Senior Lien ............ 2.5%
Grossmont, CA Union High School District Certificates of Participation ...................... 2.5%
California Housing Finance Agency Revenue Home Mortgage ..................................... 2.3%
Hayward, CA Certificates of Participation Civic Center Project .............................. 2.2%
Bakersfield, CA Certificates of Participation Convention Center Expansion Project ........... 2.2%
South Orange County, CA Public Finance Authority Special Tax Revenue Senior Lien ............ 2.0%
</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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Tax District ......... 21.3% Tax District ......... 20.5%
Public Education ..... 17.0% Public Education ..... 17.0%
Public Building ...... 15.2% General Purpose ...... 15.0%
General Purpose ...... 12.0% Public Building ...... 14.6%
Water & Sewer ........ 11.1% Health Care .......... 7.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 8.00 years 8.08 years
</TABLE>
9
<PAGE> 93
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 98.1%
$2,000 Anaheim, CA Pub Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)............................... 8.930% 12/28/18 $ 2,560,000
1,000 Antioch Area Pub Fac Fin Agy CA Spl Tax Cmnty
Fac Dist (FGIC Insd)............................ 5.000 08/01/18 980,700
3,675 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)...................... 5.800 04/01/17 3,914,316
3,000 Bakersfield, CA Ctfs Partn Convention Cent
Expansion Proj (MBIA Insd)...................... 5.875 04/01/22 3,206,370
1,000 Banning, CA Ctfs Partn Administration Bldg Proj
Ser A Rfdg (MBIA Insd).......................... 5.500 11/01/20 1,037,970
3,000 Bay Area Govt Assn CA Rev Tax Alloc CA Redev Agy
Pool Ser A2 (FSA Insd).......................... 6.400 12/15/14 3,375,750
1,000 Brawley, CA Ctfs Partn Wtr Sys Impt Proj Rfdg
(MBIA Insd)..................................... 5.000 12/01/24 976,320
1,000 Brea & Olinda, CA Uni Sch Dist Ctfs Partn Sr
High Sch Pgm Ser A Rfdg (FSA Insd).............. 6.000 08/01/09 1,083,420
1,000 California Edl Fac Auth Rev Loyola Marymount
Univ Rfdg (MBIA Insd)........................... 5.000 10/01/17 990,770
2,000 California Hlth Fac Fin Auth Rev Insd Sutter
Hlth Ser A Rfdg (FSA Insd)...................... 5.250 08/15/27 2,004,060
2,000 California Hlth Fac Fin Auth Rev Adventist Hlth
Ser A Rfdg (MBIA Insd).......................... 6.500 03/01/14 2,140,680
2,000 California Hlth Fac Fin Auth Rev Kaiser
Permanente Ser A (FSA Insd)..................... 5.550 08/15/25 2,043,900
4,000 California Hsg Fin Agy Rev Home Mtg Ser A (MBIA
Insd)........................................... 5.850 08/01/16 4,229,440
15 California Hsg Fin Agy Rev Hsg Ser B (MBIA
Insd)........................................... 8.625 08/01/15 15,579
1,135 California Pub Cap Impt Fin Auth Rev Pooled Proj
Ser B (BIGI Insd)............................... 8.100 03/01/18 1,161,502
1,050 California Spl Dist Assn Fin Corp Ctfs Partn Spl
Dists Fin Pgm Ser DD (FSA Insd)................. 5.625 01/01/27 1,100,054
1,250 California St (FGIC Insd)....................... 6.250 09/01/12 1,447,287
240 California St (MBIA Insd)....................... 6.000 10/01/14 259,982
1,000 California St (Prerefunded @ 10/01/02) (MBIA
Insd)........................................... 6.000 10/01/14 1,094,540
1,000 California St Univ Fresno Assn Inc Rev Auxiliary
Residence Student Proj (MBIA Insd).............. 6.250 02/01/17 1,108,010
1,000 California Statewide Cmntys Dev Auth Ctfs Partn
San Diego St Univ Fndtn Rfdg (AMBAC Insd)....... 5.250 03/01/22 1,001,950
1,570 California Statewide Cmntys Dev Auth Rev Ctfs
Partn Insd Children's Hosps Rfdg (MBIA Insd).... 6.000 06/01/10 1,764,507
</TABLE>
See Notes to Financial Statements
10
<PAGE> 94
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$2,000 Capistrano, CA Uni Sch Dist Cmnty Fac Dist Spl
Tax (MBIA Insd) (a)............................. 5.000% 09/01/18 $ 1,971,120
2,000 Castaic Lake Wtr Agy CA Ctfs Partn Wtr Sys Impt
Proj Ser A Rfdg (MBIA Insd)..................... 7.000 08/01/12 2,441,980
1,205 Channel Islands Beach CA Cmnty Svcs Dist Ctfs
Partn (FSA Insd)................................ 5.700 09/01/21 1,274,842
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA Insd)...... 6.200 09/01/18 1,216,881
2,350 Chino, CA Uni Sch Dist Ctfs Partn Master Lease
Pgm (FSA Insd).................................. 6.250 03/01/09 2,617,665
1,500 Chino, CA Uni Sch Dist Ctfs Partn Master Lease
Pgm (FSA Insd).................................. 6.000 03/01/14 1,641,015
445 Colton, CA Jt Uni Sch Dist Cmnty Fac Dist Spl
Tax Southridge Vlg Rfdg (FSA Insd).............. 5.900 09/01/14 445,721
2,000 Colton, CA Pub Fin Auth Rev Tax Alloc Ser A
(MBIA Insd)..................................... 5.000 08/01/18 1,971,240
20 Concord, CA Redev Agy Tax Alloc Cent Concord
Redev Proj Ser 3 (BIGI Insd).................... 8.000 07/01/18 20,796
1,000 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)..................... 7.800 06/01/06 1,055,700
500 Contra Costa Cnty, CA Ctfs Partn Contra Costa
Cnty Pub Fac Co (BIGI Insd)..................... 7.800 06/01/07 527,850
1,550 Contra Costa, CA Wtr Auth Wtr Treatment Rev Ser
A Rfdg (FGIC Insd).............................. 5.750 10/01/14 1,653,509
5,165 Corona, CA Redev Agy Tax Alloc Redev Proj Area A
Ser A Rfdg (FGIC Insd).......................... 6.250 09/01/13 5,754,946
1,150 El Centro, CA Redev Agy Tax El Centro Redev Proj
Rfdg (MBIA Insd)................................ 5.500 11/01/26 1,191,653
2,000 Fairfield Suisun, CA Swr Dist Swr Rev Ser A Rfdg
(MBIA Insd)..................................... 6.250 05/01/16 2,144,520
1,000 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)... 6.000 10/01/12 1,077,170
1,400 Folsom, CA Pub Fin Auth Rev Rfdg (AMBAC Insd)... 6.000 10/01/19 1,515,430
2,000 Folsom, CA Spl Tax Cmnty Fac Dist No 2 Rfdg
(Connie Lee Insd)............................... 5.250 12/01/19 2,007,580
1,745 Gilroy, CA Uni Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd)........................... 5.875 09/01/06 1,919,779
1,810 Gilroy, CA Uni Sch Dist Ctfs Partn Measure J Cap
Projs Rfdg (FSA Insd)........................... 6.250 09/01/12 2,006,367
20,000 Grossmont, CA Union High Sch Dist Ctfs Partn
(MBIA Insd)..................................... * 11/15/21 4,461,200
4,000 Hayward, CA Ctfs Partn Civic Cent Proj (MBIA
Insd)........................................... 5.250 08/01/26 4,010,680
1,250 Hemet, CA Uni Sch Dist Ctfs Partn Nutrition Cent
Proj (FSA Insd)................................. 5.875 04/01/27 1,342,700
1,545 Imperial, CA Irrig Dist Elec Rev Sys Rfdg (MBIA
Insd) (a)....................................... 5.000 11/01/18 1,522,597
1,225 Lincoln, CA Uni Sch Dist (MBIA Insd)............ 5.600 09/01/26 1,279,464
</TABLE>
See Notes to Financial Statements
11
<PAGE> 95
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,835 Local Govt Fin Auth CA Rev Cap Apprec San
Francisco Redev (MBIA Insd) (Prerefunded @
08/01/04)....................................... * 08/01/08 $ 1,096,559
850 Loma Linda, CA Hosp Rev Loma Linda Univ Med Cent
Proj B Rfdg (AMBAC Insd)........................ 7.000% 12/01/15 899,156
1,535 Long Beach, CA Redev Agy Tax Alloc Sub Redev
Proj Rfdg (AMBAC Insd).......................... 5.125 04/01/20 1,520,970
662 Los Angeles Cnty, CA Tran Comm Lease Rev Dia RR
Lease Ltd (FSA Insd)............................ 7.375 12/15/06 726,320
2,380 Los Angeles, CA Mtg Rev FHA Security 8 Asstd
Proj Ser A Rfdg (MBIA Insd)..................... 6.100 07/01/25 2,470,464
500 M-S-R Pub Pwr Agy CA San Juan Proj Rev Ser E
(MBIA Insd)..................................... 6.000 07/01/22 523,130
2,000 Madera Cnty, CA Ctfs Partn Vly Childrens Hosp
Proj (MBIA Insd)................................ 5.000 03/15/23 1,948,620
5,095 Modesto, CA Irrigation Dist Fin Auth Rev
Domestic Wtr Proj Ser D Rfdg (AMBAC Insd)....... 5.000 09/01/17 5,023,568
1,250 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)............................... 5.750 09/01/15 1,338,862
1,640 North City West, CA Sch Fac Fin Auth Spl Tax Ser
B Rfdg (FSA Insd)............................... 6.000 09/01/19 1,789,765
500 Northern CA Pwr Agy Pub Pwr Rev Combustion
Turbine Proj 1 Ser A Rfdg (MBIA Insd)........... 6.000 08/15/10 511,280
400 Northern CA Pwr Agy Pub Pwr Rev Hydro Elec Proj
1 Ser A Rfdg (Prerefunded @ 07/01/21) (AMBAC
Insd)........................................... 7.500 07/01/23 525,092
2,000 Oakland, CA St Bldg Auth Lease Rev Elihu M
Harris Ser A (AMBAC Insd)....................... 5.000 04/01/23 1,956,760
2,760 Oakland, CA Uni Sch Dist Alameda Cnty Cap Apprec
Ser A (FGIC Insd) (Prerefunded @ 08/01/06)...... * 08/01/13 1,270,511
3,475 Oakland, CA Uni Sch Dist Alameda Cnty Cap Apprec
Ser A (FGIC Insd) (Prerefunded @ 08/01/06)...... * 08/01/14 1,497,621
1,220 Oceanside, CA Cmnty Dev Mtg FHA North River Club
Ser A Rfdg (MBIA Insd).......................... 5.850 07/01/16 1,271,777
1,000 Pajaro Vly, CA Unified Sch Dist Ctfs Partn Sch
Fac Brdg Fdg Pgm (FSA Insd)..................... 5.850 09/01/32 1,073,320
3,000 Palm Desert, CA Fin Auth Tax Alloc Rev (Inverse
Fltg) (MBIA Insd)............................... 8.705 04/01/22 3,547,500
1,000 Palmdale, CA Wtr Dist Rev Ctfs Partn Rfdg (FGIC
Insd)........................................... 5.000 10/01/18 980,580
1,000 Palmdale, CA Wtr Dist Rev Ctfs Partn Rfdg (FGIC
Insd)........................................... 5.000 10/01/23 976,790
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg (FSA
Insd)........................................... 6.100 03/01/16 1,093,800
1,000 Pinole, CA Redev Agy Tax Alloc Pinole Vista
Redev Proj A Rfdg (MBIA Insd)................... 5.000 08/01/17 986,050
</TABLE>
See Notes to Financial Statements
12
<PAGE> 96
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,945 Pittsburg, CA Uni Sch Dist Ctfs Partn (AMBAC
Insd)........................................... 6.300% 09/01/15 $ 2,141,328
2,000 Placer Cnty, CA Ctfs Partn Juvenile Detention
Fac Rfdg (MBIA Insd)............................ 5.000 07/01/25 1,952,220
1,360 Port Hueneme, CA Ctfs Partn Cap Impt Pgm Rfdg
(MBIA Insd)..................................... 6.000 04/01/19 1,538,065
1,000 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd).......................... 7.125 09/01/19 1,054,770
1,235 Rancho Cucamonga, CA Redev Agy Tax Alloc Rancho
Redev Proj (MBIA Insd).......................... 6.750 09/01/20 1,296,676
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac Dist 883
Ser A Rfdg (AMBAC Insd)......................... 6.000 09/01/17 1,844,758
1,000 Redding, CA Elec Sys Rev Ctfs Partn (Inverse
Fltg) (MBIA Insd)............................... 8.670 07/08/22 1,311,250
2,000 Rialto, CA Spl Tax Cmnty Fac Dist 87-1 Rfdg (FSA
Insd)........................................... 5.625 09/01/18 2,097,740
3,000 Riverside Cnty, CA Ctfs Partn Historic
Courthouse Proj (MBIA Insd)..................... 5.875 11/01/27 3,231,570
1,070 Riverside, CA Elec Rev Rfdg (AMBAC Insd)........ 5.000 10/01/18 1,054,506
2,000 Sacramento, CA Muni Util Dist Elec Rev Ser A
Rfdg (MBIA Insd)................................ 5.750 08/15/13 2,101,500
2,500 San Bernardino Cnty, CA Ctfs Partn Ser B
(Embedded Swap) (MBIA Insd)..................... 7.450 07/01/16 2,659,150
1,000 San Diego, CA Indl Dev Rev San Diego Gas & Elec
Ser A (MBIA Insd)............................... 6.400 09/01/18 1,096,460
1,110 San Francisco, CA St Bldg Auth Lease Rev (AMBAC
Insd)........................................... 5.250 12/01/16 1,129,114
1,000 San Gabriel, CA Uni Sch Dist Ctfs Partn (FSA
Insd)........................................... 6.000 09/01/15 1,084,000
7,050 San Joaquin Hills, CA Tran Corridor Agy Toll Rd
Rev Ser A Rfdg (MBIA Insd)...................... 5.375 01/15/29 7,191,987
5,000 San Joaquin Hills, CA Trns Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd)........... * 01/15/30 970,700
5,750 San Jose, CA Fin Auth Rev Convention Proj Ser C
(FSA Insd)...................................... 6.375 09/01/13 6,223,282
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 1,165,680
1,000 Santa Clara, CA Redev Agy Tax Alloc (AMBAC
Insd)........................................... 7.000 07/01/10 1,207,620
1,000 Santa Fe Springs, CA Cmnty Dev Commn Tax Alloc
Cons Redev Proj Ser A Rfdg (MBIA Insd).......... 5.000 09/01/17 985,980
1,000 Shasta Lake, CA Ctfs Partn (FSA Insd)........... 6.000 04/01/16 1,094,190
1,990 South Cnty, CA Regl Wastewtr Auth Rev Regl
Wastewtr Fac Proj Ser A (FGIC Insd)............. 6.000 08/01/14 2,151,230
3,735 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev
Sr Lien Ser A Rfdg (MBIA Insd).................. 7.000 09/01/08 4,508,668
3,000 South Orange Cnty, CA Pub Fin Auth Spl Tax Rev
Sr Lien Ser A Rfdg (MBIA Insd) (b).............. 7.000 09/01/09 3,651,060
</TABLE>
See Notes to Financial Statements
13
<PAGE> 97
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS (CONTINUED)
$1,000 Stockton East Wtr Dist CA Ctfs Partn 1990 Proj
Ser A Rfdg (AMBAC Insd)......................... 4.750% 04/01/17 $ 956,240
1,050 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (FGIC Insd) (Prerefunded @
09/01/04)....................................... 6.400 09/01/07 1,193,346
1,015 Stockton, CA Rev Ctfs Partn Wastewtr Treatment
Plant Expansion Ser A (FGIC Insd) (Prerefunded @
09/01/04)....................................... 6.500 09/01/08 1,159,039
1,100 Sunnyvale, CA Ctfs Partn Parking Fac Ser A Rfdg
(AMBAC Insd).................................... 5.000 10/01/17 1,084,534
570 Temecula Vly, CA Uni Sch Dist Ctfs Partn Rfdg
(FSA Insd)...................................... 6.000 09/01/18 621,243
2,000 Torrance, CA Hosp Rev Torrance Mem Hosp Rfdg
(MBIA Insd)..................................... 6.750 01/01/12 2,024,480
1,000 University of CA Rev Resh Facs Ser C Rfdg (FSA
Insd)........................................... 5.000 09/01/24 976,390
------------
TOTAL LONG-TERM INVESTMENTS 98.1%
(Cost $165,814,705)........................................................ 180,356,783
SHORT-TERM INVESTMENTS 1.5%
(Cost $2,800,000).......................................................... 2,800,000
------------
TOTAL INVESTMENTS 99.6%
(Cost $168,614,705)........................................................ 183,156,783
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4%.................................. 659,645
------------
NET ASSETS 100.0%........................................................... $183,816,428
============
</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
14
<PAGE> 98
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $168,614,705)....................... $183,156,783
Cash........................................................ 66,950
Receivables:
Interest.................................................. 2,958,003
Investments Sold.......................................... 1,595,801
Fund Shares Sold.......................................... 376,985
Other....................................................... 19,533
------------
Total Assets.......................................... 188,174,055
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,488,960
Income Distributions...................................... 282,068
Distributor and Affiliates................................ 156,461
Fund Shares Repurchased................................... 144,699
Investment Advisory Fee................................... 71,820
Trustees' Deferred Compensation and Retirement Plans........ 128,051
Accrued Expenses............................................ 85,568
------------
Total Liabilities..................................... 4,357,627
------------
NET ASSETS.................................................. $183,816,428
============
NET ASSETS CONSIST OF:
Capital..................................................... $171,336,406
Net Unrealized Appreciation................................. 14,542,078
Accumulated Undistributed Net Investment Income............. 323,320
Accumulated Net Realized Loss............................... (2,385,376)
------------
NET ASSETS.................................................. $183,816,428
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $143,810,250 and 7,851,326 shares of
beneficial interest issued and outstanding)............. $ 18.32
Maximum sales charge (3.25%* of offering price)......... .62
------------
Maximum offering price to public........................ $ 18.94
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $35,613,797 and 1,945,162 shares of
beneficial interest issued and outstanding)............. $ 18.31
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,392,381 and 239,923 shares of
beneficial interest issued and outstanding)............. $ 18.31
============
*On sales of $25,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
15
<PAGE> 99
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 4,933,846
-----------
EXPENSES:
Investment Advisory Fee..................................... 423,328
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $170,326, $161,608
and $20,674, respectively)................................ 352,608
Shareholder Services........................................ 60,341
Trustees' Fees and Expenses................................. 8,792
Legal....................................................... 8,277
Custody..................................................... 4,433
Insurance................................................... 1,497
Other....................................................... 64,046
-----------
Total Expenses.......................................... 923,322
-----------
NET INVESTMENT INCOME....................................... $ 4,010,524
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,626,783
Futures................................................... (128,677)
-----------
Net Realized Gain........................................... 1,498,106
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 15,629,825
End of the Period:
Investments............................................. 14,542,078
-----------
Net Unrealized Depreciation During the Period............... (1,087,747)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 410,359
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,420,883
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 100
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 4,010,524 $ 8,171,627
Net Realized Gain................................. 1,498,106 1,186,738
Net Unrealized Appreciation/Depreciation
During the Period............................... (1,087,747) 4,996,359
------------ ------------
Change in Net Assets from Operations.............. 4,420,883 14,354,724
------------ ------------
Distributions from Net Investment Income:
Class A Shares.................................. (3,420,983) (6,593,552)
Class B Shares.................................. (667,012) (1,190,355)
Class C Shares.................................. (85,357) (110,912)
------------ ------------
Total Distributions............................... (4,173,352) (7,894,819)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 247,531 6,459,905
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 17,007,372 21,168,004
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 2,516,866 4,809,591
Cost of Shares Repurchased........................ (11,419,689) (30,260,768)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 8,104,549 (4,283,173)
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 8,352,080 2,176,732
NET ASSETS:
Beginning of the Period........................... 175,464,348 173,287,616
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $323,320
and $486,148, respectively)..................... $183,816,428 $175,464,348
============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 101
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
Six Months Ended -------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $18.294 $17.605 $17.736 $15.802 $18.286
------- ------- ------- ------- -------
Net Investment Income.............. .424 .880 .857 .884 .912
Net Realized and Unrealized
Gain/Loss........................ .040 .658 (.145) 1.938 (2.484)
------- ------- ------- ------- -------
Total from Investment Operations... .464 1.538 .712 2.822 (1.572)
Less Distributions from Investment
Income........................... .441 .849 .843 .888 .912
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $18.317 $18.294 $17.605 $17.736 $15.802
======= ======= ======= ======= =======
Total Return* (a).................. 2.61%** 8.93% 4.20% 18.28% (8.75%)
Net Assets at End of the Period (In
millions)........................ $143.8 $140.7 $142.5 $147.6 $130.3
Ratio of Expenses to Average Net
Assets*.......................... .89% .96% 1.02% .89% .78%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.68% 4.96% 4.94% 5.23% 5.46%
Portfolio Turnover................. 17%** 46% 35% 42% 56%
* If certain expenses had not been reimbursed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets........................... N/A N/A 1.03% 1.05% 1.08%
Ratio of Net Investment Income to
Average Net Assets............... N/A N/A 4.94% 5.07% 5.16%
</TABLE>
** Non-Annualized.
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
18
<PAGE> 102
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $18.289 $17.603 $17.736 $15.805 $18.266
------- ------- ------- ------- -------
Net Investment Income.............. .350 .741 .720 .766 .785
Net Realized and Unrealized
Gain/Loss........................ .045 .662 (.142) 1.926 (2.482)
------- ------- ------- ------- -------
Total from Investment Operations... .395 1.403 .578 2.692 (1.697)
Less Distributions from Net
Investment Income................ .375 .717 .711 .761 .764
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $18.309 $18.289 $17.603 $17.736 $15.805
======= ======= ======= ======= =======
Total Return* (a).................. 2.18%** 8.19% 3.35% 17.33% (9.39%)
Net Assets at End of the Period (In
millions)........................ $35.6 $31.0 $28.6 $24.6 $17.1
Ratio of Expenses to Average Net
Assets*.......................... 1.64% 1.72% 1.79% 1.61% 1.52%
Ratio of Net Investment Income to
Average Net Assets*.............. 3.91% 4.18% 4.17% 4.51% 4.71%
Portfolio Turnover................. 17%** 46% 35% 42% 56%
* If certain expenses had not been reimbursed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets N/A N/A 1.79% 1.77% 1.82%
Ratio of Net Investment Income to
Average Net Assets N/A N/A 4.16% 4.35% 4.41%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
19
<PAGE> 103
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended ----------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $18.286 $17.602 $17.736 $15.798 $18.257
------- ------- ------- ------- -------
Net Investment Income......... .353 .727 .722 .758 .773
Net Realized and Unrealized
Gain/Loss................... .043 .674 (.145) 1.941 (2.468)
------- ------- ------- ------- -------
Total from Investment
Operations.................. .396 1.401 .577 2.699 (1.695)
Less Distributions from Net
Investment Income........... .375 .717 .711 .761 .764
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $18.307 $18.286 $17.602 $17.736 $15.798
======= ======= ======= ======= =======
Total Return* (a)............. 2.18%** 8.19% 3.35% 17.40% (9.40%)
Net Assets at End of the
Period
(In millions)............... $4.4 $3.8 $2.2 $1.8 $2.8
Ratio of Expenses to Average
Net Assets*................. 1.64% 1.71% 1.79% 1.60% 1.51%
Ratio of Net Investment Income
to Average Net Assets*...... 3.91% 4.15% 4.16% 4.50% 4.71%
Portfolio Turnover............ 17%** 46% 35% 42% 56%
*If certain expenses had not been reimbursed by Van Kampen, total return would
have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets.................. N/A N/A 1.80% 1.75% 1.82%
Ratio of Net Investment Income
to Average Net Assets....... N/A N/A 4.16% 4.34% 4.39%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
20
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen California Insured Tax Free Fund, formerly known as Van Kampen
American Capital California Insured Tax Free Fund, (the "Fund") is organized as
a series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide California investors with a high level of current income exempt from
federal and California income taxes, with liquidity and safety of principal,
primarily through investment in a diversified portfolio of insured California
municipal securities. The Fund commenced investment operations on December 13,
1985. The distribution of the Fund's Class B shares and Class C shares commenced
on May 1, 1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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
21
<PAGE> 105
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $3,883,482, which will expire between December
31, 2002 and December 31, 2003.
At June 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $168,614,705; the aggregate gross unrealized
appreciation is $14,556,373 and the aggregate gross unrealized depreciation is
$14,295, resulting in net unrealized appreciation of $14,542,078.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
F. INSURANCE EXPENSE--The Fund typically invests in insured bonds. Any portfolio
securities not specifically covered by a primary insurance policy are insured
secondarily through the Fund's portfolio insurance policy. Insurance premiums
are based on the daily balances of uninsured bonds in the portfolio of
investments and are charged to expense on an accrual basis. The insurance policy
guarantees the timely payment of principal and interest on the securities in the
Fund's portfolio.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
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>
22
<PAGE> 106
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $3,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $33,700, 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 six months ended
June 30, 1998, the Fund recognized expenses of approximately $40,900. 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.
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.
23
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $131,990,509, $34,677,315 and
$4,668,582 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 489,586 $ 8,943,115
Class B.......................................... 358,724 6,556,349
Class C.......................................... 82,584 1,507,908
---------- ------------
Total Sales........................................ 930,894 $ 17,007,372
========== ============
Dividend Reinvestment:
Class A.......................................... 111,525 $ 2,037,794
Class B.......................................... 23,723 433,329
Class C.......................................... 2,504 45,743
---------- ------------
Total Dividend Reinvestment........................ 137,752 $ 2,516,866
========== ============
Repurchases:
Class A.......................................... (438,256) $ (8,025,702)
Class B.......................................... (133,692) (2,444,864)
Class C.......................................... (52,073) (949,123)
---------- ------------
Total Repurchases.................................. (624,021) $(11,419,689)
========== ============
</TABLE>
24
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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>
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>
25
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $12,200 and CDSC on redeemed shares of approximately $23,600.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $35,445,056 and $30,556,499,
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).
26
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997........................... -0-
Futures Opened............................................. 1,024
Futures Closed............................................. (1,024)
------
Outstanding at June 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 six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $138,900.
27
<PAGE> 111
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
Global Equity
Global Equity Allocation
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 and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
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.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a 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.VAN-KAMPEN.COM and selecting Investors' Place
28
<PAGE> 112
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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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 December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
29
<PAGE> 113
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 29
Statement of Operations.......................... 30
Statement of Changes in Net Assets............... 31
Financial Highlights............................. 32
Notes to Financial Statements.................... 35
</TABLE>
MIF SAR 8/98
<PAGE> 114
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move [PHOTO]
accompanies the change in our legal
name to Van Kampen Funds Inc.
You can be assured that the
change in your fund's name will not DENNIS J. MCDONNELL AND DON G. POWELL
affect its management or daily
operations. You will begin seeing the
application of this change with this report. In addition, as of August 31, your
fund will be listed in the daily newspapers by share class under the heading
"Van Kampen Funds." For your convenience, we have enclosed a separate brochure
that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies were beginning to
recover. When weakness in the Japanese yen undercut that recovery, long-term
interest rates resumed their decline.
Continued on page two
1
<PAGE> 115
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 116
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 2.46% 2.09% 2.03%
Six-month total return(2)................ (2.43%) (1.90%) 1.03%
One-year total return(2)................. 3.11% 3.37% 6.38%
Five-year average annual total return(2). 4.62% 4.63% N/A
Life-of-Fund average annual total
return(2).............................. 7.14% 5.56% 4.74%
Commencement date........................ 08/01/90 08/24/92 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 5.12% 4.66% 4.66%
Taxable-equivalent distribution rate(4).. 8.00% 7.28% 7.28%
SEC Yield(5)............................. 4.50% 3.92% 3.93%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable-equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 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.
3
<PAGE> 117
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 118
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 119
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
first half of the Fund's fiscal year. The team includes David C. Johnson,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term municipal investment grade securities) had a yield of 5.22 percent, or
93 percent of the yield available from long-term Treasuries.
The difference between the yields on securities of varying credit quality
has been very narrow. An example of this "yield spread" is the municipal bond
issue brought to market by Long Island Power Authority (LIPA) in May to finance
its takeover of the Long Island Lighting Company. This $3.4 billion issue--the
largest municipal bond issue in history--was split among two credit ratings: a
portion of the issue was insured and had a AAA rating, while the remaining
uninsured portion came to market with LIPA's BBB rating.
6
<PAGE> 120
The yield spread between the insured, AAA-rated portion and the BBB-rated
securities was only 17 basis points (0.17 percentage points).
Q HOW HAS THE PORTFOLIO CHANGED OVER THE LAST SIX MONTHS?
A The Fund renewed its emphasis on a two-pronged approach, as we sought to
boost income with lower- or non-rated securities while relying on
higher-rated issues to provide stability and total return.
Our allocation to AAA-rated securities decreased to approximately 38
percent of long-term investments, with the assets going toward A-rated
securities. This shift left us with 6 percent of the portfolio in AA-rated
issues, 17 percent in A-rated securities, and 16 percent in BBB-rated issues.
The portion of assets allocated to non-rated issues now stands at 23 percent of
the portfolio, up slightly from 22 percent at the start of the period.
Our portfolio holdings were widely varied, with 18 distinct industry
sectors represented. At the end of the reporting period, the largest share of
assets was in health care (16 percent), industrial revenue (12 percent), public
building (9 percent), and transportation issues (8 percent). This broad
diversification should help to buffer the risk of economic turbulence. For
additional Fund portfolio highlights, please refer to page nine.
Q HOW WOULD YOU DESCRIBE THE FUND'S PERFORMANCE DURING THE PERIOD?
A The Fund's performance has been in the middle to upper range of its Lipper
peer group. Its year-to-date total return is 2.46 percent(1) (Class A
shares at net asset value) while its distribution rate was 5.12 percent(3)
as of June 30, 1998. By comparison, the Lehman Brothers Municipal Bond Index
produced a total return of 2.69 percent over the same period. This index is a
broad-based statistical composite of municipal bonds and does not reflect any
commissions that would be paid by an investor purchasing the securities it
represents. The Fund's distribution rate translates into a taxable-equivalent
return of 8.00 percent(4) for an investor in the 36 percent federal income tax
bracket. The Fund's monthly dividend of $0.0705 per Class A shares was unchanged
during the reporting period. Please refer to the chart on page three for
additional Fund performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the impact of raising interest rates in the second half of the
year if the economy gains steam and threatens to drive inflation higher.
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond
7
<PAGE> 121
issues looks like it will remain strong, possibly setting an annual record for
the industry. Currently, it's on pace to break the volume record of almost $300
billion set in 1993. A drop in rates of 25 basis points (0.25 percentage points)
could spark further refunding of outstanding bond issues and bring new bond
issues into the marketplace ahead of their original schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
municipal bonds and lend support to bond prices. We feel the Fund will benefit
from its current structure, which should enable it to do well in either up or
down markets. We will continue to manage the portfolio with an emphasis on
balancing high quality ratings with competitive total return performance.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
David C. Johnson
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 122
PORTFOLIO HIGHLIGHTS
VAN KAMPEN MUNICIPAL INCOME FUND
TOP TEN STATES/TERRITORIES AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
New York................. 11.8%
Illinois................. 10.7%
Florida.................. 8.1%
Texas.................... 5.5%
California............... 5.1%
Colorado................. 5.1%
Pennsylvania............. 4.3%
Puerto Rico.............. 4.2%
Michigan................. 3.4%
Utah..................... 3.3%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA...................... 38.3% AAA...................... 42.1%
AA....................... 5.6% AA....................... 7.0%
A........................ 16.6% [PIE CHART] A........................ 10.3% [PIE CHART]
BBB...................... 15.7% BBB...................... 18.0%
BB....................... 0.7% BB....................... 1.1%
Non-Rated................ 23.1% 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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Health Care................ 16.0% Health Care................ 16.2%
Industrial Revenue......... 12.4% Industrial Revenue......... 14.0%
Public Building............ 8.9% General Purpose............ 7.7%
Transportation............. 8.2% Public Building............ 7.6%
General Purpose............ 6.8% Tax District............... 6.9%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 7.75 years 7.51 years
</TABLE>
9
<PAGE> 123
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 99.4%
ALABAMA 2.2%
$ 2,100 Alabama St Indl Dev Auth Rev UNR-ROHN Inc
Expansion Proj................................. 7.500% 09/15/11 $ 2,351,013
3,045 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................. 4.750 08/15/17 2,913,821
3,710 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................. 4.750 08/15/18 3,531,883
2,930 Alabama Wtr Pollutn Ctl Auth Revolving Fund Ln
Ser A (AMBAC Insd)............................. 6.750 08/15/17 3,286,142
700 Bessemer, AL Indl Dev Brd ROHN Inc Proj........ 9.000 09/15/01 762,566
1,750 Bessemer, AL Indl Dev Brd ROHN Inc Proj........ 9.500 09/15/11 2,228,433
250 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg................ 6.950 01/01/20 125,000
1,000 Montgomery, AL Med Clinic Brd Jackson Hosp &
Clinic (AMBAC Insd)............................ 5.875 03/01/16 1,070,720
5,150 West Jefferson Cnty, AL Amusement & Pub Pk Auth
First Mtg Visionland Proj...................... 8.000 12/01/26 5,519,306
--------------
21,788,884
--------------
ALASKA 0.6%
2,500 Alaska Energy Auth Pwr Rev Bradley Lake Proj
Ser 1 (BIGI Insd).............................. 6.250 07/01/21 2,553,525
1,000 Alaska Indl Dev and Expt Auth Pwr Rev Upper
Lynn Canal Regl Pwr............................ 5.700 01/01/12 1,003,850
1,800 Alaska Indl Dev and Expt Auth Pwr Rev Upper
Lynn Canal Regl Pwr............................ 5.875 01/01/32 1,813,626
1,000 Valdez, AK Marine Term Rev Sohio Pipeline
Rfdg........................................... 7.125 12/01/25 1,113,990
--------------
6,484,991
--------------
ARIZONA 2.0%
1,000 Maricopa Cnty, AZ Indl Dev Auth Multi-Family
Hsg Rev Rfdg................................... 6.500 07/01/09 1,072,420
605 Pima Cnty, AZ Indl Dev Auth Single Family Mtg
Rev (GNMA Collateralized)...................... 6.625 11/01/14 641,482
5,220 Pinal Cnty, AZ Sch Dist No 8 Mammoth Ser A..... 9.500 07/01/10 5,919,219
500 Scottsdale, AZ Indl Dev Auth Rev First Mtg
Westminster Vlg Ser A Rfdg..................... 8.250 06/01/15 571,695
1,875 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.000 09/01/12 2,038,856
1,750 Scottsdale, AZ Indl Dev Hosp Scottsdale Mem
Hosp Ser A Rfdg (AMBAC Insd)................... 6.125 09/01/17 1,910,755
7,000 Tucson, AZ Arpt Auth Inc Spl Fac Rev Lockheed
Aermod Cent Inc................................ 8.700 09/01/19 7,769,510
--------------
19,923,937
--------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 124
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARKANSAS 0.9%
$ 5,230 Dogwood Addition PRD Muni Ppty Owners
Multi-Purp Impt Dist No 8 AR Impt Ser A (d).... 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).... 7.500 01/31/06 1,641,000
2,000 Jackson Cnty, AR Hlthcare Fac Brd First Mtg
Hosp Rev Newport Hosp & Clinic Inc............. 7.375 11/01/11 2,092,320
--------------
8,754,120
--------------
CALIFORNIA 5.0%
5,105 California Edl Fac Auth Rev College of
Osteopathic Med Pacific (Prerefunded @
06/01/03)...................................... 7.500 06/01/18 5,832,565
2,880 California Edl Fac Auth Rev Univ of La Verne... 6.300 04/01/09 3,085,085
4,285 Delano, CA Ctfs Partn Ser A.................... 9.250 01/01/22 5,001,666
2,660 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/10 1,396,527
5,875 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/11 2,866,177
3,890 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/13 1,646,092
5,430 Escondido, CA Jt Pwrs Fin Auth Lease Rev (AMBAC
Insd).......................................... * 09/01/14 2,135,999
3,500 Escondido, CA Union High Sch Dist Cap Apprec
(MBIA Insd).................................... * 11/01/19 1,169,315
5,000 Escondido, CA Union High Sch Dist Cap Apprec
(MBIA Insd).................................... * 11/01/20 1,586,800
910 Fairfield, CA Hsg Auth Mtg Rev Creekside
Estates Proj Rfdg.............................. 7.875 02/01/15 945,190
8,075 Los Angeles, CA Elec Plant Rev Rfdg (MBIA
Insd).......................................... 4.750 11/15/19 7,673,915
1,000 Madera Cnty, CA Ctfs Partn Vly Children's Hosp
(MBIA Insd).................................... 6.125 03/15/23 1,126,270
2,825 Midpeninsula Regl Dist CA Fin Auth Rev (AMBAC
Insd).......................................... * 09/01/15 1,177,008
1,155 Midpeninsula Regl Open Space CA (AMBAC Insd)... * 09/01/19 385,204
1,265 Midpeninsula Regl Open Space CA (AMBAC Insd)... * 09/01/22 357,704
1,380 Midpeninsula Regl Open Space CA (AMBAC Insd)... * 09/01/25 332,014
900 Monterey, CA Regl Wastewtr Fin Auth Wastewtr
Contract Rev (FSA Insd)........................ * 06/01/10 505,710
800 Monterey, CA Regl Wastewtr Fin Auth Wastewtr
Contract Rev (FSA Insd)........................ * 06/01/11 421,800
700 Monterey, CA Regl Wastewtr Fin Auth Wastewtr
Contract Rev (FSA Insd)........................ * 06/01/12 346,724
700 Monterey, CA Regl Wastewtr Fin Auth Wastewtr
Contract Rev (FSA Insd)........................ * 06/01/13 325,248
700 Monterey, CA Regl Wastewtr Fin Auth Wastewtr
Contract Rev (FSA Insd)........................ * 06/01/14 306,110
500 Norco, CA Swr & Wtr Rev Rfdg................... 7.200 10/01/19 554,755
4,000 Riverside Cnty, CA Air Force Vlg West Inc Ser A
Rfdg........................................... 8.125 06/15/20 4,383,160
</TABLE>
See Notes to Financial Statements
11
<PAGE> 125
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$16,920 San Joaquin Hills CA Tran Corridor Agy Toll Rd
Rev Cap Apprec Ser A Rfdg (MBIA Insd).......... * 01/15/25 $ 4,277,207
2,000 Santa Ana, CA Cmnty Redev Agy Tax Alloc Ser B
Rfdg........................................... 7.500% 09/01/16 2,084,000
--------------
49,922,245
--------------
COLORADO 4.9%
2,840 Adams Cnty, CO Single Family Mtg Rev Ser A..... 8.875 08/01/11 3,919,484
3,985 Adams Cnty, CO Single Family Mtg Rev Ser A..... 8.875 08/01/12 5,636,982
10,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)...... * 08/31/26 1,595,790
500 Berry Creek Metro Dist CO Rfdg & Impt.......... 8.250 12/01/11 546,860
1,000 Bowles Metro Dist CO........................... 7.750 12/01/15 1,062,350
2,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 7.000 11/15/99 2,081,220
7,810 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/23 8,630,206
4,570 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.000 11/15/25 4,986,098
740 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)....................... 8.500 11/15/23 829,052
430 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)....................... 8.000 11/15/25 476,917
2,200 Denver, CO City & Cnty Spl Fac Arpt Rev United
Airls Proj Ser A............................... 6.875 10/01/32 2,396,944
1,000 Edgewater, CO Redev Auth Tax Increment Rev..... 6.750 12/01/08 1,094,010
1,320 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/14 548,143
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/15 553,800
1,420 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/16 517,349
1,330 El Paso Cnty, CO Sch Dist No 003 Widefield Ser
A (MBIA Insd).................................. * 12/15/18 424,523
3,690 Jefferson Cnty, CO Residential Mtg Rev......... 11.500 09/01/12 6,212,668
5,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg............................ 7.500 12/01/11 5,456,700
2,000 Northern Metro Dist CO Adams Cnty Rfdg......... 6.500 12/01/16 2,116,460
--------------
49,085,556
--------------
CONNECTICUT 1.8%
5,005 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford.......................... 7.125 11/01/14 5,756,951
4,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B 144A -- Private Placement (a)............ 5.750 09/01/18 4,083,960
2,530 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A 144A -- Private Placement (a)............ 6.400 09/01/11 2,779,028
495 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A 144A -- Private Placement (a)............ 6.500 09/01/06 565,834
505 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A 144A -- Private Placement (a)............ 6.500 09/01/06 566,767
</TABLE>
See Notes to Financial Statements
12
<PAGE> 126
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONNECTICUT (CONTINUED)
$ 2,470 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A -- Private Placement (Prerefunded @
09/01/07) (a).................................. 6.400% 09/01/11 $ 2,844,699
1,500 Mashantucket Western Pequot Tribe CT Spl Rev
Ser B, 144A -- Private Placement (a)........... 5.750 09/01/27 1,526,475
--------------
18,123,714
--------------
DISTRICT OF COLUMBIA 0.3%
2,500 District of Columbia Rev Natl Pub Radio Ser
A.............................................. 7.700 01/01/23 2,743,300
--------------
FLORIDA 7.8%
430 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.500 10/01/02 449,905
500 Atlantic Beach, FL Rev Fleet Landing Proj Ser A
Rfdg & Impt.................................... 7.875 10/01/08 568,330
1,565 Broward Cnty, FL Res Recovery Rev Waste Energy
North Proj..................................... 7.950 12/01/08 1,682,798
2,050 Broward Cnty, FL Res Recovery Rev Waste Energy
South Proj..................................... 7.950 12/01/08 2,204,303
24,000 Dade Cnty, FL Gtd Entitlement Rev Cap Apprec
Ser A Rfdg (MBIA Insd)......................... * 02/01/18 8,067,360
1,800 Florida Hsg Fin Corp Rev Hsg Beacon Hill Apts
Ser C.......................................... 6.100 07/01/38 1,804,428
2,000 Florida Hsg Fin Corp Rev Hsg Westchase Apts
B.............................................. 6.610 07/01/38 2,004,920
560 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg........................................... 7.250 06/01/23 600,527
590 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg (Prerefunded @ 06/01/00).................. 7.250 06/01/23 637,542
2,255 Greater Orlando Aviation Auth Orlando, FL Arpt
Fac Rev........................................ 8.375 10/01/16 2,322,041
5,000 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj
Rfdg........................................... 5.750 04/01/18 5,087,600
2,875 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg............ 7.875 12/15/25 3,378,096
10,885 Miami Dade Cnty, FL Sch Brd Certs Part Ser A
Rfdg (AMBAC Insd) (c).......................... 5.000 08/01/26 10,572,709
2,000 Northern Palm Beach Cnty Impt Dist FL Wtr Ctl &
Impt Unit Dev 5A Rfdg.......................... 6.000 08/01/10 2,016,120
1,500 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg...................... 8.750 07/01/26 1,778,700
595 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd).......................................... 6.000 10/01/16 616,581
405 Orange Cnty, FL Tourist Dev Tax Rev
(Prerefunded @ 10/01/00) (AMBAC Insd).......... 6.000 10/01/16 423,456
5,000 Saint John's River Wtr Mgmt Dist FL Land
Acquisition Rev Rfdg (FSA Insd)................ 5.125 07/01/16 5,014,850
4,140 Sarasota Cnty, FL Hlth Fac Auth Rev Hlthcare
Kobernick/Meadow Pk (Prerefunded @
07/01/02) (b).................................. 10.000 07/01/22 5,039,581
5,000 Sarasota Cnty, FL Public Hosp Brd Miles
Sarasota Mem Hosp Proj Ser A (MBIA Insd)....... * 10/01/21 4,900,000
17,045 Sunrise, FL Utility Sys Rev Rfdg (AMBAC
Insd).......................................... 5.000 10/01/28 17,017,217
1,000 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 7.500 05/01/18 1,058,990
</TABLE>
See Notes to Financial Statements
13
<PAGE> 127
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 880 Tampa Palms, FL Open Space & Transn Cmnty Dev
Dist Rev Cap Impt Area 7 Proj.................. 8.500% 05/01/17 $ 973,315
670 Tampa, FL Cap Impt Pgm Rev Ser A............... 8.250 10/01/18 676,774
--------------
78,896,143
--------------
GEORGIA 0.9%
3,000 Atlanta, GA Arpt Fac Rev....................... 6.250 01/01/21 3,153,630
2,000 Fulton Cnty, GA Hsg Auth Multi-Family Hsg
Rev............................................ 6.500 02/01/28 2,004,700
2,000 George L Smith II GA Wrld Congress Cent Auth
Rev Domed Stadium Proj Rfdg (MBIA Insd) (c).... 5.500 07/01/20 1,967,640
1,500 Georgia Muni Elec Auth Pwr Rev Ser X (MBIA
Insd).......................................... 6.500 01/01/20 1,795,500
--------------
8,921,470
--------------
HAWAII 2.6%
4,055 Hawaii St Arpts Sys Rev Ser 1993 (MBIA Insd)... 6.350 07/01/07 4,491,156
14,100 Hawaii St Dept Budget & Fin Spl Purp Rev
Hawaiian Elec Co (MBIA Insd)................... 6.550 12/01/22 15,439,077
2,350 Hawaii St Dept Tran Spl Fac Rev Continental
Airls Inc...................................... 9.700 06/01/20 2,595,270
1,475 Hawaii St Harbor Cap Impt Rev (FGIC Insd)...... 6.350 07/01/07 1,633,651
1,560 Hawaii St Harbor Cap Impt Rev (FGIC Insd)...... 6.400 07/01/08 1,731,272
500 Hawaii St Harbor Cap Impt Rev (MBIA Insd)...... 7.000 07/01/17 533,780
--------------
26,424,206
--------------
ILLINOIS 10.3%
4,310 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj........................... 9.250 02/01/12 4,966,456
1,350 Bridgeview, IL Tax Increment Rev Rfdg.......... 9.000 01/01/11 1,572,008
6,590 Broadview, IL Tax Increment Rev Sr Lien........ 8.250 07/01/13 7,508,053
1,000 Chicago, IL Gas Supply Rev Ser A............... 8.100 05/01/20 1,087,130
1,000 Chicago, IL Metro Wtr Reclamation Dist Gtr
Chicago........................................ 7.000 01/01/11 1,211,890
4,000 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc...................................... 8.500 05/01/18 4,338,200
4,765 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Ser B................................ 8.950 05/01/18 5,334,132
1,945 Chicago, IL Single Family Mtg Rev Ser A (GNMA
Collateralized)................................ 7.000 09/01/27 2,166,049
490 Chicago, IL Tax Increment Alloc San Drain &
Ship Canal Ser A............................... 7.375 01/01/05 520,723
1,000 Chicago, IL Tax Increment Alloc San Drain &
Ship Canal Ser A............................... 7.750 01/01/14 1,093,040
1,000 Cook Cnty, IL Cmnty College Dist No 508 Chicago
Ctfs Partn (FGIC Insd)......................... 8.750 01/01/07 1,291,620
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)................................ * 12/01/07 1,474,424
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)................................ * 12/01/08 1,398,728
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)................................ * 12/01/09 1,325,116
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)................................ * 12/01/10 1,255,172
2,265 Cook Cnty, IL Cons High Sch Dist No 200 Oak
Park (FSA Insd)................................ * 12/01/11 1,181,333
1,000 Crestwood, IL Tax Increment Rev Rfdg........... 7.250 12/01/08 1,077,500
</TABLE>
See Notes to Financial Statements
14
<PAGE> 128
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,200 Hodgkins, IL Tax Increment..................... 9.500% 12/01/09 $ 1,419,264
3,300 Hodgkins, IL Tax Increment (Prerefunded @
12/01/01)...................................... 9.500 12/01/09 3,878,292
1,500 Hodgkins, IL Tax Increment Ser A Rfdg.......... 7.625 12/01/13 1,668,060
1,500 Huntley, IL Increment Alloc Rev Huntley Redev
Proj Ser A..................................... 8.500 12/01/15 1,756,035
1,000 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A...................... 6.500 09/01/09 1,054,260
605 Illinois Dev Fin Auth Rev Cmnty Fac Clinic
Altgeld Proj................................... 8.000 11/15/06 684,533
1,000 Illinois Edl Fac Auth Rev Lake Forest College
(FSA Insd)..................................... 6.750 10/01/21 1,088,090
2,575 Illinois Edl Fac Auth Rev Lewis Univ Rfdg...... 6.000 10/01/24 2,637,778
1,000 Illinois Edl Fac Auth Rev Northwestern Univ Ser
1985 (Prerefunded @ 12/01/01).................. 6.900 12/01/21 1,108,330
1,000 Illinois Edl Fac Auth Rev Peace Mem Ministries
Proj........................................... 7.500 08/15/26 1,086,050
1,830 Illinois Hlth Fac Auth Rev Midwest Physician
Grp Ltd Rfdg................................... 5.500 11/15/19 1,796,950
4,100 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Proj A (Prerefunded @ 10/01/02)................ 9.500 10/01/22 4,997,490
2,000 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Proj B (Prerefunded @ 10/01/02)................ 9.000 10/01/22 2,400,580
1,500 Illinois Hlth Fac Auth Rev Fairview Oblig Group
Ser A Rfdg..................................... 7.400 08/15/23 1,699,140
505 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D.......................................... 9.500 11/15/15 588,638
425 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D (Prerefunded @ 11/15/00)................. 9.500 11/15/15 485,737
1,000 Illinois Hlth Fac Auth Rev Mem Hosp
(Prerefunded @ 05/01/02)....................... 7.250 05/01/22 1,122,670
1,000 Illinois Hlth Fac Auth Rev Northwestern Mem
Hosp........................................... 6.750 08/15/11 1,090,220
2,600 Illinois Hlth Fac Auth Rev Utd Med Cent
(Prerefunded @ 07/01/03)....................... 8.375 07/01/12 3,073,018
4,150 Illinois Hsg Dev Auth Residential Mtg Rev
(Inverse Fltg)................................. 9.319 02/13/18 4,689,500
1,850 Mc Lean & Woodford Cntys, IL Cmnty Unit Sch
Dist No 005 Normal............................. 4.500 01/01/15 1,722,258
1,450 Mc Lean & Woodford Cntys, IL Cmty Unit Sch Dist
No 005 Normal.................................. 4.500 01/01/16 1,344,513
6,000 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev Cap Apprec McCormick Ser A Rfdg (MBIA
Insd).......................................... * 06/15/25 1,480,080
1,135 Mill Creek Wtr Reclamation Dist IL Sewage
Rev............................................ 8.000 03/01/10 1,298,792
685 Mill Creek Wtr Reclamation Dist IL Wtrwrks
Rev............................................ 8.000 03/01/10 783,852
1,000 Palatine, IL Tax Increment Rev Rand/Dundee Cent
Proj........................................... 7.750 01/01/17 1,062,160
2,800 Regional Tran Auth IL Ser A (AMBAC Insd)....... 8.000 06/01/17 3,828,300
7,500 Robbins, IL Res Recovery Rev................... 8.375 10/15/16 7,846,650
3,000 Robbins, IL Res Recovery Rev Recreation Robbins
Res Partn Ser B................................ 8.375 10/15/16 3,138,660
820 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.200 12/01/04 900,245
</TABLE>
See Notes to Financial Statements
15
<PAGE> 129
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 500 Round Lake Beach, IL Tax Increment Rev Rfdg.... 7.500% 12/01/13 $ 547,205
1,575 Saint Charles, IL Indl Dev Rev Tri-City Cent
Proj........................................... 7.500 11/01/13 1,671,957
1,240 Southern IL Univ Rev Hsg & Aux Fac Sys Ser A
(MBIA Insd).................................... 5.800 04/01/10 1,331,574
--------------
104,082,455
--------------
INDIANA 2.4%
1,000 East Chicago, IN Exempt Fac Inland Steel Co
Proj No 14..................................... 6.700 11/01/12 1,110,480
2,750 Elkhart Cnty, IN Hosp Auth Rev Elkhart Genl
Hosp Inc....................................... 7.000 07/01/12 3,029,840
1,650 Indiana Bond Bank Spl Pgm Hendricks Redev Ser
B.............................................. 6.125 02/01/17 1,795,579
3,125 Indiana Bond Bank Spl Pgm Hendricks Redev Ser
B.............................................. 6.200 02/01/23 3,394,031
1,000 Indiana Hlth Fac Fin Auth Rev Ancilla Sys Inc
Oblig Grp (MBIA Insd).......................... 5.250 07/01/17 1,001,240
7,920 Indiana St Dev Fin Auth Environmental USX Corp
Proj Rfdg & Impt............................... 6.250 07/15/30 8,554,709
1,500 Indiana Univ Rev Student Fee Ser L............. 5.000 08/01/17 1,471,905
550 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.............................................. 6.750 02/01/14 657,635
450 Indianapolis, IN Loc Pub Impt Bond Bank Ser
D.............................................. 6.500 02/01/22 450,855
1,000 Marion Cnty, IN Hosp Auth Hosp Fac Rev......... 6.500 09/01/13 1,101,900
140 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/11 52,828
140 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/12 48,936
135 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/13 43,752
130 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/14 39,029
130 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/15 36,187
135 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/16 34,810
225 Saint Joseph Cnty, IN Redev Dist Tax Increment
Rev Ser B...................................... * 06/30/17 53,743
1,500 Wells Cnty, IN Hosp Auth Rev Caylor-Nickel Med
Cent Inc Rfdg.................................. 8.500 04/15/03 1,692,075
--------------
24,569,534
--------------
IOWA 1.0%
2,045 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)................................ 6.000 07/01/07 2,256,473
2,500 Iowa Fin Auth Hosp Fac Rev Trinity Regl Hosp
Proj (FSA Insd)................................ 5.750 07/01/17 2,656,125
2,000 Iowa Fin Auth Multi-Family Rev Hsg Hamlet Apts
Proj A Rfdg (GNMA Collateralized).............. 6.150 05/01/32 2,101,560
2,855 Muscatine, IA Elec Rev Rfdg.................... 5.000 01/01/08 2,855,286
--------------
9,869,444
--------------
KANSAS 0.1%
1,000 Newton, KS Hosp Rev Newton Hlthcare Corp Ser A
(Prerefunded @ 11/15/04)....................... 7.750 11/15/24 1,202,340
--------------
KENTUCKY 1.3%
1,000 Bowling Green, KY Indl Dev Rev Coltec Inds Inc
Rfdg........................................... 6.550 03/01/09 1,066,360
10,950 Jefferson Cnty, KY Cap Projs Corp Rev Muni
Multi-Lease Ser A.............................. * 08/15/14 3,646,021
</TABLE>
See Notes to Financial Statements
16
<PAGE> 130
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KENTUCKY (CONTINUED)
$ 4,000 Jefferson Cnty, KY Hosp Rev Alliant Hlth Sys
Proj (Inverse Fltg) (MBIA Insd)................ 8.566% 10/09/08 $ 4,720,000
1,250 Kentucky Econ Dev Fin Auth Med Cent Rev Ashland
Hosp Corp Ser A Rfdg & Impt (FSA Insd)......... 6.125 02/01/12 1,359,638
1,350 Kentucky Hsg Corp Hsg Rev Ser D (FHA/VA Gtd)... 7.450 01/01/23 1,437,939
1,000 Kentucky St Tpk Auth Toll Rd Rev Ser A......... 5.500 07/01/07 1,006,230
--------------
13,236,188
--------------
LOUISIANA 0.9%
500 Hodge, LA Util Rev Stone Container Corp Ser
1990........................................... 9.000 03/01/10 536,535
1,990 Lafayette, LA Econ Dev Auth Indl Dev Rev
Advanced Polymer Proj Ser 1985................. 10.000 11/15/04 2,490,286
1,000 Lake Charles, LA Harbor & Terminal Dist Port
Fac Rev Trunkline Rfdg......................... 7.750 08/15/22 1,144,370
1,500 Louisiana Pub Fac Auth Hosp Rev Franciscan
Missionaries Ser C (MBIA Insd) (c)............. 5.000 07/01/19 1,459,125
425 Louisiana Pub Fac Auth Rev Indl Dev Beverly
Enterprises Inc Rfdg........................... 8.250 09/01/08 472,362
800 Port New Orleans, LA Indl Dev Rev Avondale Inds
Inc Proj Rfdg.................................. 8.250 06/01/04 884,040
1,400 West Feliciana Parish, LA Pollutn Ctl Rev Gulf
States Util Co Proj Ser A...................... 7.500 05/01/15 1,565,102
--------------
8,551,820
--------------
MARYLAND 0.2%
1,500 Baltimore Cnty, MD Pollutn Ctl Rev Bethlehem
Steel Corp Proj Ser A Rfdg..................... 7.550 06/01/17 1,666,230
--------------
MASSACHUSETTS 2.0%
1,000 Boston, MA Rev Boston City Hosp Ser A (FHA Gtd)
(Prerefunded @ 08/15/00)....................... 7.625 02/15/21 1,090,300
1,400 Massachusetts Edl Ln Auth Rev Edl Ln Rev Muni
Forwards Issue E Ser A (AMBAC Insd)............ 7.000 01/01/10 1,498,028
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 6,044,442
1,500 Massachusetts St Indl Fin Agy Hillcrest Edl
Cent Inc Proj.................................. 8.450 07/01/18 1,738,680
5,000 Massachusetts St Indl Fin Agy Rev First Mtg
Reeds Landing Proj............................. 8.625 10/01/23 5,696,750
970 Massachusetts St Indl Fin Agy Rev Gtr Lynn
Mental Hlth Assoc Proj......................... 8.800 06/01/14 1,168,598
1,000 Massachusetts St Indl Fin Agy Rev Wtr Treatment
American Hingham............................... 6.600 12/01/15 1,091,440
2,000 Plymouth Cnty, MA Ctfs Partn Ser A............. 7.000 04/01/22 2,237,300
--------------
20,565,538
--------------
MICHIGAN 3.3%
3,500 Detroit, MI Downtown Dev Auth Tax Increment
Rev............................................ 6.200 07/01/17 3,812,900
</TABLE>
See Notes to Financial Statements
17
<PAGE> 131
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 1,000 Detroit, MI Local Dev Fin Auth Ser C........... 6.850% 05/01/21 $ 1,034,590
2,000 Grand Traverse Cnty, MI Hosp Fin Auth Hosp Rev
Munson Hlthcare Ser A Rfdg (AMBAC Insd)........ 6.250 07/01/12 2,161,140
1,500 Grand Valley MI St Univ Rev Gen (FGIC Insd).... 5.500 02/01/18 1,600,680
1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale
Cmty Hlth Cent................................. 5.250 05/15/26 1,354,164
1,750 Michigan St Hosp Fin Auth Rev Hosp Detroit Med
Group Ser A Rfdg (AMBAC Insd).................. 5.250 08/15/27 1,753,552
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd)............................ 5.500 10/01/18 1,019,670
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd)............................ 5.500 10/01/27 2,027,480
5,600 Michigan St Hsg Dev Auth Rental Hsg Rev Ser B
(AMBAC Insd)................................... 4.510 04/01/04 5,635,056
6,760 Michigan St Strategic Fd Ltd Oblig Rev Great
Lakes Pulp & Fiber Proj........................ 8.000 12/01/27 6,461,125
4,500 Michigan St Strategic Fd Solid Waste Disp Rev
Genesee Pwr Station Proj....................... 7.500 01/01/21 4,898,835
1,000 Mount Clemens, MI Hsg Corp Multi-Family Rev Hsg
Ser A Rfdg (FHA Gtd)........................... 6.600 06/01/13 1,062,550
--------------
32,821,742
--------------
MINNESOTA 0.4%
1,000 North Saint Paul, MN Multi-Family Rev Hsg
Cottages North Saint Paul Rfdg................. 9.250 02/01/22 1,072,800
2,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser
A Rfdg......................................... 5.000 01/01/16 1,960,020
1,250 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser
C.............................................. 5.000 01/01/17 1,219,788
--------------
4,252,608
--------------
MISSISSIPPI 0.7%
5,000 Lowndes Cnty, MS Solid Waste Disp & Pollutn Ctl
Rev Weyerhaeuser Co Rfdg (Inverse Fltg)........ 8.290 12/02/97 6,041,000
1,155 Ridgeland, MS Urban Renewal Rev the Orchard Ltd
Proj Ser A Rfdg................................ 7.750 12/01/15 1,263,674
--------------
7,304,674
--------------
MISSOURI 1.7%
1,000 Kansas City, MO Multi-Family Hsg Rev Vlg Green
Apts Proj...................................... 6.250 04/01/30 1,002,360
2,835 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A..................................... 5.750 10/01/06 3,046,491
2,000 Lees Summit, MO Indl Dev Auth Hlth Fac Rev John
Knox Vlg Proj Rfdg & Impt...................... 7.125 08/15/12 2,137,880
1,330 Missouri St Econ Dev Export & Infrastructure
Brd Med Office Fac Rev (MBIA Insd)............. 7.250 06/01/04 1,453,211
3,920 Missouri St Econ Dev Export & Infrastructure
Brd Med Office Fac Rev (Prerefunded @ 06/01/04)
(MBIA Insd).................................... 7.250 06/01/14 4,596,357
1,000 Missouri St Hlth & Edl Fac Auth Rfdg & Impt.... 8.125 10/01/10 1,074,760
</TABLE>
See Notes to Financial Statements
18
<PAGE> 132
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI (CONTINUED)
$ 2,165 Saint Louis Cnty, MO Indl Dev Auth Nursing Home
Rev Mary Queen & Mother Proj Rfdg (GNMA
Collateralized)................................ 7.125% 03/20/23 $ 2,350,237
880 Saint Louis, MO Tax Increment Rev Scullin Redev
Area Ser A..................................... 10.000 08/01/10 1,115,946
--------------
16,777,242
--------------
NEBRASKA 0.7%
1,100 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 11.287 09/10/30 1,233,375
750 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 9.341 09/15/24 842,812
4,100 Nebraska Invt Fin Auth Single Family Mtg Rev
(Inverse Fltg) (GNMA Collateralized)........... 9.913 10/17/23 4,597,125
--------------
6,673,312
--------------
NEVADA 0.7%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser
A (FGIC Insd).................................. 6.700 06/01/22 4,351,320
2,205 Henderson, NV Loc Impt Dist No T-4 Ser A....... 8.500 11/01/12 2,299,727
--------------
6,651,047
--------------
NEW HAMPSHIRE 0.7%
1,555 New Hampshire Higher Edl & Hlth Fac Auth Rev... 8.800 06/01/09 1,888,812
2,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
Daniel Webster College Issue Rfdg.............. 7.625 07/01/16 2,205,300
1,000 New Hampshire Higher Edl & Hlth Fac Auth Rev
New London Hosp Assn Proj...................... 7.500 06/01/05 1,137,150
980 New Hampshire St Business Fin Auth Elec Fac Rev
Plymouth Cogeneration.......................... 7.750 06/01/14 1,057,635
1,000 New Hampshire St Tpk Sys Rev Ser A Rfdg (FGIC
Insd).......................................... 6.750 11/01/11 1,163,360
--------------
7,452,257
--------------
NEW JERSEY 3.2%
400 Atlantic City, NJ Brd Edl Sch (Prerefunded @
12/01/02) (AMBAC Insd)......................... 6.125 12/01/11 439,536
250 Camden Cnty, NJ Impt Auth Lease Rev Cnty Gtd
(Prerefunded @ 10/01/04) (MBIA Insd)........... 6.150 10/01/14 280,180
2,000 Camden Cnty, NJ Impt Auth Lease Rev Dockside
Refrigerated................................... 8.400 04/01/24 2,260,440
500 Essex Cnty, NJ Impt Auth Lease Cnty Jail Proj A
(MBIA Insd).................................... 5.600 12/01/16 526,980
250 Essex Cnty, NJ Impt Auth Lease Jail & Youth
House Proj (Prerefunded @ 12/01/04) (AMBAC
Insd).......................................... 6.600 12/01/07 287,045
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC Insd)........ 5.375 09/01/10 389,673
250 Hudson Cnty, NJ Ctfs Partn Correctional Fac
Rfdg (MBIA Insd)............................... 6.600 12/01/21 270,965
250 Lacey Muni Util Auth NJ Wtr Rev (Prerefunded @
12/01/04) (MBIA Insd).......................... 6.250 12/01/24 282,167
250 Mercer Cnty, NJ Impt Auth Rev Cap Apprec....... * 04/01/11 136,193
6,130 Middlesex Cnty, NJ Util Auth Swr Rev Ser A Rfdg
(MBIA Insd).................................... 6.250 08/15/10 7,089,468
</TABLE>
See Notes to Financial Statements
19
<PAGE> 133
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 500 Millburn Twp, NJ Brd Ed........................ 5.350% 07/15/12 $ 533,120
1,000 New Jersey Bldg Auth St Bldg Rev............... 5.000 06/15/18 988,160
500 New Jersey Econ Dev Auth Dist Heating & Cooling
Rev Trigen Trenton Ser A....................... 6.200 12/01/10 533,100
2,000 New Jersey Econ Dev Auth Holt Hauling & Warehsg
Rev Ser G Rfdg................................. 8.400 12/15/15 2,204,100
300 New Jersey Econ Dev Auth Mkt Transition Fac Rev
Sr Lien Ser A (MBIA Insd)...................... 5.800 07/01/09 326,070
210 New Jersey Econ Dev Auth Pollutn Ctl Rev Pub
Svcs Elec & Gas Co Proj A (MBIA Insd).......... 6.400 05/01/32 228,579
1,900 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A....................... 8.500 11/01/16 2,107,100
350 New Jersey Econ Dev Auth Rev RWJ Hlthcare Corp
(FSA Insd)..................................... 6.250 07/01/14 384,933
1,000 New Jersey Econ Dev Auth Rev United Methodist
Homes.......................................... 7.500 07/01/20 1,117,160
1,000 New Jersey Econ Dev Auth Rev United Methodist
Homes Oblig Ser A.............................. 7.500 07/01/25 1,117,160
300 New Jersey Econ Dev Auth Wtr Fac Rev Hackensack
Wtr Co Proj B Rfdg (MBIA Insd)................. 5.900 03/01/24 316,707
490 New Jersey Hlthcare Fac Fin Auth Rev Atlantic
City Med Cent Ser C Rfdg....................... 6.800 07/01/11 540,107
700 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd)............. 7.000 07/01/04 795,697
400 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd)............. 7.000 07/01/06 466,436
250 New Jersey Hlthcare Fac Fin Auth Rev Englewood
Hosp & Med Cent................................ 6.700 07/01/15 275,318
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)..................... 6.000 07/01/06 278,430
250 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)..................... 6.750 07/01/19 302,477
400 New Jersey Hlthcare Fac Fin Auth Rev Jersey
Shore Med Cent Rfdg (AMBAC Insd)............... 6.250 07/01/21 439,924
500 New Jersey Hlthcare Fac Fin Auth Rev Southern
Ocean Cnty Hosp Ser A.......................... 6.125 07/01/13 528,355
400 New Jersey Sports & Exposition Auth Convention
Cent Luxury Tax Rev Ser A Rfdg (MBIA Insd)..... 6.250 07/01/20 434,532
200 New Jersey St Edl Fac Auth Rev Caldwell College
Ser A.......................................... 7.250 07/01/25 217,908
250 New Jersey St Edl Fac Auth Rev Glassboro St
College Ser A (Prerefunded @ 07/01/01) (MBIA
Insd).......................................... 6.700 07/01/21 273,548
270 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer
Ser K (MBIA Insd).............................. 6.375 10/01/26 289,424
</TABLE>
See Notes to Financial Statements
20
<PAGE> 134
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer
Ser O (MBIA Insd).............................. 6.300% 10/01/23 $ 534,240
500 New Jersey St Hsg & Mtg Fin Agy Rev Home Buyer
Ser S (MBIA Insd).............................. 6.000 10/01/21 527,100
3,480 New Jersey St Tpk Auth Tpk Rev Ser C Rfdg (MBIA
Insd).......................................... 6.500 01/01/16 4,122,512
300 Union City, NJ (FSA Insd)...................... 6.375 11/01/10 351,072
--------------
32,195,916
--------------
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 2,803,775
--------------
NEW YORK 11.4%
2,805 Clifton Springs, NY Hosp & Clinic Hosp Rev
Rfdg........................................... 8.000 01/01/20 3,121,909
3,640 Metropolitan Tran Auth NY Commuter Fac Rev Svcs
Contract Ser R Rfdg............................ 5.500 07/01/17 3,730,054
5,000 Metropolitan Tran Auth NY Svcs Contract Tran
Fac Ser 5 Rfdg................................. 7.000 07/01/12 5,448,200
3,500 Metropolitan Tran Auth NY Svcs Contract Tran
Fac Ser 7 Rfdg................................. 4.750 07/01/19 3,268,370
1,395 Metropolitan Tran Auth NY Trans Fac Rev Ser B
(FGIC Insd) (c)................................ 4.750 07/01/26 1,313,727
1,000 New York City Indl Dev Agy Civic Fac Marymount
Manhattan College Proj......................... 7.000 07/01/23 1,076,200
7,500 New York City Indl Dev Agy Spl Fac United Airls
Inc Proj....................................... 5.650 10/01/32 7,621,050
4,100 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser B...................................... 5.000 06/15/17 4,023,576
5,000 New York City Ser A............................ 7.000 08/01/07 5,819,300
2,500 New York City Ser B............................ 7.500 02/01/07 2,788,500
945 New York City Ser C (Prerefunded @ 08/01/02)... 6.500 08/01/04 1,042,061
4,055 New York City Ser C............................ 6.500 08/01/04 4,422,626
640 New York City Ser C Subser C1.................. 7.500 08/01/20 716,614
2,000 New York City Ser D Rfdg....................... 8.000 02/01/05 2,383,120
2,200 New York City Ser E............................ 5.700 08/01/08 2,340,646
5,000 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 5,137,250
2,750 New York St Dorm Auth Rev Court Fac Lease Ser
A.............................................. 5.500 05/15/10 2,846,773
2,295 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A.......................................... 5.750 02/15/11 2,457,876
2,285 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A.......................................... 5.750 02/15/12 2,435,467
3,400 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser B.......................................... 5.500 08/15/17 3,494,826
2,500 New York St Dorm Auth Rev Secured Hospital
Bronx Lebanon Rfdg............................. 5.200 02/15/14 2,510,250
2,500 New York St Energy Resh & Dev Auth Gas Fac Rev
(Inverse Fltg)................................. 8.406 04/01/20 3,121,875
3,000 New York St Energy Resh & Dev Auth Gas Fac Rev
Brooklyn Union Gas Co Ser B (Inverse Fltg)..... 9.944 07/01/26 3,948,750
</TABLE>
See Notes to Financial Statements
21
<PAGE> 135
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 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 $ 2,286,900
185 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A............................ 7.750 08/15/11 203,445
175 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser C............................ 7.300 02/15/21 193,387
2,400 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg....................................... 5.625 01/01/07 2,519,040
10,000 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg....................................... 5.000 01/01/19 9,645,800
20,500 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser A Rfdg (FSA Insd) (b).................. 5.250 01/01/14 21,431,930
1,200 Port Auth NY & NJ Cons 95th Ser................ 6.125 07/15/22 1,287,924
500 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd)............... 5.750 12/01/25 524,620
1,500 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A................ 6.375 12/01/17 1,516,755
--------------
114,678,821
--------------
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 2,541,475
--------------
OHIO 2.1%
1,250 Cleveland Cuyahoga Cnty, OH Port Auth Rev Dev
Port Cleveland Bond Fund Ser A................. 5.750 05/15/20 1,254,550
755 Cleveland Cuyahoga Cnty, OH Port Auth Rev Dev
Port Cleveland Bond Fund Ser A................. 5.800 05/15/27 756,487
500 Cleveland, OH Pkg Fac Rev Impt (Prerefunded @
09/15/02)...................................... 8.000 09/15/12 581,255
1,000 Cuyahoga Cnty, OH Hlthcare Fac Rev Jennings
Hall........................................... 7.300 11/15/23 1,093,790
370 Fairfield, OH Econ Dev Rev Beverly Enterprises
Inc Proj Rfdg.................................. 8.500 01/01/03 402,697
1,750 Franklin Cnty, OH Hlthcare Friendship Vlg
Dublin, OH Rfdg................................ 5.625 11/01/22 1,770,283
6,340 Ohio Hsg Fin Agy Single Family Mtg Rev Ser B
(Inverse Fltg) (GNMA Collateralized)........... 9.770 03/31/31 7,116,650
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding
Ltd Partn Proj Rfdg (AMBAC Insd)............... 6.375 04/01/29 1,092,450
1,000 Ohio St Solid Waste Rev CSC Ltd Poj............ 8.500 08/01/22 1,064,970
4,000 Ohio St Solid Waste Rev Republic Engineered
Steels Proj.................................... 8.250 10/01/14 4,152,760
2,000 Ohio St Solid Waste Rev Republic Engineered
Steels Proj.................................... 9.000 06/01/21 2,159,580
--------------
21,445,472
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 136
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OKLAHOMA 0.6%
$ 1,980 McAlester, OK Pub Wks Auth Rev Rfdg & Impt (FSA
Insd).......................................... 5.250% 12/01/22 $ 1,988,435
2,525 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized).................. 7.997 08/01/18 2,879,991
1,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc............................................ 7.600 12/01/30 1,091,780
--------------
5,960,206
--------------
OREGON 0.3%
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp.... 6.350 08/01/25 2,139,980
475 Salem, OR Hosp Fac Auth Rev Cap Manor Inc...... 7.500 12/01/24 519,498
--------------
2,659,478
--------------
PENNSYLVANIA 4.1%
500 Chartiers Vly, PA Indl & Commercial Dev Auth
First Mtg Rev.................................. 7.250 12/01/11 518,200
5,000 Chester Cnty, PA Hlth & Edl Fac Auth Hlth Sys
Rev (AMBAC Insd) (b)........................... 5.650 05/15/20 5,161,450
150 Delaware River Port Auth PA (FGIC Insd)........ 5.500 01/01/26 155,101
1,750 Emmaus, PA Genl Auth Rev Ser A (BIGI Insd)..... 8.150 05/15/18 1,768,235
2,500 Emmaus, PA Genl Auth Rev Ser C (BIGI Insd)..... 7.900 05/15/18 2,567,750
1,400 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd)... * 09/01/25 345,212
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd).................................... * 06/18/15 2,831,250
1,320 Harrisburg, PA Cap Apprec Nts Ser D Rfdg....... * 09/15/16 525,769
1,535 Harrisburg, PA Cap Apprec Nts Ser D Rfdg....... * 09/15/19 519,951
1,000 Lebanon Cnty, PA Hlth Fac Auth Hlth Cent Rev
United Church of Christ Homes Rfdg............. 6.750 10/01/10 1,014,390
930 Lehigh Cnty, PA Indl Dev Auth Rev Rfdg......... 8.000 08/01/12 1,000,606
1,275 Luzerne Cnty, PA Indl Dev Auth First Mtg Gross
Rev Rfdg....................................... 7.875 12/01/13 1,405,751
1,500 McKean Cnty, PA Hosp Auth Hosp Rev Bradford
Hosp Proj (Crossover Rfdg @ 10/01/00).......... 8.875 10/01/20 1,679,325
3,000 Montgomery Cnty, PA Higher Edl & Hlth Auth Hosp
Rev (Embedded Swap) (AMBAC Insd)............... 8.690 06/01/12 3,303,090
1,000 Montgomery Cnty, PA Indl Dev Auth Retirement
Cmnty Rev...................................... 6.300 01/01/13 1,014,000
1,000 Montgomery Cnty, PA Indl Dev Auth Rev Res
Recov.......................................... 7.500 01/01/12 1,095,980
7,940 Pennsylvania St Ctfs Partn Ser A Rfdg (AMBAC
Insd).......................................... 5.000 07/01/15 7,792,951
3,150 Philadelphia, PA Auth for Indl Dev Rev Coml Dev
RMK Rfdg....................................... 7.750 12/01/17 3,560,445
685 Philadelphia, PA Hosp & Higher Edl Fac Auth
Hosp Rev....................................... 7.250 03/01/24 725,299
1,450 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A
Rfdg Hosp Auth Rev Ser 1993A................... 6.000 12/01/13 1,516,047
1,000 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Allied Svcs Rehab Hosp Ser A................... 7.375 07/15/08 1,113,210
500 Scranton Lackawanna, PA Hlth & Welfare Auth Rev
Moses Taylor Hosp Proj (Prerefunded @
07/01/01)...................................... 8.250 07/01/09 566,995
</TABLE>
See Notes to Financial Statements
23
<PAGE> 137
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,000 Washington Cnty, PA Hosp Auth Rev Hosp
Canonsburg Genl Hosp Rfdg...................... 7.350% 06/01/13 $ 1,064,390
--------------
41,245,397
--------------
RHODE ISLAND 0.5%
2,000 Providence, RI Redev Agy Ctfs Partn Ser A...... 8.000 09/01/24 2,207,460
2,345 Rhode Island Hsg & Mtg Fin Corp Rental Hsg Pgm
Ser B (FHA Gtd)................................ 7.950 10/01/30 2,460,655
600 West Warwick, RI Ser A......................... 7.300 07/15/08 670,026
--------------
5,338,141
--------------
SOUTH CAROLINA 0.4%
3,000 Charleston Cnty, SC Arpt Dist Rfdg (MBIA
Insd).......................................... 4.750 07/01/15 2,893,140
1,070 Piedmont Muni Pwr Agy SC Elec Rev.............. 5.000 01/01/25 1,003,607
--------------
3,896,747
--------------
SOUTH DAKOTA 0.1%
1,000 South Dakota St Hlth & Edl Fac Auth Rev Huron
Regl Med Cent.................................. 7.250 04/01/20 1,121,850
--------------
TENNESSEE 0.2%
2,000 Springfield, TN Hlth & Edl Jesse Holman Jones
Hosp Proj...................................... 8.500 04/01/24 2,347,740
--------------
TEXAS 5.3%
1,000 Austin, TX Arpt Sys Rev Prior Lien Ser A (MBIA
Insd).......................................... 6.125 11/15/25 1,082,830
500 Baytown, TX Pptys Mgmt & Dev Corp Ser A (FNMA
Collateralized)................................ 6.100 08/15/21 514,550
140 Bell Cnty, TX Hlth Fac Dev Corp Rev Hosp
Proj........................................... 9.250 07/01/08 149,237
2,000 Bell Cnty, TX Indl Dev Corp Solid Waste
Disposal Rev................................... 7.600 12/01/17 2,021,240
500 Bexar Cnty, TX Hlth Fac Dev Corp Hosp Rev Saint
Luke's Lutheran Hosp........................... 7.000 05/01/21 631,605
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 1,733,745
317 Bexar Cnty, TX Hsg Fin Corp Rev Ser A (GNMA
Collateralized)................................ 8.200 04/01/22 331,515
195 Bexar Cnty, TX Hsg Fin Corp Rev Ser B (GNMA
Collateralized)................................ 9.250 04/01/16 201,029
10,000 Brazos River Auth TX Pollutn Ctl Rev Adj
Collateral Util Elec Co Rfdg................... 5.550 06/01/30 10,003,300
1,675 Cedar Hill, TX Indpt Sch Dist Cap Apprec
Rfdg........................................... * 08/15/15 661,039
625 Clear Creek, TX Indpt Sch Dist (Prerefunded @
02/01/01)...................................... 6.250 02/01/11 659,594
250 Coastal Wtr Auth TX Conveyance Sys Rev (AMBAC
Insd).......................................... 6.250 12/15/17 276,030
940 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev American Airls Inc......................... 7.500 11/01/25 1,014,589
250 El Paso, TX Hsg Auth Multi-Family Rev Ser A.... 6.250 12/01/09 264,038
100 Galveston, TX Ppty Fin Auth Single Family Mtg
Rev Ser A...................................... 8.500 09/01/11 108,105
250 Guadalupe Blanco River Auth TX Indl Dev Corp
Pollutn Ctl Rev................................ 6.350 07/01/22 270,808
1,250 Harris Cnty, TX Hlth Fac Dev Corp Mem Hosp Sys
Proj Rfdg...................................... 7.125 06/01/15 1,398,287
</TABLE>
See Notes to Financial Statements
24
<PAGE> 138
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 250 Harris Cnty, TX Muni Util Dist No 120
(Prerefunded @ 08/01/01)....................... 8.000% 08/01/14 $ 278,020
375 Harris Cnty, TX Sch Hlthcare Corp Sys Rev
(Prerefunded @ 07/01/01)....................... 7.100 07/01/21 413,850
4,500 Houston, TX Wtr & Sewer Sys Rev Cap Apprec Jr
Lien Ser A Rfdg (FSA Insd)..................... * 12/01/23 1,214,325
1,250 Irving, TX Indpt Sch Dist Cap Apprec Ser A
Rfdg........................................... * 02/15/17 480,475
1,000 Irving, TX Indpt Sch Dist Cap Apprec Ser A
Rfdg........................................... * 02/15/18 363,750
250 Lockhart, TX Correctional Fac Fin Corp Rev
(MBIA Insd).................................... 6.625 04/01/12 267,095
3,500 North Central TX Hlth Fac Dev Corp Rev
Presbyterian Hlthcare Sys Ser C (Inverse Fltg)
(Prerefunded @ 06/19/01) (MBIA Insd)........... 9.094 06/22/21 4,134,375
750 Northwest Harris Cnty, TX Muni Util Dist No 23
(Prerefunded @ 04/01/01)....................... 8.100 10/01/15 827,992
2,600 Rockwall TX Ind Sch Dist Cap Apprec Rfdg (c)... * 08/15/24 633,646
3,560 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg
(c)............................................ * 08/15/20 1,082,311
250 San Antonio, TX Hlth Fac Dev Corp Rev Encore
Nursing Cent Partn............................. 8.250 12/01/19 279,230
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt.................................... 7.000 05/15/28 274,053
250 Tarrant Cnty, TX Hlth Fac Dev Corp Hosp Rev
Rfdg & Impt (Prerefunded @ 05/15/03)........... 7.000 05/15/28 284,100
2,000 Tarrant Cnty, TX Hlth Fac Dev Corp Rev (MBIA
Insd).......................................... 6.000 01/01/37 2,188,300
257 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/09 264,220
500 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/19 513,500
500 Texas Genl Svcs Cmnty Partn Interests Office
Bldg & Land Acquisition Proj................... 7.000 08/01/24 513,500
902 Texas Genl Svcs Cmnty Partn Interests.......... 7.500 02/01/13 923,811
110 Texas Hsg Agy Single Family Mtg Rev Ser A
Rfdg........................................... 7.150 09/01/12 117,453
5,250 Texas St Dept Hsg & Cmnty Affairs Home Mtg Rev
Coll Ser C Rfdg (Inverse Fltg) (GNMA
Collateralized)................................ 9.776 04/03/98 6,510,000
260 Texas St Higher Edl Brd College Sr Lien........ 7.700 10/01/25 279,417
4,025 Texas St Higher Edl Coordinating Brd College
Student Ln..................................... * 10/01/25 4,240,619
1,000 Texas St Veterans Hsg Assist................... 6.800 12/01/10 1,074,570
1,245 Texas St Veterans Hsg Assist (MBIA Insd)....... 6.800 12/01/23 1,342,708
2,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics....... 8.200 03/15/21 2,488,432
3,245 Wylie, TX Independent Sch Dist Cap Apprec
Rfdg........................................... * 08/15/26 726,263
--------------
53,037,556
--------------
</TABLE>
See Notes to Financial Statements
25
<PAGE> 139
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH 3.2%
$ 3,075 Bountiful, UT Hosp Rev South Davis Cmnty Hosp
Proj........................................... 9.500% 12/15/18 $ 3,696,396
1,340 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/15 1,419,851
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 8.000 09/01/20 1,073,130
1,000 Hildale, UT Elec Rev Gas Turbine Elec Fac
Proj........................................... 7.800 09/01/25 1,058,360
5,500 Intermountain Pwr Agy UT Pwr Supply Rev........ 5.000 07/01/21 5,349,795
1,850 Intermountain Pwr Agy UT Pwr Supply Rev Ser
86B............................................ 5.000 07/01/16 1,808,135
3,650 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg........................................... 7.750 07/01/20 3,733,694
11,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Embedded Swap)................................ 7.190 02/15/12 12,304,710
945 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1
(FHA Gtd)...................................... 7.100 07/01/14 1,016,867
945 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A2
(FHA Gtd)...................................... 7.200 01/01/27 1,016,064
--------------
32,477,002
--------------
VIRGINIA 1.7%
2,000 Fairfax Cnty, VA Park Auth Park Fac Rev........ 6.625 07/15/14 2,164,600
3,500 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Prerefunded @ 08/15/01) (FGIC Insd)........... 6.600 08/15/23 3,823,925
2,080 Loudoun Cnty, VA Ctfs Partn (FSA Insd)......... 6.800 03/01/14 2,330,286
1,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)......... 6.900 03/01/19 1,125,260
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem
Hosp Carilion Hlth Sys Ser B Rfdg (MBIA
Insd) (b)...................................... 4.700 01/01/00 5,247,900
2,650 Virginia St Pub Bldg Auth Ser A................ 5.500 08/01/16 2,779,426
--------------
17,471,397
--------------
WASHINGTON 1.4%
5,000 Chelan Cnty, WA Pub Util Dist Cap Apprec Rfdg A
(MBIA Insd).................................... * 06/01/28 1,054,250
6,285 Chelan Cnty, WA Pub Util Dist Cap Apprec Rfdg A
(MBIA Insd).................................... * 06/01/24 1,636,300
2,000 King Cnty, WA Ser D............................ 5.700 12/01/10 2,192,780
1,250 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev (FGIC Insd)........................... 7.125 07/01/16 1,550,775
3,555 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser C Rfdg (FSA Insd)................. 5.375 07/01/15 3,606,725
3,750 Washington St Pub Pwr Supply Sys Nuclear Proj
No 3 Rev Ser C Rfdg (FSA Insd)................. 5.375 07/01/15 3,804,562
--------------
13,845,392
--------------
WEST VIRGINIA 0.7%
6,750 South Charleston, WV Indl Dev Rev Union Carbide
Chem & Plastics Ser A.......................... 8.000 08/01/20 7,265,430
--------------
WISCONSIN 1.2%
750 Jefferson, WI Swr Sys Wtrwrks & Elec Sys Mtg
Rev (Prerefunded @ 07/01/01)................... 7.400 07/01/16 821,370
1,000 Oconto Falls, WI Cmnty Dev Oconto Falls Tissue
Inc Proj....................................... 7.750 12/01/22 1,051,390
</TABLE>
See Notes to Financial Statements
26
<PAGE> 140
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 1,250 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/21 $ 373,187
1,250 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/22 354,450
1,250 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev.................................. * 12/15/23 336,638
1,000 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/26 230,100
3,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/27 764,610
3,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev.................................. * 12/15/28 726,110
3,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev (MBIA Insd)...................... * 12/15/29 689,360
2,150 Wisconsin Hsg & Econ Dev Auth Home Ownership
Rev Rfdg (Inverse Fltg)........................ 10.057% 10/25/22 2,413,375
600 Wisconsin St Hlth & Edl Fac Auth Rev Hess Mem
Hosp Assn...................................... 7.200 11/01/05 640,140
1,000 Wisconsin St Hlth & Edl Fac Auth Rev United
Lutheran Proj Aging Inc........................ 8.500 03/01/19 1,035,720
2,000 Wisconsin St Hlth & Edl Milwaukee Catholic Home
Proj........................................... 7.500 07/01/26 2,207,620
--------------
11,644,070
--------------
GUAM 0.0%
250 Guam Govt Ser A................................ 5.750 09/01/04 252,005
--------------
PUERTO RICO 4.1%
200 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
V Rfdg......................................... 6.625 07/01/12 219,734
5,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser
Y.............................................. 5.500 07/01/36 5,279,200
36,105 Puerto Rico Comwlth Hwy & Tran Auth Tran Rev
Ser A.......................................... 4.750 07/01/38 34,045,571
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser T
(Prerefunded @ 07/01/04)....................... 6.375 07/01/24 282,270
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser U Rfdg... 6.000 07/01/14 270,748
250 Puerto Rico Elec Pwr Auth Pwr Rev Ser Z Rfdg... 5.500 07/01/14 258,150
</TABLE>
See Notes to Financial Statements
27
<PAGE> 141
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO (CONTINUED)
$ 465 Puerto Rico Hsg Bank & Fin Agy Single Family
Mtg Rev (GNMA Collateralized).................. 6.250% 04/01/29 $ 491,235
300 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth
Fac Ser M Rfdg (FSA Insd)...................... 5.750 07/01/15 316,023
--------------
41,162,931
--------------
TOTAL LONG-TERM INVESTMENTS 99.4%
(Cost $890,736,085)....................................................... 970,135,798
SHORT-TERM INVESTMENTS 1.8%
(Cost $17,700,000)........................................................ 17,700,000
--------------
TOTAL INVESTMENTS 101.2%
(Cost $908,436,085)....................................................... 987,835,798
OTHER ASSETS IN EXCESS OF LIABILITIES (1.2%)............................... 17,824,759
--------------
NET ASSETS 100.0%.......................................................... $1,005,660,557
==============
</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.
(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.
ACA--American Capital Access
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
28
<PAGE> 142
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $908,436,085)....................... $ 987,835,798
Cash........................................................ 107,936
Receivables:
Fund Shares Sold.......................................... 20,613,801
Interest.................................................. 16,691,798
Investments Sold.......................................... 6,136,949
Other....................................................... 22,012
--------------
Total Assets.......................................... 1,031,408,294
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 21,386,311
Income Distributions...................................... 2,086,720
Distributor and Affiliates................................ 1,025,722
Fund Shares Repurchased................................... 514,567
Investment Advisory Fee................................... 430,305
Trustees' Deferred Compensation and Retirement Plans........ 160,179
Accrued Expenses............................................ 143,933
--------------
Total Liabilities..................................... 25,747,737
--------------
NET ASSETS.................................................. $1,005,660,557
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 940,571,236
Net Unrealized Appreciation................................. 79,399,713
Accumulated Undistributed Net Investment Income............. 600,632
Accumulated Net Realized Loss............................... (14,911,024)
--------------
NET ASSETS.................................................. $1,005,660,557
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $785,937,321 and 49,976,424 shares of
beneficial interest issued and outstanding)........... $ 15.73
Maximum sales charge (4.75%* of offering price)......... .78
--------------
Maximum offering price to public........................ $ 16.51
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $205,468,292 and 13,071,321 shares of
beneficial interest issued and outstanding)........... $ 15.72
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,254,944 and 907,828 shares of
beneficial interest issued and outstanding)........... $ 15.70
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
29
<PAGE> 143
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $31,135,439
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,355,248
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $878,315, $1,030,958 and $73,859,
respectively)............................................. 1,983,132
Shareholder Services........................................ 391,371
Trustees' Fees and Expenses................................. 26,418
Legal....................................................... 19,164
Custody..................................................... 10,236
Other....................................................... 205,889
-----------
Total Expenses.......................................... 4,991,458
-----------
NET INVESTMENT INCOME....................................... $26,143,981
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 6,624,401
Options................................................... 57,231
Futures................................................... (3,791,618)
-----------
Net Realized Gain........................................... 2,890,014
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 84,570,511
End of the Period:
Investments............................................. 79,399,713
-----------
Net Unrealized Depreciation During the Period............... (5,170,798)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(2,280,784)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $23,863,197
===========
</TABLE>
See Notes to Financial Statements
30
<PAGE> 144
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 26,143,981 $ 53,413,395
Net Realized Gain...................................... 2,890,014 10,327,114
Net Unrealized Appreciation/Depreciation During the
Period............................................... (5,170,798) 23,723,238
--------------- -------------
Change in Net Assets from Operations................... 23,863,197 87,463,747
--------------- -------------
Distributions from Net Investment Income:
Class A Shares....................................... (20,893,656) (43,085,857)
Class B Shares....................................... (4,837,318) (9,834,294)
Class C Shares....................................... (347,481) (604,662)
--------------- -------------
Total Distributions................................ (26,078,455) (53,524,813)
--------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... (2,215,258) 33,938,934
--------------- -------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold.............................. 394,052,975 535,028,913
Net Asset Value of Shares Issued Through Dividend
Reinvestment......................................... 13,334,682 27,237,798
Cost of Shares Repurchased............................. (392,122,097) (619,837,342)
--------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... 15,265,560 (57,570,631)
--------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS.................. 13,050,302 (23,631,697)
NET ASSETS:
Beginning of the Period................................ 992,610,255 1,016,241,952
--------------- -------------
End of the Period (Including accumulated undistributed
net investment income of $600,632 and $535,106,
respectively)........................................ $ 1,005,660,557 $ 992,610,255
=============== =============
</TABLE>
See Notes to Financial Statements
31
<PAGE> 145
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended --------------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.767 $15.267 $15.549 $14.261 $16.164
------- ------- ------- ------- -------
Net Investment Income............ .425 .852 .898 .874 .886
Net Realized and Unrealized
Gain/Loss...................... (.043) .500 (.298) 1.296 (1.907)
------- ------- ------- ------- -------
Total from Investment Operations... .382 1.352 .600 2.170 (1.021)
Less Distributions from Net
Investment Income................ .423 .852 .882 .882 .882
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $15.726 $15.767 $15.267 $15.549 $14.261
======= ======= ======= ======= =======
Total Return (a)................... 2.46%* 9.14% 4.07% 15.61% (6.37%)
Net Assets at End of the Period (In
millions)........................ $785.9 $766.2 $792.3 $839.7 $495.8
Ratio of Expenses to Average Net
Assets (b)....................... .83% .89% .94% .99% .99%
Ratio of Net Investment Income to
Average Net Assets (b)........... 5.45% 5.54% 5.93% 5.86% 5.93%
Portfolio Turnover................. 64%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized.
See Notes to Financial Statements
32
<PAGE> 146
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended --------------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $15.764 $15.267 $15.549 $14.261 $16.139
------- ------- ------- ------- -------
Net Investment Income............ .364 .734 .783 .762 .780
Net Realized and Unrealized
Gain/Loss...................... (.043) .501 (.297) 1.294 (1.890)
------- ------- ------- ------- -------
Total from Investment Operations... .321 1.235 .486 2.056 (1.110)
Less Distributions from Net
Investment Income................ .366 .738 .768 .768 .768
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $15.719 $15.764 $15.267 $15.549 $14.261
======= ======= ======= ======= =======
Total Return (a)................... 2.09%* 8.27% 3.29% 14.74% (6.96%)
Net Assets at End of the Period (In
millions)........................ $205.5 $211.2 $211.0 $216.6 $158.7
Ratio of Expenses to Average
Net Assets (b)................... 1.61% 1.65% 1.70% 1.73% 1.70%
Ratio of Net Investment Income to
Average Net Assets (b)........... 4.67% 4.78% 5.17% 5.09% 5.22%
Portfolio Turnover................. 64%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
33
<PAGE> 147
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one common share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended --------------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $15.747 $15.254 $15.545 $14.262 $16.141
------- ------- ------- ------- -------
Net Investment Income.................. .364 .730 .782 .771 .783
Net Realized and Unrealized
Gain/Loss............................ (.043) .501 (.305) 1.280 (1.894)
------- ------- ------- ------- -------
Total from Investment Operations......... .321 1.231 .477 2.051 (1.111)
Less Distributions from Net Investment
Income................................. .366 .738 .768 .768 .768
------- ------- ------- ------- -------
Net Asset Value, End of the Period....... $15.702 $15.747 $15.254 $15.545 $14.262
======= ======= ======= ======= =======
Total Return (a)......................... 2.03%* 8.34% 3.16% 14.74% (6.97%)
Net Assets at End of the Period (In
millions).............................. $14.3 $15.3 $12.9 $11.2 $3.9
Ratio of Expenses to Average Net Assets
(b).................................... 1.61% 1.66% 1.70% 1.72% 1.74%
Ratio of Net Investment Income to Average
Net Assets (b)......................... 4.67% 4.75% 5.17% 5.24% 5.19%
Portfolio Turnover....................... 64%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
34
<PAGE> 148
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Income Fund, formerly known as Van Kampen American Capital
Municipal Income Fund, (the "Fund") is organized as a series of the Van Kampen
Tax Free Trust, a Delaware business trust, and is registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended. The Fund's investment objective is to provide a high level of
current income exempt from federal income tax, consistent with preservation of
capital. The Fund commenced investment operations on August 1, 1990. The
distribution of the Fund's Class B and Class C shares commenced on August 24,
1992 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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
35
<PAGE> 149
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $17,738,846 which will expire between December
31, 2002 and December 31, 2003. Net realized gains or losses differ for
financial reporting and tax purposes primarily as a result of the deferral of
losses for tax purposes resulting from wash sale transactions and gains or
losses recognized for tax purposes on open futures positions.
At June 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $908,436,085; the aggregate gross unrealized
appreciation is $83,829,661 and the aggregate gross unrealized depreciation is
$4,429,948, resulting in net unrealized appreciation of $79,399,713.
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.
36
<PAGE> 150
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET
ASSETS
- ----------------------------------------------------------------------
<S> <C>
First $500 million........................................ .50 of 1%
Over $500 million......................................... .45 of 1%
</TABLE>
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $12,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $145,000 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 six months ended
June 30, 1998, the Fund recognized expenses of approximately $248,300. 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 June 30, 1998, Van Kampen owned 7,025 Class A shares and 98 shares each
of Classes B and C.
37
<PAGE> 151
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 June 30, 1998, capital aggregated $729,414,122, $197,465,090 and
$13,692,024 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 24,381,598 $ 383,367,418
Class B.................................. 583,464 9,184,178
Class C.................................. 95,611 1,501,379
----------- -------------
Total Sales................................ 25,060,673 $ 394,052,975
=========== =============
Dividend Reinvestment:
Class A.................................. 673,373 $ 10,585,285
Class B.................................. 162,063 2,546,808
Class C.................................. 12,903 202,589
----------- -------------
Total Dividend Reinvestment................ 848,339 $ 13,334,682
=========== =============
Repurchases:
Class A.................................. (23,672,374) $(372,598,712)
Class B.................................. (1,070,062) (16,839,848)
Class C.................................. (170,938) (2,683,537)
----------- -------------
Total Repurchases.......................... 24,913,374 $(392,122,097)
=========== =============
</TABLE>
At December 31, 1997, capital aggregated $708,060,131, $202,573,952 and
$14,671,593 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 33,152,701 $ 506,790,274
Class B.................................. 1,551,226 23,205,097
Class C.................................. 328,583 5,033,542
----------- -------------
Total Sales................................ 35,032,510 $ 535,028,913
=========== =============
</TABLE>
38
<PAGE> 152
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Dividend Reinvestment:
Class A.................................. 1,410,217 $ 21,710,873
Class B.................................. 338,503 5,210,731
Class C.................................. 20,537 316,194
----------- -------------
Total Dividend Reinvestment................ 1,769,257 $ 27,237,798
=========== =============
Repurchases:
Class A.................................. (37,868,614) $(580,864,995)
Class B.................................. (2,313,649) (35,527,835)
Class C.................................. (225,699) (3,444,512)
----------- -------------
Total Repurchases.......................... (40,407,962) $(619,837,342)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares 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 six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $50,900 and CDSC on redeemed shares of approximately $153,900.
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
39
<PAGE> 153
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $651,728,237 and $712,105,768,
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.
40
<PAGE> 154
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997............. -0- $ -0-
Options Written and Purchased (Net).......... 8,850 677,769
Options Terminated in Closing Transactions
(Net)...................................... (4,450) (853,524)
Options Expired (Net)........................ (4,400) 175,755
------- -----------
Outstanding at June 30, 1998................. -0- $ -0-
======= ===========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997.......................... 111
Futures Opened............................................ 14,964
Futures Closed............................................ (15,075)
-------
Outstanding at June 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.
41
<PAGE> 155
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended June 30,1998, are payments retained by Van Kampen
of approximately $812,600.
42
<PAGE> 156
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
Global Equity
Global Equity Allocation
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 and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
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.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a 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.VAN-KAMPEN.COM and selecting Investors' Place
43
<PAGE> 157
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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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
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 December 31, 1998, the report, if used by
prospective investors, must be accompanied by a quarterly performance update.
44
<PAGE> 158
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
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
</TABLE>
INF SAR 8/98
<PAGE> 159
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal [PHOTO]
name to Van Kampen Funds Inc.
You can be assured that the DENNIS J. MCDONNELL AND DON G. POWELL
change in your fund's name will not
affect its management or daily
operations. You will begin seeing the
application of this change with this report. In addition, as of August 31, your
fund will be listed in the daily newspapers by share class under the heading
"Van Kampen Funds." For your convenience, we have enclosed a separate brochure
that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies
Continued on page two
1
<PAGE> 160
were beginning to recover. When weakness in the Japanese yen undercut that
recovery, long-term interest rates resumed their decline.
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment
Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment
Advisory Corp.
2
<PAGE> 161
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV(1)... 2.81% 2.46% 2.46%
Six-month total return(2)................ (.50%) (.54%) 1.46%
One-year total return(2)................. 4.67% 4.31% 6.41%
Five-year average annual total
return(2)................................ 5.75% 5.67% N/A
Life-of-Fund average annual total
return(2)................................ 6.01% 5.95% 4.89%
Commencement date........................ 05/28/93 05/28/93 10/19/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.44% 3.91% 3.91%
Taxable equivalent distribution
rate(4).................................. 6.94% 6.11% 6.11%
SEC Yield(5)............................. 3.04% 2.45% 2.47%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for A shares) or
contingent deferred sales charge for early withdrawal (3% for B shares and 1%
for C shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 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.
3
<PAGE> 162
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 163
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 164
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 first half of the Fund's fiscal year. The team includes
Timothy D. Haney, portfolio manager, and Peter W. Hegel, chief investment
officer for fixed-income investments. The following excerpts reflect their views
on the Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries.
The difference between the yields on securities of varying credit quality
has been very narrow. An example of this "yield spread" is the municipal bond
issue brought to market by Long Island Power Authority (LIPA) in May to finance
its takeover of the Long Island Lighting Company. This $3.4 billion issue--the
largest municipal bond issue in history--was split among two credit ratings: a
portion of the issue was insured and had a AAA rating, while the remaining
uninsured portion came to market with LIPA's BBB rating. The yield spread
between the insured, AAA-rated portion and the BBB-rated securities was only
6
<PAGE> 165
17 basis points (0.17 percentage points). While the long-term portion of this
issue was attractive, we felt the intermediate-range portion was too expensive,
so the Fund did not participate in this particular bond issue.
Q HOW HAS THE PORTFOLIO CHANGED OVER THE LAST SIX MONTHS?
A The Fund was well positioned for the conditions we encountered in the
first half of the year, and has subsequently done quite well. So, on the
whole, we made only minor adjustments in the Fund's portfolio.
Cash flow into the Fund from new purchases was strong, and we tried to put
this money to work by looking for suitable holdings in the BBB and non-rated
sectors, because these securities help to bolster the Fund's income component.
Our allocation to non-rated securities remained at 29 percent, with 21 percent
in BBB-rated securities.
Overall, our goal is to keep assets flowing into securities that will
outperform the market over time. Based on our research, we targeted the
excellent potential value in the hospital and nursing care sectors, where we see
the opportunity for competitive returns with a reasonable margin of safety.
This philosophy also steered us toward some of the lower-rated,
shorter-maturity issues that our high yield research group has evaluated. That's
one of the advantages of having a strong research team--we can purchase bond
issues that might be too inefficient or costly for others to examine closely.
For additional Fund portfolio highlights, please refer to page nine.
Q YOU ALLUDED TO THE FUND'S PERFORMANCE EARLIER. HAS IT DONE WELL?
A The Fund has been a very strong performer thus far in 1998, outperforming
even some of the long-term municipal funds in the marketplace. Its
year-to-date total return is 2.81 percent(1) (Class A shares at net asset
value), exceeding the average for this category (2.05 percent, as measured by
Lipper Analytical Services) and ahead of nearly all funds in its peer group. By
comparison, the Lehman Brothers Municipal Bond Index produced a total return of
2.69 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 monthly dividend
for Class A shares was increased to $0.0405 per share, up from $0.0395 per
share, at the beginning of the reporting period and has held steady since then.
Please refer to the chart on page three for additional Fund performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the impact of raising interest rates in the second half of the
year if the economy gains steam and threatens to drive inflation higher.
7
<PAGE> 166
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion set in 1993. A drop in rates of 25 basis points
(0.25 percentage points) could spark further refunding of outstanding bond
issues and bring new bond issues into the marketplace ahead of their original
schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
bonds and lend support to bond prices.
We will continue to manage the portfolio with an eye toward longer-term
value. Our goal is to seek out lower-rated (or non-rated), higher-yielding,
higher-risk bonds with a chance for appreciation, and combine them with
high-rated investment grade bonds that we believe have the potential to
outperform the market. This approach has been effective over the past six to
twelve months, and we are confident that it will help keep the Fund competitive
in the second half of 1998.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Timothy D. Haney
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 167
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TOP TEN STATES AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois............... 12.0%
New York............... 11.1%
New Jersey............. 7.0%
Ohio................... 6.7%
Georgia................ 6.6%
Florida................ 6.6%
California............. 5.8%
Arizona................ 4.6%
Massachusetts.......... 4.5%
Colorado............... 4.4%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
AAA.............. 35.9% AAA.............. 34.9%
AA............... 4.4% AA............... 5.9%
A................ 7.6% [PIE CHART] A................ 8.1% [PIE CHART]
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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Health Care........... 29.3% Health Care........... 18.5%
Housing............... 20.0% Multi-Family Housing... 16.4%
Transportation........ 12.7% Industrial Revenue.... 15.0%
Public Improvement.... 11.8% General Purpose....... 13.0%
Industrial Airport............... 10.7%
Development......... 10.1%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 5.98 years 5.81 years
</TABLE>
9
<PAGE> 168
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 104.5%
ALABAMA 1.4%
$ 500 West Jefferson Cnty, AL Amusement & Pub Pk
Auth............................................. 7.500% 12/01/08 $ 533,595
-----------
ALASKA 0.7%
250 Seward, AK Rev AK Sealife Cent Proj.............. 7.100 10/01/05 265,482
-----------
ARIZONA 4.8%
500 Maricopa Cnty, AZ Indl Dev Auth Senior Living Fac
Rev.............................................. 7.250 04/10/05 526,150
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 1,293,748
-----------
1,819,898
-----------
CALIFORNIA 6.1%
360 California Edl Fac Auth Rev Pacific Grad
School........................................... 6.950 11/01/07 374,533
1,000 California St (AMBAC Insd)....................... 6.400 09/01/08 1,164,720
240 Del Mar, CA Race Track Auth Rev Rfdg............. 6.000 08/15/06 256,923
500 Stockton, CA Comnty Fac Dist Spl Tax No One Mello
Roos Weston Ranch Ser A.......................... 5.500 09/01/09 504,805
-----------
2,300,981
-----------
COLORADO 4.6%
330 Colorado Hlth Fac Auth Rev Sr Living Fac Eaton
Terrace Ser A.................................... 6.800 07/01/09 346,025
219 Colorado Hsg Fin Auth Access Pgm Single Family
Pgm Ser E........................................ 8.125 12/01/24 240,907
1,000 Denver, CO City & Cnty Arpt Rev Ser A............ 7.400 11/15/04 1,156,230
-----------
1,743,162
-----------
CONNECTICUT 2.2%
145 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A (Escrowed to Maturity),144A -- Private
Placement (a).................................... 6.500 09/01/06 165,750
155 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A -- Private Placement (a)................. 6.500 09/01/06 173,958
475 New Haven, CT Indl Fac Rev Adj Govt Cent Thermal
Energies......................................... 7.250 07/01/09 478,434
-----------
818,142
-----------
FLORIDA 6.9%
1,150 Florida Hsg Fin Agy Hsg Maitland Club Apts Ser B1
(AMBAC Insd)..................................... 6.750 08/01/14 1,255,225
190 Lee Cnty, FL Indl Dev Auth Econ Rev Encore
Nursing Cent Partner Rfdg........................ 8.125 12/01/07 211,088
250 Orange Cnty, FL Hlth Fac Auth Rev First Mtg
Orlando Lutheran Twr Rfdg........................ 8.125 07/01/06 278,753
300 Volusia Cnty, FL Indl Dev Auth Bishops Glen Proj
Rfdg............................................. 7.125 11/01/06 322,869
535 Westchase East Cmnty Dev Dist FL Cap Impt Rev.... 7.250 05/01/03 554,741
-----------
2,622,676
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 169
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA 6.9%
$1,460 De Kalb Cnty, GA Hsg Auth Multi-Family Hsg Rev
North Hill Apts Proj Rfdg (FNMA
Collateralized).................................. 6.625% 01/01/25 $ 1,596,262
1,000 George L Smith II GA World Congress Ctr Auth Rev
Rfdg Domed Stadium Proj (MBIA Insd).............. 6.000 07/01/04 1,040,640
-----------
2,636,902
-----------
ILLINOIS 12.6%
450 Bedford Park, IL Tax Increment 71st & Cicero Proj
Rfdg............................................. 7.000 01/01/06 485,055
500 Carol Stream, IL First Mtg Rev Windsor Pk Mnr
Proj............................................. 6.500 12/01/07 531,285
490 Chicago, IL Tax Increment Alloc San Drainage &
Ship Canal A..................................... 7.375 01/01/05 520,723
545 Clay Cnty, IL Hosp Rev........................... 5.500 12/01/10 541,103
150 Danville, IL Single Family Mtg Rev Rfdg.......... 7.300 11/01/10 159,978
1,335 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A........................ 6.500 09/01/09 1,407,437
750 Illinois Hlth Fac Auth Rev Holy Cross Hosp Proj
Ser 94-A......................................... 6.250 03/01/04 796,860
300 Peoria, IL Spl Tax Weaverridge Spl Svc Area...... 7.625 02/01/08 327,060
-----------
4,769,501
-----------
INDIANA 0.9%
350 Indiana Hlth Fac Fing Auth Hosp Rev Rfdg Floyd
Mem Hosp & Hlth Svcs............................. 4.800 02/15/07 354,746
-----------
KANSAS 2.8%
1,000 Kansas St Dev Fin Auth Rev Sisters Of Charity
Leavenworth (MBIA Insd).......................... 5.500 12/01/08 1,081,110
-----------
KENTUCKY 1.4%
500 Kenton Cnty, KY Arpt Brd Rev (MBIA Insd)......... 5.900 03/01/05 541,795
-----------
LOUISIANA 2.0%
240 Iberia Parish, LA Hosp Svc Dist No 1 Hosp Rev.... 7.500 05/26/06 258,703
500 Louisiana Hsg Fin Agy Rev Multi-Family Hsg
Plantation Ser A................................. 7.200 01/01/06 498,900
-----------
757,603
-----------
MASSACHUSETTS 4.7%
500 Massachusetts St Hlth & Edl Fac Auth Rev Cent New
England Hlth Sys Ser A........................... 6.125 08/01/13 519,295
500 Massachusetts St Hlth & Edl North Adams Regl Hosp
Ser C............................................ 6.250 07/01/04 537,695
210 Massachusetts St Indl Fin Agy East Boston
Neighborhood Proj................................ 7.250 07/01/06 220,641
500 Massachusetts St Indl Fin Agy Rev Grtr Lynn
Mental Hlth...................................... 6.200 06/01/08 502,580
-----------
1,780,211
-----------
MINNESOTA 2.2%
500 Crow Fin Auth MN Tribal Purp Rev 144A - Private
Placement (a).................................... 5.400 10/01/07 520,645
315 Minneapolis, MN Multi-Family Rev Hsg Belmont Apts
Proj............................................. 7.000 11/01/06 326,409
-----------
847,054
-----------
MISSOURI 4.5%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser A (FSA
Insd)............................................ 7.000 09/01/12 1,696,620
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 170
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<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 $ 522,075
1,000 East Orange, NJ Brd Ed Ctfs Partn Cap Apprec (FSA
Insd)............................................ * 02/01/16 418,150
250 New Jersey Econ Dev Auth Rev Sr Mtg Arbor Glen
Proj Ser A....................................... 8.000 05/15/04 272,682
1,000 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd).................... 7.000 07/01/06 1,166,090
375 New Jersey Hlthcare Fac Fin Auth Rev Palisades
Med Cent......................................... 7.500 07/01/06 402,960
-----------
2,781,957
-----------
NEW YORK 11.6%
500 New York City Ser A.............................. 7.000 08/01/07 581,930
500 New York St Dorm Auth Rev Rfdg Secd Hosp North
Gen Hosp Ser G................................... 5.125 02/15/08 512,770
1,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.200 08/15/05 1,124,480
1,000 New York St Twy Auth Svc Contract Loc Hwy &
Brdg............................................. 5.800 04/01/00 1,029,080
1,000 Niagara Falls, NY Pub Impt (MBIA Insd)........... 6.900 03/01/20 1,136,000
-----------
4,384,260
-----------
OHIO 7.0%
500 Cuyahoga Cnty, OH Hlthcare Fac Rev Judson
Retirement Cmnty Ser A Rfdg...................... 7.000 11/15/10 542,035
250 Marion Cnty, OH Hosp Impt Rev Cmnty Hosp Rfdg.... 6.375 05/15/11 274,663
1,000 Ohio St Air Quality Dev Auth Rev Owens Corning
Fiberglass Proj Rfdg............................. 6.250 06/01/04 1,066,110
775 Sandusky Cnty, OH Hosp Fac Rev Rfdg Mem Hosp..... 5.000 01/01/06 778,611
-----------
2,661,419
-----------
OKLAHOMA 1.4%
520 Shawnee, OK Hosp Auth Hosp Rev Midamerica
Hlthcare Inc Rfdg................................ 5.750 10/01/03 537,098
-----------
PENNSYLVANIA 1.9%
225 Erie, PA Higher Edl Bldg Auth College Rev
Mercyhurst College Proj A Rfdg................... 5.300 03/15/03 233,658
490 Philadelphia, PA Auth For Indl Dev Hlth Care Fac
Rev Baptist Home of Phil Ser A................... 5.200 11/15/04 494,165
-----------
727,823
-----------
TEXAS 3.4%
500 Austin, TX Util Sys Rev Rfdg (AMBAC Insd)........ 6.500 11/15/05 562,695
405 Mesquite, TX Hlth Fac Dev Retirement Fac
Christian Ser A.................................. 6.100 02/15/08 432,524
300 San Antonio, TX Hsg Fin Corp Multi-Family Hsg Rev
Beverly Oaks Arpt Proj Ser A..................... 7.500 02/01/10 313,686
-----------
1,308,905
-----------
UTAH 4.0%
1,400 Utah St Hsg Fin Agy Single Family Mtg Mezz Ser
A-1 (FHA Gtd).................................... 7.150 07/01/12 1,505,490
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 171
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA 1.5%
$ 500 Pittsylvania Cnty, VA Indl Dev Auth Rev Exempt
Fac Ser A........................................ 7.450% 01/01/09 $ 553,990
-----------
U. S. VIRGIN ISLANDS 1.7%
600 Virgin Islands Pub Fin Auth Rev Sr Lien Fd Ln Nts
Ser C............................................ 5.500 10/01/07 629,208
-----------
TOTAL INVESTMENTS 104.5%
(Cost $37,078,152)......................................................... 39,659,628
LIABILITIES IN EXCESS OF OTHER ASSETS (4.5%)................................ (1,718,925)
-----------
NET ASSETS 100.0%........................................................... $37,940,703
===========
</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.
See Notes to Financial Statements
13
<PAGE> 172
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $37,078,152)........................ $39,659,628
Receivables:
Investments Sold.......................................... 1,469,204
Interest.................................................. 742,049
Fund Shares Sold.......................................... 37,064
Other....................................................... 329
-----------
Total Assets.......................................... 41,908,274
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,547,492
Fund Shares Repurchased................................... 552,666
Custodian Bank............................................ 518,874
Distributor and Affiliates................................ 49,830
Income Distributions...................................... 48,580
Investment Advisory Fee................................... 15,822
Accrued Expenses............................................ 135,689
Trustees' Deferred Compensation and Retirement Plans........ 98,618
-----------
Total Liabilities..................................... 3,967,571
-----------
NET ASSETS.................................................. $37,940,703
===========
NET ASSETS CONSIST OF:
Capital..................................................... $35,624,488
Net Unrealized Appreciation................................. 2,581,476
Accumulated Undistributed Net Investment Income............. 34,186
Accumulated Net Realized Loss............................... (299,447)
-----------
NET ASSETS.................................................. $37,940,703
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $19,099,931 and 1,803,742 shares of
beneficial interest issued and outstanding)............. $ 10.59
Maximum sales charge (3.25%* of offering price)......... .36
-----------
Maximum offering price to public........................ $ 10.95
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $15,778,391 and 1,491,739 shares of
beneficial interest issued and outstanding)............. $ 10.58
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,062,381 and 289,566 shares of
beneficial interest issued and outstanding)............. $ 10.58
===========
</TABLE>
* On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 173
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,079,690
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $21,598, $80,192 and $14,777
respectively)............................................. 116,567
Investment Advisory Fee..................................... 90,569
Accounting.................................................. 29,000
Registration................................................ 26,545
Shareholder Services........................................ 9,727
Shareholder Reports......................................... 5,000
Amortization of Organizational Costs........................ 4,828
Trustees' Fees and Expenses................................. 4,472
Custody..................................................... 1,275
Legal....................................................... 400
Other....................................................... 16,170
----------
Total Expenses.......................................... 304,553
----------
NET INVESTMENT INCOME....................................... $ 775,137
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 16,376
Options................................................. 22,583
----------
Net Realized Gain........................................... 38,959
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 2,433,733
End of the Period:
Investments........................................... 2,581,476
----------
Net Unrealized Appreciation During the Period............... 147,743
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 186,702
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 961,839
==========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 174
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the
Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 775,137 $ 1,380,936
Net Realized Gain................................... 38,959 347,481
Net Unrealized Appreciation During the Period....... 147,743 651,462
---------------- -----------
Change in Net Assets from Operations................ 961,839 2,379,879
---------------- -----------
Distributions from Net Investment Income:
Class A Shares.................................... (398,519) (560,309)
Class B Shares.................................... (317,217) (628,468)
Class C Shares.................................... (58,539) (186,777)
---------------- -----------
Total Distributions............................. (774,275) (1,375,554)
---------------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ 187,564 1,004,325
---------------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 9,257,963 5,579,082
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 524,152 883,487
Cost of Shares Repurchased.......................... (4,423,444) (9,753,115)
---------------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... 5,358,671 (3,290,546)
---------------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS............... 5,546,235 (2,286,221)
NET ASSETS:
Beginning of the Period............................. 32,394,468 34,680,689
---------------- -----------
End of the Period (Including accumulated
undistributed net investment income of $34,186 and
$33,324, respectively)............................ $ 37,940,703 $32,394,468
================ ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 175
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $10.536 $10.213 $10.264 $ 9.330 $10.145
------- ------- ------- ------- -------
Net Investment Income................... .236 .480 .455 .508 .489
Net Realized and Unrealized Gain/Loss... .060 .317 (.032) .900 (.815)
------- ------- ------- ------- -------
Total from Investment Operations.......... .296 .797 .423 1.408 (.326)
Less Distributions from Net Investment
Income.................................. .243 .474 .474 .474 .489
------- ------- ------- ------- -------
Net Asset Value, End of the Period........ $10.589 $10.536 $10.213 $10.264 $ 9.330
======= ======= ======= ======= =======
Total Return* (a)......................... 2.81%** 8.08% 4.27% 15.31% (3.32%)
Net Assets at End of the Period (In
millions)............................... $ 19.1 $ 12.9 $ 12.5 $ 15.6 $ 15.7
Ratio of Expenses to Average Net
Assets*................................. 1.28% 1.52% 1.56% 1.00% .67%
Ratio of Net Investment Income to Average
Net Assets*............................. 4.65% 4.67% 4.45% 5.10% 5.07%
Portfolio Turnover........................ 13%** 37% 45% 75% 274%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower
and the ratios would have been as follow:
Ratio of Expenses to Average Net Assets... n/a 1.67% 1.74% 1.61% 1.75%
Ratio of Net Investment Income to Average
Net Assets.............................. n/a 4.52% 4.27% 4.49% 3.99%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
n/a - not applicable
See Notes to Financial Statements
17
<PAGE> 176
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended --------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $10.526 $ 10.209 $10.263 $ 9.319 $10.137
------- -------- ------- ------- -------
Net Investment Income .206 .402 .375 .430 .417
Net Realized and Unrealized Gain/Loss.... .052 .317 (.027) .916 (.818)
------- -------- ------- ------- -------
Total from Investment Operations......... .258 .719 .348 1.346 (.401)
Less Distributions from Net Investment
Income................................. .207 .402 .402 .402 .417
------- -------- ------- ------- -------
Net Asset Value, End of the Period....... $10.577 $ 10.526 $10.209 $10.263 $ 9.319
======= ======== ======= ======= =======
Total Return* (a)........................ 2.46%** 7.23% 3.54% 14.62% (4.04%)
Net Assets at End of the Period (In
millions).............................. $ 15.8 $ 16.4 $ 16.4 $ 17.5 $ 17.7
Ratio of Expenses to Average Net
Assets*................................ 2.04% 2.28% 2.32% 1.75% 1.43%
Ratio of Net Investment Income to Average
Net Assets*............................ 3.94% 3.91% 3.69% 4.33% 4.30%
Portfolio Turnover....................... 13%** 37% 45% 75% 274%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower
and the ratios would have been as follow:
Ratio of Expenses to Average Net
Assets................................. n/a 2.42% 2.50% 2.36% 2.50%
Ratio of Net Investment Income to Average
Net Assets............................. n/a 3.77% 3.51% 3.72% 3.24%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
n/a - not applicable
See Notes to Financial Statements
18
<PAGE> 177
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $10.525 $10.206 $10.260 $ 9.314 $10.134
------- ------- ------- ------- -------
Net Investment Income..................... .206 .402 .374 .430 .419
Net Realized and Unrealized Gain/Loss..... .052 .319 (.026) .918 (.822)
------- ------- ------- ------- -------
Total from Investment Operations.......... .258 .721 .348 1.348 (.403)
Less Distributions from Net Investment
Income.................................. .207 .402 .402 .402 .417
------- ------- ------- ------- -------
Net Asset Value, End of the Period........ $10.576 $10.525 $10.206 $10.260 $ 9.314
======= ======= ======= ======= =======
Total Return* (a)......................... 2.46%** 7.23% 3.54% 14.74% (4.04%)
Net Assets at End of the Period (In
millions)............................... $ 3.1 $ 3.1 $ 5.8 $ 4.9 $ 4.7
Ratio of Expenses to Average
Net Assets*............................. 2.05% 2.29% 2.32% 1.74% 1.43%
Ratio of Net Investment Income to Average
Net Assets*............................. 3.93% 3.88% 3.70% 4.36% 4.34%
Portfolio Turnover........................ 13%** 37% 45% 75% 274%
*If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets... n/a 2.43% 2.50% 2.34% 2.46%
Ratio of Net Investment Income to Average
Net Assets.............................. n/a 3.74% 3.52% 3.75% 3.31%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
n/a - not applicable
See Notes to Financial Statements
19
<PAGE> 178
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Intermediate Term Municipal Income Fund, formerly known as Van Kampen
American Capital Intermediate Term Municipal Income Fund, (the "Fund") is
organized as a series of Van Kampen Tax Free Trust (the "Trust"), a Delaware
business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek a high level of current income exempt
from federal income tax, consistent with preservation of capital. The Fund
commenced investment operations on May 28, 1993 with two classes of common
shares, Class A and Class B shares. The distribution of the Fund's Class C
shares commenced on October 19, 1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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 June 30, 1998, there were no when
issued or delayed delivery purchase commitments.
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
20
<PAGE> 179
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 December 31, 1997, the Fund had an accumulated capital loss carryforward for
tax purposes of $337,570 which will expire between December 31, 2002 and
December 31, 2003. Net realized gains or losses may differ for financial
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 June 30, 1998, for federal income tax purposes, cost of long-term
investments is $37,078,152; the aggregate gross unrealized appreciation is
$2,582,575 and the aggregate gross unrealized depreciation is $1,099, resulting
in net unrealized appreciation of $2,581,476.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- -----------------------------------------------------------------------
<S> <C>
First $500 million...................................... .500 of 1%
Over $500 million....................................... .450 of 1%
</TABLE>
21
<PAGE> 180
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $400 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $29,000 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 six months ended
June 30, 1998, the Fund recognized expenses of approximately $9,100. 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 June 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> 181
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $18,193,417, $14,808,385 and $2,622,686
for Classes A, B and C, respectively. For the six months ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 765,010 $ 8,066,952
Class B....................................... 74,455 784,130
Class C....................................... 38,670 406,881
-------- -----------
Total Sales..................................... 878,135 $ 9,257,963
======== ===========
Dividend Reinvestment:
Class A....................................... 27,890 $ 294,547
Class B....................................... 17,104 180,475
Class C....................................... 4,657 49,130
-------- -----------
Total Dividend Reinvestment..................... 49,651 $ 524,152
======== ===========
Repurchases:
Class A....................................... (215,629) $(2,273,814)
Class B....................................... (159,577) (1,685,904)
Class C....................................... (43,875) (463,726)
-------- -----------
Total Repurchases............................... (419,081) $(4,423,444)
======== ===========
</TABLE>
23
<PAGE> 182
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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>
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>
24
<PAGE> 183
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $2,100 and CDSC on redeemed shares of approximately $12,400. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $12,291,088 and $4,560,518 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 made to the broker based upon changes in the value
of the contract (the variation margin).
25
<PAGE> 184
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended June 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 June 30, 1998.................. 0 $ 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 six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $75,000.
26
<PAGE> 185
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
Global Equity
Global Equity Allocation
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 and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
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.VAN-KAMPEN.COM -- to view prospectuses, select
Investors' Place, then Download a 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.VAN-KAMPEN.COM and selecting Investors' Place
27
<PAGE> 186
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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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 December 31, 1998, this report, if used with
prospective investors, must be accompanied by a quarterly performance update.
28
<PAGE> 187
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 19
</TABLE>
FLI SAR 8/98
<PAGE> 188
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we [PHOTO]
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc.
You can be assured that the DENNIS J. MCDONNELL AND DON G. POWELL
change in your fund's name will not
affect its management or daily
operations. You will begin seeing the
application of this change with this report. In addition, as of August 31, your
fund will be listed in the daily newspapers by share class under the heading
"Van Kampen Funds." For your convenience, we have enclosed a separate brochure
that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies
Continued on page two
1
<PAGE> 189
were beginning to recover. When weakness in the Japanese yen undercut that
recovery, long-term interest rates resumed their decline.
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Continued on page three
2
<PAGE> 190
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on
NAV(1)................................ 2.59% 2.28% 2.14%
Six-month total return(2)............... (2.31%) (1.73%) 1.14%
One-year total return(2)................ 3.33% 3.68% 6.67%
Life-of-Fund average annual total
return(2)............................. 6.30% 6.33% 6.87%
Commencement date....................... 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3).................... 4.74% 4.24% 4.24%
Taxable equivalent distribution
rate(4)............................... 7.41% 6.63% 6.63%
SEC Yield(5)............................ 4.18% 3.64% 3.63%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a federal income tax rate of 36%.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1998. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 3.71%, 3.14% and 3.13% 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.
3
<PAGE> 191
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 192
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 193
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 first half of the Fund's fiscal year. The team includes
Thomas M. Byron, portfolio manager, and Peter W. Hegel, chief investment officer
for fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries. In addition, the
difference between the yields on municipal securities of varying credit quality
has been very narrow.
Q HOW HAVE THESE CONDITIONS AFFECTED THE WAY YOU MANAGE THE FUND?
A The strong supply of municipal bonds benefited mutual fund portfolio
managers, as there were plenty of quality bond issues from which to
choose. Insured issuance
6
<PAGE> 194
accounted for about 79 percent of the state's supply through the end of the
first quarter, allowing us ample opportunity to keep the portfolio
well-diversified.
During the period, we kept the core position of the Fund primarily in
high-quality issues. This helped us maintain yield during periods of falling
interest rates like those we experienced throughout much of the year. While we
would like to move down the quality ladder and increase our exposure to
lower-rated, higher-yielding securities, this was not feasible during the
reporting period, given the narrow credit spreads and the yield characteristics
of existing holdings in the Fund.
Q HAVE YOU MADE ANY SIGNIFICANT SHIFTS IN THE PORTFOLIO OVER THE LAST SIX
MONTHS?
A Our efforts to improve the overall performance of the Fund centered on
this strategy of moving into higher-yielding, BBB-rated Florida issues
that have been carefully evaluated by our research analysts. We increased
our share of BBB-rated issues to approximately 10 percent of the portfolio,
mostly at the expense of AAA-rated issues.
We owned more than 60 issues from 14 different industry sectors at the end
of the reporting period. As we move into these higher-yielding issues, we feel
that a higher level of diversification will provide a bit of a buffer from any
adverse economic developments that might arise.
Of course, more than 80 percent of the portfolio is invested in securities
rated AAA, the highest possible credit quality rating. As of June 30, our
largest portfolio allocation was health care, representing 16.63 percent of the
portfolio's assets, and public education was the second largest allocation at
16.49 percent. For additional Fund portfolio highlights, please refer to page
nine.
Q HOW WELL DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund's performance has improved steadily. For the reporting period, it
achieved a year-to-date total return through June 30, 1998, of 2.59
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index returned 2.69 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 dividend was unchanged over the reporting period, and its
distribution rate was 4.74 percent(3) as of June 30, 1998. The
taxable-equivalent distribution rate for an investor in the 36 percent federal
income tax bracket would be 7.41 percent(4). Please refer to the chart on page
three for additional Fund performance results.
Q WHAT DO YOU SEE ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While that low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the
7
<PAGE> 195
impact of raising interest rates in the second half of the year if the economy
gains steam and threatens to drive inflation higher.
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion set in 1993. A drop in rates of 25 basis points
(0.25 percentage points) could spark further refunding of outstanding bond
issues and bring new bond issues into the marketplace ahead of their original
schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
municipal bonds and lend support to bond prices.
The economy remains moderately strong, yet we don't see any real
inflationary pressure, so we're at a stalemate with regard to whether the Fed
will be moved to lift interest rates. Likewise, the Florida economy remains
strong and vibrant, with tourism, construction, and other key sectors on the
rise. Our strategy going forward will be to take advantage of the new issue
market, which we expect to be highly active. We believe the portfolio is
positioned to provide an attractive level of tax-exempt income without undue
credit risk.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Thomas M. Byron
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 196
PORTFOLIO HIGHLIGHTS
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C> <C> <C>
AAA......... 81.7% AAA............ 85.7%
AA.......... 4.0% AA............. 3.8%
A........... 4.5% PIE CHART A.............. 4.2 PIE CHART
BBB......... 9.8% BBB............ 5.8%
Non-Rated...... 0.5%
</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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C> <C>
Health Care............ 17.3% Public Education....... 20.1%
Public Education....... 17.2% Health Care............ 19.6%
Water and Sewer........ 10.8% Water and Sewer........ 10.0%
Higher Education....... 10.4% Single-Family
Single-Family Housing.............. 9.2%
Housing.............. 9.1% Higher Education....... 8.0%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 8.95 years 8.75 years
</TABLE>
9
<PAGE> 197
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 104.9%
FLORIDA 102.1%
$1,500 Alachua Cnty, FL Sch Brd Ctfs Partn (AMBAC
Insd)............................................ 5.000% 07/01/18 $ 1,482,255
465 Brevard Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.650 09/01/21 496,811
650 Brevard Cnty, FL Sales Tax Rev (MBIA Insd)....... 5.750 12/01/13 697,093
1,000 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A (AMBAC
Insd)............................................ 5.400 07/01/12 1,070,160
500 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.100 10/01/19 528,635
750 Broward Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Rfdg Ser A (GNMA Collateralized)............. 6.200 04/01/30 792,735
500 Cape Canaveral, FL Hosp Dist Rev Ctfs Rfdg....... 5.250 01/01/28 491,165
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd) (b)............................ 6.500 08/15/12 546,745
1,000 Dade Cnty, FL Aviation Rev Ser B (MBIA Insd)..... 5.600 10/01/26 1,048,000
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of Miami Ser
B (MBIA Insd).................................... 5.750 04/01/20 1,060,810
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.750 05/01/08 1,065,260
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 6.000 05/01/14 549,910
1,250 Dade Cnty, FL Seaport Rfdg (MBIA Insd)........... 5.125 10/01/21 1,239,837
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC Insd)...... 5.375 10/01/16 771,638
900 Daytona Beach, FL Wtr & Swr Rev Rfdg (AMBAC
Insd)............................................ 5.750 11/15/10 966,060
400 Florida Hsg Fin Agy Hsg Reserves at Kanapaha Ser
G (AMBAC Insd)................................... 5.600 07/01/27 411,588
2,500 Florida St Brd Edl Cap Outlay Pub Edl Ser C (MBIA
Insd)............................................ 5.600 06/01/20 2,597,825
1,750 Florida St Brd Regt Univ Sys Impt Rev (MBIA
Insd)............................................ 5.625 07/01/19 1,835,977
1,750 Florida St Division Bond Fin Dept Genl Svcs Rev
(AMBAC Insd)..................................... 5.000 07/01/12 1,771,297
1,500 Hillsborough Cnty, FL Edl Fac Univ Tampa Proj
Rfdg............................................. 5.750 04/01/18 1,526,280
500 Hillsborough Cnty, FL Hosp Auth Hosp Rev Tampa
Genl Hosp Proj Rfdg (FSA Insd)................... 6.375 10/01/13 543,850
750 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Rfdg (MBIA Insd).......... 6.250 12/01/34 823,995
1,300 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 5.700 10/01/15 1,387,360
1,000 Indian River Cnty, FL Hosp Rev Rfdg (FSA Insd)... 6.100 10/01/18 1,106,590
1,000 Jacksonville, FL Elec Auth Rev Saint John's Pwr-2
Ser 7 Rfdg (MBIA Insd)........................... 5.500 10/01/14 1,039,610
1,000 Jacksonville, FL Wtr & Swr Rev United Wtr FL Proj
(AMBAC Insd)..................................... 6.350 08/01/25 1,097,230
965 Lee Cnty, FL Hsg Fin Auth Single Family Mtg Rev
Multi-Cnty Pgm Ser A (GNMA Collateralized)....... 7.450 09/01/27 1,090,064
960 Manatee Cnty, FL Hsg Fin Auth Mtg Rev (GNMA
Collateralized).................................. 6.875 11/01/26 1,071,302
890 Martin Cnty, FL Cons Util Sys Rev Rfdg & Impt
(FGIC Insd)...................................... 5.750 10/01/08 969,317
</TABLE>
See Notes to Financial Statements
10
<PAGE> 198
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 750 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfd............... 7.875% 12/15/25 $ 881,242
545 Melbourne, FL Arpt Rev Rfdg (MBIA Insd).......... 6.250 10/01/18 608,340
1,170 Miami Dade Cnty, FL Pub Fac Rev Jackson Mem Hosp
(FSA Insd)....................................... 5.000 06/01/18 1,146,109
1,500 Miami Dade Cnty, FL Sch Brd Certs Part Ser A Rfdg
(AMBAC Insd)..................................... 5.000 08/01/26 1,456,965
500 Miramar, FL Wastewater Impt Assmt Rev (FGIC Insd) 6.750.. 10/01/25 565,340
1,000 Naples, FL Hosp Rev Naples Cmnty Hosp Inc Rfdg
(MBIA Insd)...................................... 5.500 10/01/26 1,033,560
1,250 North Broward, FL Hosp Dist Rev Rfdg & Impt (MBIA
Insd)............................................ 5.375 01/15/24 1,273,137
775 Orange Cnty, FL Hsg Fin Auth Single Family Mtg
Rev (GNMA Collateralized)........................ 6.550 10/01/21 825,863
900 Orange Cnty, FL Tourist Dev Tax Rev Ser B
(Prerefunded @ 10/01/02) (AMBAC Insd)............ 6.500 10/01/19 999,900
1,000 Orlando & Orange Cnty Expressway Auth FL
Expressway Rev (FGIC Insd)....................... 5.000 07/01/21 981,900
750 Palm Beach Cnty, FL Hlth Fac Auth Rev Abbey
Delray South Proj Rfdg........................... 5.500 10/01/11 755,250
1,550 Palm Beach Cnty, FL Hlth Fac Auth Rev Retirement
Cmnty............................................ 5.625 11/15/20 1,609,132
450 Palm Beach Cnty, FL Hlth Fac Auth Rev Waterford
Proj Rfdg........................................ 5.500 10/01/15 452,084
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 08/01/04) (AMBAC Insd)............ 6.375 08/01/15 842,385
1,000 Polk Cnty, FL Indl Dev Auth Tampa Elec Co Proj... 5.850.. 12/01/30 1,056,270
500 Port Orange, FL Wtr & Swr Rev Rfdg (AMBAC Insd)
(a).............................................. 5.000.. 10/01/16 485,195
1,000 Santa Rosa Bay Brdg Auth FL Rev.................. 6.250 07/01/28.. 1,083,690
750 Sarasota Cnty, FL Util Sys Rev (Prerefunded @
10/01/04) (FGIC Insd)............................ 6.500 10/01/14 855,278
500 Sunrise, FL Utility Sys Rev Rfdg (AMBAC Insd).... 5.000 10/01/28 499,185
750 Tampa, FL Sports Auth Rev (AMBAC Insd)........... 5.000 10/01/28 729,983
500 Tampa, FL Util Tax Impt (FSA Insd)............... 5.000 10/01/19 493,840
1,000 Volusia Cnty, FL Edl Fac Auth Rev Stetson Univ
Proj Ser A (MBIA Insd)........................... 5.500 06/01/26 1,037,500
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp Fac Mem
Hlth Rfdg & Impt (AMBAC Insd).................... 5.750 11/15/13 539,780
1,000 Volusia Cnty, FL Hlth Fac Auth Rev John Knox Hlth
Care Rfdg (Asset Gty Insd)....................... 6.000 06/01/17 1,068,930
-----------
51,360,257
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 199
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO 2.8%
$ 670 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser V
Rfdg............................................. 6.625% 07/01/12 $ 736,109
650.. Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Ser M Rfdg (FSA Insd)............................ 5.750 07/01/15 684,716
-----------
1,420,825
-----------
TOTAL LONG-TERM INVESTMENTS 104.9%
(Cost $49,329,914)......................................................... 52,781,082
LIABILITIES IN EXCESS OF OTHER ASSETS (4.9%)................................ (2,459,513)
-----------
NET ASSETS 100.0%........................................................... $50,321,569
===========
</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.
See Notes to Financial Statements
12
<PAGE> 200
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $49,329,914)........................ $52,781,082
Cash........................................................ 524,114
Receivables:
Investments Sold.......................................... 787,782
Interest.................................................. 733,236
Fund Shares Sold.......................................... 189,044
Unamortized Organizational Costs............................ 15,059
Other....................................................... 722
-----------
Total Assets.......................................... 55,031,039
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,383,000
Income Distributions...................................... 101,041
Distributor and Affiliates................................ 92,194
Fund Shares Repurchased................................... 200
Accrued Expenses............................................ 67,336
Trustees' Deferred Compensation and Retirement Plans........ 65,699
-----------
Total Liabilities..................................... 4,709,470
-----------
NET ASSETS.................................................. $50,321,569
===========
NET ASSETS CONSIST OF:
Capital..................................................... $47,245,486
Net Unrealized Appreciation................................. 3,451,168
Accumulated Distributions in Excess of Net Investment
Income.................................................... (61,601)
Accumulated Net Realized Loss............................... (313,484)
-----------
NET ASSETS.................................................. $50,321,569
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $26,048,652 and 1,673,866 shares of
beneficial interest issued and outstanding)........... $ 15.56
Maximum sales charge (4.75%* of offering price)......... .78
-----------
Maximum offering price to public........................ $ 16.34
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $23,060,946 and 1,481,431 shares of
beneficial interest issued and outstanding)........... $ 15.57
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $1,211,971 and
77,771 shares of beneficial interest issued and
outstanding).......................................... $ 15.58
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
13
<PAGE> 201
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,354,871
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $32,456, $112,344 and $5,357,
respectively)............................................. 150,157
Investment Advisory Fee..................................... 123,820
Shareholder Reports......................................... 15,928
Registration and Filing Fees................................ 15,750
Custody..................................................... 15,522
Shareholder Services........................................ 12,339
Amortization of Organizational Costs........................ 6,939
Legal....................................................... 4,525
Trustees' Fees and Expenses................................. 4,296
Other....................................................... 37,622
----------
Total Expenses............................................ 386,898
Less Fees Deferred and Expenses Reimbursed ($123,820 and
$6,255, respectively)................................... 130,075
----------
Net Expenses............................................ 256,823
----------
NET INVESTMENT INCOME....................................... $1,098,048
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 274,878
Futures................................................... 5,036
----------
Net Realized Gain........................................... 279,914
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,637,769
End of the Period:
Investments............................................... 3,451,168
----------
Net Unrealized Depreciation During the Period............... (186,601)
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 93,313
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,191,361
==========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 202
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 1,098,048 $ 2,104,005
Net Realized Gain/Loss................................ 279,914 (593,398)
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (186,601) 2,178,761
----------- -----------
Change in Net Assets from Operations.................. 1,191,361 3,689,368
----------- -----------
Distributions from Net Investment Income.............. (1,098,048) (2,104,005)
Distributions in Excess of Net Investment Income...... (57,045) (24,977)
----------- -----------
Distributions from and in Excess of Net Investment
Income*............................................. (1,155,093) (2,128,982)
----------- -----------
Distributions from Net Realized Gain:
Class A Shares...................................... -0- (14,898)
Class B Shares...................................... -0- (12,813)
Class C Shares...................................... -0- (397)
----------- -----------
-0- (28,108)
----------- -----------
Total Distributions................................... (1,155,093) (2,157,090)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 36,268 1,532,278
----------- -----------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold............................. 7,148,394 15,913,603
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 530,831 999,451
Cost of Shares Repurchased............................ (10,437,967) (7,278,428)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (2,758,742) 9,634,626
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (2,722,474) 11,166,904
NET ASSETS:
Beginning of the Period............................... 53,044,043 41,877,139
----------- -----------
End of the Period (Including accumulated distributions
in excess of net investment income of $61,601 and
$4,556, respectively)............................... $50,321,569 $53,044,043
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares...................................... $ (651,842) $(1,223,114)
Class B Shares...................................... (480,487) (878,013)
Class C Shares...................................... (22,764) (27,855)
----------- -----------
$(1,155,093) $(2,128,982)
=========== ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 203
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended December 31, Operations) to
June 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......... .368 .766 .784 .789 .291
Net Realized and Unrealized
Gain/Loss................... .031 .508 (.153) 1.416 (.507)
------- ------- ------- ------- -------
Total from Investment
Operations.................... .399 1.274 .631 2.205 (.216)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income...................... .387 .774 .774 .798 .288
Distributions from Net
Realized Gain............... -0- .010 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions............. .387 .784 .774 .798 .288
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $15.562 $15.550 $15.060 $15.203 $13.796
======= ======= ======= ======= =======
Total Return* (a)............... 2.59** 8.72% 4.37% 16.29% (1.47%)**
Net Assets at End of the Period
(In millions)................. $26.0 $29.3 $22.2 $16.2 $9.0
Ratio of Expenses to Average Net
Assets*....................... .68% .59% .28% .44% .49%
Ratio of Net Investment Income
to Average Net Assets*........ 4.79% 5.05% 5.31% 5.33% 5.13%
Portfolio Turnover.............. 34** 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........................ 1.21% 1.29% 1.47% 1.70% 1.99%
Ratio of Net Investment Income
to Average Net Assets......... 4.27% 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
16
<PAGE> 204
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended December 31, Operations) to
June 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............ .312 .650 .677 .685 .251
Net Realized and Unrealized
Gain/Loss...................... .031 .510 (.154) 1.415 (.509)
------- ------- ------- ------- -------
Total from Investment Operations... .343 1.160 .523 2.100 (.258)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income....... .330 .660 .660 .691 .250
Distributions from Net Realized
Gain........................... -0- .010 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions................ .330 .670 .660 .691 .250
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................... $15.567 $15.554 $15.064 $15.201 $13.792
======= ======= ======= ======= =======
Total Return* (a).................. 2.28%** 7.91% 3.58% 15.53% (1.81%)**
Net Assets at End of the Period
(In millions).................... $23.1 $22.5 $18.9 $16.9 $10.9
Ratio of Expenses to Average Net
Assets*.......................... 1.43% 1.33% 1.03% 1.12% 1.26%
Ratio of Net Investment Income to
Average Net Assets*.............. 4.04% 4.30% 4.56% 4.66% 4.31%
Portfolio Turnover................. 34%** 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........................... 1.96% 2.03% 2.22% 2.38% 2.75%
Ratio of Net Investment Income to
Average Net Assets............... 3.52% 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
17
<PAGE> 205
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
Six Months of Investment
Ended Year Ended December 31, Operations) to
June 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............. .313 .666 .668 .690 .249
Net Realized and Unrealized
Gain/Loss....................... .020 .504 (.140) 1.428 (.513)
------- ------- ------- ------- -------
Total from Investment Operations.... .333 1.170 .528 2.118 (.264)
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income........ .330 .660 .660 .691 .250
Distribution from Net Realized
Gain............................ -0- .010 -0- -0- -0-
------- ------- ------- ------- -------
Total Distributions................. .330 .670 .660 .691 .250
------- ------- ------- ------- -------
Net Asset Value, End of the
Period............................ $15.584 $15.581 $15.081 $15.213 $13.786
======= ======= ======= ======= =======
Total Return* (a)................... 2.14%** 7.97% 3.65% 15.61% (1.81%)**
Net Assets at End of the Period (In
thousands)........................ $1,212.0 $1,195.1 $849.2 $461.8 $11.4
Ratio of Expenses to Average Net
Assets*........................... 1.42% 1.37% 1.03% 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............... 4.00% 4.38% 4.56% 4.51% 4.28%
Portfolio Turnover.................. 34%** 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............................ 1.95% 2.06% 2.22% 2.39% 2.74%
Ratio of Net Investment Income to
Average Net Assets................ 3.48% 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
18
<PAGE> 206
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Florida Insured Tax Free Income Fund, formerly known as Van Kampen
American Capital Florida Insured Tax Free Income Fund, (the "Fund") is organized
as a series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a non-diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors a high level of current income exempt from federal income
and Florida state intangibles taxes, consistent with preservation of capital.
Under normal market conditions, the Fund will invest at least 80% of its assets
in insured Florida municipal securities. The Fund commenced investment
operations on July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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 expected life of each applicable security. Expenses of the Fund are
allocated on a pro rata
19
<PAGE> 207
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. 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 December 31, 1997, the Fund had an accumulated capital loss carryforward for
tax purposes of $588,149 which will expire in 2005.
At June 30, 1998, for federal income tax purposes, cost of long-term
investments is $49,329,914; the aggregate gross unrealized appreciation is
$3,452,583 and the aggregate gross unrealized depreciation is $1,415, resulting
in net unrealized appreciation of $3,451,168.
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.
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>
20
<PAGE> 208
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $600 representing legal services provided by Skadden, Arps, Slate,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the six months ended June 30, 1998, the Fund incurred expenses of
approximately $28,400 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. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1998, the Fund incurred expenses of approximately $7,700. All of this
expense was 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 equal to $2,500.
At June 30, 1998, Van Kampen owned 100 shares each of Classes A, B and C.
21
<PAGE> 209
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 June 30, 1998, capital aggregated $24,470,490, $21,591,580 and $1,183,416
for Classes A, B and C, respectively. For the six months ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.............................. 252,443 $ 3,931,945
Class B.............................. 171,094 2,663,710
Class C.............................. 35,454 552,739
--------- ------------
Total Sales............................ 458,991 $ 7,148,394
========= ============
Dividend Reinvestment:
Class A.............................. 19,798 $ 307,461
Class B.............................. 13,471 209,273
Class C.............................. 907 14,097
--------- ------------
Total Dividend Reinvestment............ 34,176 $ 530,831
========= ============
Repurchases:
Class A.............................. (485,672) $ (7,563,345)
Class B.............................. (149,758) (2,323,520)
Class C.............................. (35,293) (551,102)
--------- ------------
Total Repurchases...................... (670,723) $(10,437,967)
========= ============
</TABLE>
22
<PAGE> 210
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $27,794,429, $21,042,117 and
$1,167,682 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 609,339 $ 9,274,646
Class B..................................... 384,943 5,831,452
Class C..................................... 52,399 807,505
--------- -----------
Total Sales................................... 1,046,681 $15,913,603
========= ===========
Dividend Reinvestment:
Class A..................................... 39,223 $ 594,339
Class B..................................... 25,536 387,076
Class C..................................... 1,188 18,036
--------- -----------
Total Dividend Reinvestment................... 65,947 $ 999,451
========= ===========
Repurchases:
Class A..................................... (232,349) $(3,502,983)
Class B..................................... (216,650) (3,274,422)
Class C..................................... (33,195) (501,023)
--------- -----------
Total Repurchases............................. (482,194) $(7,278,428)
========= ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First....................................... 4.00% 1.00%
Second...................................... 3.75% None
Third....................................... 3.50% None
Fourth...................................... 2.50% None
Fifth....................................... 1.50% None
Sixth....................................... 1.00% None
Seventh and Thereafter...................... None None
</TABLE>
23
<PAGE> 211
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, Van Kampen as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $12,200 and CDSC on redeemed shares of approximately $28,800.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $17,051,843 and $19,233,539,
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).
24
<PAGE> 212
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997........................... 6
Futures Opened............................................. 104
Futures Closed............................................. (110)
----
Outstanding at June 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 six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $88,500.
25
<PAGE> 213
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
Global Equity
Global Equity Allocation
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 and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
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.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a 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.VAN-KAMPEN.COM and selecting Investors' Place
26
<PAGE> 214
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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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 December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
27
<PAGE> 215
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
28
<PAGE> 216
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 19
</TABLE>
NYTF SAR 8/98
<PAGE> 217
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc.
You can be assured that the
change in your fund's name will not DENNIS J. MCDONNELL AND DON G. POWELL
affect its management or daily [PHOTO]
operations. You will begin seeing the
application of this change with this report. In addition, as of August 31, your
fund will be listed in the daily newspapers by share class under the heading
"Van Kampen Funds." For your convenience, we have enclosed a separate brochure
that covers additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Tax-exempt bonds benefited from the growing perception that the domestic
economy was slowing as a result of the turmoil in Asia. Interest rates fell
during the last six months of 1997 as the crisis in the Far East lowered
inflationary expectations in the United States. Bond yields then rose slightly
during the spring amid signs that some Asian economies
Continued on page two
1
<PAGE> 218
were beginning to recover. When weakness in the Japanese yen undercut that
recovery, long-term interest rates resumed their decline.
The year-to-date supply of new tax-exempt issues is at record levels, almost
51 percent greater than that of the same period in 1997. Despite low absolute
yields, these securities saw their demand keep pace with supply, as the ratio of
tax-exempt yields to Treasuries remained extremely attractive. At the end of the
reporting period, the Bond Buyer 40 Revenue Index--a widely used benchmark that
consists of 40 actively traded, long-term investment grade securities--yielded
5.22 percent, while long-term Treasuries yielded 5.62 percent. This represents a
taxable equivalent yield of 7.57 percent and 8.16 percent, respectively, for
individuals in the 31 percent and 36 percent income tax brackets.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, the Federal Reserve could raise short-term interest rates by the end of
the year.
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 serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 219
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
TOTAL RETURNS
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Six-month total return based on NAV(1)... 3.44% 3.10% 3.10%
Six-month total return(2)................ (1.44%) (.90%) 2.10%
One-year total return.................... 5.34% 5.80% 8.80%
Life-of-Fund average annual total
return(2)................................ 7.11% 7.14% 7.66%
Commencement date........................ 07/29/94 07/29/94 07/29/94
</TABLE>
DISTRIBUTION RATES AND YIELD
<TABLE>
<S> <C> <C> <C>
Distribution rate(3)..................... 4.79% 4.35% 4.35%
Taxable equivalent distribution
rate(4).................................. 8.04% 7.30% 7.30%
SEC Yield(5)............................. 5.30% 4.83% 4.83%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for 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 June 30, 1998. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 4.09%, 3.58%, and 3.60% 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.
3
<PAGE> 220
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 call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial 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.
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"). There is
no redemption fee (Contingent Deferred Sales Charge).
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
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 U.S.
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.
4
<PAGE> 221
GLOSSARY OF TERMS (CONTINUED)
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
5
<PAGE> 222
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 first half of the Fund's fiscal year. The team includes Dennis
Pietrzak, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE PREVAILING MARKET CONDITIONS DURING THE PAST
SIX MONTHS?
A The markets have been in a fairly modest trading range, which is what you
might expect in the persistently benign market environment of low interest
rates, low inflation, and moderate economic growth we've seen so far this
year. The Federal Reserve Board has held short-term interest rates steady, so
any market movement we've seen has been a function of investors trying to
anticipate how the Fed might react to economic conditions as they change over
time.
Because of supply-and-demand fundamentals and the impact of the Asian
financial crisis, municipal bonds did not perform as well as Treasuries. As the
U.S. dollar has risen in value relative to Asian currencies, the demand for U.S.
Treasury securities has increased. At the same time, the federal budget surplus
has reduced the government's need to issue new debt (such as Treasury bonds). As
a result, fewer bonds are available to meet this increased demand. Consequently,
as bond prices were driven up, the yield on the 30-year Treasury declined during
the period--from 5.92 percent on December 31, 1997, to 5.62 percent on June 30,
1998--after reaching an all-time low of 5.57 percent.
The fundamental factors at work in the municipal market have created the
opposite situation: historically low interest rates have fueled refundings as
well as new borrowings, resulting in a 51 percent increase in the supply of new
bond issues compared to the same period last year. Although these lower interest
rates were not quite as attractive to investors seeking yield, investor demand
did keep pace with supply. Because the yields available on municipal securities
were nearly as high as Treasury yields, the market attracted a high level of
activity among casualty insurance companies and banks, as well as "crossover"
buyers (institutions that typically purchase taxable securities). At the end of
the reporting period, the Bond Buyer 40 Index (an index of 40 actively traded,
long-term investment grade securities) had a yield of 5.22 percent, or 93
percent of the yield available from long-term Treasuries.
The difference between the yields on securities of varying credit quality
has been very narrow. An example of this "yield spread" is the municipal bond
issue brought to market by Long Island Power Authority (LIPA) in May to finance
its takeover of the Long Island Lighting Company. This $3.4 billion issue--the
largest municipal bond issue in history--was split among two credit ratings: a
portion of the issue was insured and had a AAA rating, while the remaining
uninsured portion came to market with LIPA's BBB rating.
6
<PAGE> 223
The yield spread between the insured, AAA-rated portion and the BBB-rated
securities was only 17 basis points (0.17 percentage points).
Q HOW HAS THE PORTFOLIO CHANGED OVER THE LAST SIX MONTHS?
A Several of the Fund's holdings were upgraded in the past two quarters,
which helped to bolster the Fund's performance. Most notably, Moody's
upgraded the City of New York from Baa1 to A3. At the time, the Fund had
approximately 16 percent of its assets in bonds issued by the city. Since then,
this allocation has decreased to approximately six percent.
Our allocation to AAA-rated securities has remained fairly steady at
approximately 31 percent of long-term investments. At the end of the reporting
period, the portion of assets allocated to higher-yielding, non-rated issues
stood at 12 percent of long-term investments, a 1 percent increase from year's
end.
Our portfolio holdings were widely diversified, with sector exposure in
transportation (16 percent), industrial revenue (14 percent), and general
purpose (12 percent). For additional Fund portfolio highlights, please refer to
page nine.
Q HOW WOULD YOU DESCRIBE THE FUND'S PERFORMANCE DURING THE PERIOD?
A The Fund's performance has been impressive, at or near the top of its peer
group for both the year-to-date and one-year periods. Its year-to-date
total return is 3.44 percent(1) (Class A shares at net asset value) while
its distribution rate was 4.79 percent(3) as of June 30, 1998. By comparison,
the Lehman Brothers Municipal Bond Index returned 2.69 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. This represents a taxable-equivalent yield of 8.04
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 three for
additional Fund performance results.
Q WHAT'S ON THE HORIZON FOR THE MARKETS AND THE FUND?
A We expect the low interest-rate environment to continue in the near term,
but we are not overly bullish on the market as a whole. While low
inflation and controlled economic growth have been the norm, the Fed will
continue to weigh the impact of raising interest rates in the second half of the
year if the economy gains steam and threatens to drive inflation higher.
The municipal market is likely to bounce around within its recent trading
range in the weeks ahead, unless the taxable market makes a significant move.
The supply of bond issues looks like it will remain strong, possibly setting an
annual record for the industry. Currently, it's on pace to break the volume
record of almost $300 billion, set in 1993. A
7
<PAGE> 224
drop in rates of 25 basis points (0.25 percentage points) could spark further
refunding of outstanding bond issues and bring new bond issues into the
marketplace ahead of their original schedule.
The U.S. dollar looks like it will remain strong relative to other
currencies, making our bond market more appealing to foreign investors. Already,
the U.S. market has higher interest rates than any other country among the
world's seven largest industrial nations (the "G-7" countries). Combine these
factors with our declining federal budget deficit, which shrinks the supply of
government debt, and it's likely that demand will keep pace with the supply of
bonds and lend support to bond prices.
We feel the Fund will benefit from the continued improvements in the New
York economy, such as steady growth in employment and personal income. In fact,
the latest fiscal year ended with another budgetary surplus due to the strong
economy. New cash inflows to the Fund continued at a consistent rate and will be
invested without major changes to the Fund's portfolio structure.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Dennis Pietrzak
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 225
PORTFOLIO HIGHLIGHTS
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
As of June 30, 1998 As of December 31, 1997
AAA 30.9% AAA 28.6%
AA 5.5% AA 3.7%
A 15.9% [PIE CHART] A 10.9% [PIE CHART]
BBB 35.7% BBB 45.9%
Non-Rated 12.0% Non-Rated 10.9%
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 JUNE 30, 1998
<S> <C>
Transportation ....... 15.6%
Industrial Revenue ... 14.3%
General Purpose ...... 11.5%
Health Care .......... 11.3%
Higher Education ..... 9.9%
</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 JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 8.13 years 8.87 years
</TABLE>
9
<PAGE> 226
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 97.8%
NEW YORK 95.0%
$ 780 Buffalo, NY Muni Wtr Fin Auth Wtr Sys Rev Ser B
Rfdg (FGIC Insd)................................. 5.000% 07/01/18 $ 765,976
1,180 Buffalo, NY Muni Wtr Fin Auth Wtr Sys Rev Ser B
Rfdg (FGIC Insd)................................. 5.000 07/01/19 1,158,182
750 Clifton Springs, NY Hosp & Clinic Ser A Rfdg &
Impt............................................. 7.650 01/01/12 834,442
250 Erie Cnty, NY Indl Dev Agy Life Care Cmnty Rev
Episcopal Church Home Ser A...................... 6.000 02/01/28 254,373
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg..................... 7.500 03/01/26 556,110
1,000 Long Island Pwr Auth NY Elec Sys Rev Genl Ser
A................................................ 5.500 12/01/29 1,013,860
1,000 Long Island Pwr Auth NY Elec Sys Rev Genl Ser
A................................................ 5.250 12/01/26 991,930
500 Metropolitan Tran Auth NY Commuter Fac Rev Ser B
(FGIC Insd) (a).................................. 4.750 07/01/26 470,870
1,645 Metropolitan Tran Auth NY Commuter Fac Rev....... 5.500 07/01/14 1,702,032
800 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 840,192
400 Metropolitan Tran Auth NY Commuter Fac Svc
Contract Ser O................................... 5.750 07/01/13 429,644
500 Monroe Cnty, NY Indl Dev Agy Rev Indl Dev Empire
Sports Proj Ser A................................ 6.250 03/01/28 502,705
600 New York City Indl Dev Agy Brooklyn Navy Yard.... 5.650 10/01/28 606,930
500 New York City Indl Dev Agy Civic Fac Rev Cmnty
Res Developmentally Disabled (b)................. 7.500 08/01/26 534,240
500 New York City Indl Dev Agy Civic Fac Rev College
of New Rochelle Proj............................. 5.750 09/01/17 520,240
500 New York City Indl Dev Agy Rev Visy Paper Inc
Proj (b)......................................... 7.950 01/01/28 583,835
375 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj.............................. 5.700 01/01/04 395,786
500 New York City Indl Dev Agy Spl Fac United Airls
Inc Proj......................................... 5.650 10/01/32 508,070
500 New York City Indl Dev Civic YMCA Greater NY
Proj............................................. 6.000 08/01/07 541,825
515 New York City Indl Dev Civic YMCA Greater NY
Proj............................................. 5.800 08/01/16 541,383
500 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser B (AMBAC Insd) (b)........................... 5.375 06/15/19 506,935
500 New York City Ser B.............................. 5.700 08/15/07 538,070
270 New York City Ser C.............................. 7.250 08/15/24 291,484
230 New York City Ser C (Prerefunded @ 08/15/01)..... 7.250 08/15/24 252,057
1,000 New York City Ser G.............................. 5.000 08/01/15 981,380
70 New York City Ser H (FSA Insd)................... 7.000 02/01/21 77,019
430 New York City Ser H (Prerefunded @ 02/01/02) (FSA
Insd)............................................ 7.000 02/01/21 477,941
300 New York St Dorm Auth Rev City Univ Ser F........ 5.000 07/01/14 296,100
</TABLE>
See Notes to Financial Statements
10
<PAGE> 227
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 600 New York St Dorm Auth Rev City Univ Sys Third
Genl Res 2 Rfdg (b).............................. 6.000% 07/01/05 $ 650,550
750 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 800,137
500 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.700 05/15/22 510,640
570 New York St Dorm Auth Rev Dept Ed St of NY Issue
Ser A............................................ 5.800 07/01/22 593,775
750 New York St Dorm Auth Rev FHA Nursing Home
Menorah (FHA Insd)............................... 5.950 02/01/17 803,197
755 New York St Dorm Auth Rev Jewish Med Cent (MBIA
Insd) (a)........................................ 5.000 07/01/25 733,754
1,000 New York St Dorm Auth Rev Second Hosp Interfaith
Med Cent Ser D................................... 5.750 02/15/08 1,074,070
500 New York St Dorm Auth Rev St Univ Edl Fac........ 5.750 05/15/10 538,405
1,200 New York St Dorm Auth Rev Svc Contract Albany
Cnty............................................. 5.250 04/01/13 1,215,672
1,000 New York St Dorm Auth Rev Svc Contract Albany
Cnty............................................. 5.250 04/01/17 998,140
500 New York St Energy Resh & Dev Auth Elec Fac Rev
Cons Edison Co NY Inc Proj Ser A (MBIA Insd)..... 7.500 01/01/26 526,685
500 New York St Energy Resh & Dev Auth Gas Fac Rev
Brooklyn Union Gas Co Ser B (Inverse Fltg) (c)... 9.868 07/01/26 658,125
300 New York St Energy Resh & Dev Auth St Svc
Contract Rev Western NY Nuclear Svc Cent Proj.... 6.000 04/01/00 309,576
500 New York St Environmental Fac Corp Pollutn Ctl
Rev St Wtr Revolving Fund Ser D (b).............. 6.850 11/15/11 569,300
500 New York St Hsg Fin Agy Rev Insd Multi-Family Mtg
Ser B (AMBAC Insd)............................... 6.250 08/15/14 540,645
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/01) (AMBAC Insd)
(b).............................................. 6.600 02/15/11 531,740
500 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/05) (AMBAC Insd)
(b).............................................. 6.200 08/15/05 562,240
300 New York St Med Care Fac Fin Agy Rev Presbyterian
Hosp Mtg Ser A Rfdg (FHA Insd)................... 5.250 08/15/14 304,785
500 New York St Mtg Agy Rev Homeowner Mtg Ser 30B.... 6.650 10/01/25 533,455
750 New York St Mtg Agy Rev Homeowner Mtg Ser 58..... 6.400 04/01/27 815,287
500 New York St Mtg Agy Rev Homeowner Mtg Ser 70..... 5.375 10/01/17 504,495
500 New York St Thruway Auth Hwy & Brdg Trust Fund
Ser B (FSA Insd)................................. 5.000 04/01/16 494,455
540 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.100 04/01/08 554,234
290 New York St Thruway Auth Svc Contract Rev Loc Hwy
& Brdg........................................... 5.750 04/01/09 310,764
370 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg......................................... 5.625 01/01/07 388,352
450 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 7........................................ 5.700 01/01/27 463,442
500 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser A Rfdg................................... 5.500 01/01/14 524,540
</TABLE>
See Notes to Financial Statements
11
<PAGE> 228
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 300 New York St Urban Dev Corp Rev Correctional Fac
Rfdg............................................. 5.750% 01/01/13 $ 311,517
420 Niagara Falls, NY Pub Impt (MBIA Insd)........... 6.900 03/01/20 477,120
500 Oneida Cnty, NY Pub Impt (Prerefunded @
03/15/01)........................................ 5.850 03/15/12 532,400
300 Port Auth NY & NJ Spl Oblig...................... 7.000 10/01/07 340,056
1,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 1,049,240
555 Rockland Cnty, NY Indl Dev Agy Civic Fac Rev
Dominican College Proj (a)....................... 6.250 05/01/28 555,000
625 Rockland Cnty, NY Solid Waste Mgmt Auth Ser B
(AMBAC Insd)..................................... 5.550 12/15/16 652,563
500 Suffolk Cnty, NY Indl Dev Agy Indl Dev Rev
Spellman High Voltage Fac Ser A.................. 6.375 12/01/17 505,585
825 Suffolk Cnty, NY Pub Impt Ser D Rfdg (FGIC
Insd)............................................ 4.750 11/01/18 784,154
225 Syracuse, NY Hsg Auth Rev Sub Proj Loretto Rest
Ser B............................................ 7.500 08/01/10 232,457
400 Triborough Brdg & Tunl Auth NY Rev Genl Purp Ser
A Rfdg........................................... 5.000 01/01/12 401,036
-----------
39,525,199
-----------
PUERTO RICO 1.2%
500 Puerto Rico Indl Tourist Edl Mennonite Genl Hosp
Proj Ser A....................................... 5.625 07/01/27 509,400
-----------
U. S. VIRGIN ISLANDS 1.6%
650 Virgin Islands Pub Fin Auth Sr Lien Fund Ln Nts
Ser C............................................ 5.500 10/01/07 681,642
-----------
TOTAL LONG-TERM INVESTMENTS 97.8%
(Cost $38,491,650)......................................................... 40,716,241
SHORT-TERM INVESTMENTS 4.3%
(Cost $1,775,000).......................................................... 1,775,000
-----------
TOTAL INVESTMENTS 102.1%
(Cost $40,266,650)......................................................... 42,491,241
LIABILITIES IN EXCESS OF OTHER ASSETS (2.1%)................................ (862,706)
-----------
NET ASSETS 100.0%........................................................... $41,628,535
===========
</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
12
<PAGE> 229
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $40,266,650)........................ $42,491,241
Cash........................................................ 26,588
Receivables:
Interest.................................................. 726,405
Fund Shares Sold.......................................... 320,116
Unamortized Organizational Costs............................ 16,147
Other....................................................... 528
-----------
Total Assets.......................................... 43,581,025
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,760,678
Income Distributions...................................... 57,578
Distributor and Affiliates................................ 46,501
Fund Shares Repurchased................................... 12,011
Accrued Expenses............................................ 46,404
Trustees' Deferred Compensation and Retirement Plans........ 29,318
-----------
Total Liabilities..................................... 1,952,490
-----------
NET ASSETS.................................................. $41,628,535
===========
NET ASSETS CONSIST OF:
Capital..................................................... $39,220,902
Net Unrealized Appreciation................................. 2,224,591
Accumulated Net Realized Gain............................... 206,201
Accumulated Distributions in Excess of Net Investment
Income.................................................... (23,159)
-----------
NET ASSETS.................................................. $41,628,535
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $22,604,845 and 1,425,074 shares of
beneficial interest issued and outstanding)........... $ 15.86
Maximum sales charge (4.75%* of offering price)......... .79
-----------
Maximum offering price to public........................ $ 16.65
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $16,917,885 and 1,067,270 shares of
beneficial interest issued and outstanding)........... $ 15.85
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $2,105,805 and 132,873 shares of
beneficial interest issued and outstanding)........... $ 15.85
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
13
<PAGE> 230
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,002,967
----------
EXPENSES:
Investment Advisory Fee..................................... 111,427
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $25,496, $75,041 and $9,058,
respectively)............................................. 109,595
Accounting Services......................................... 18,334
Legal....................................................... 13,756
Shareholder Services........................................ 11,723
Reports to Shareholders..................................... 11,096
Audit....................................................... 10,136
Trustees' Fees and Expenses................................. 9,514
Organizational Costs........................................ 7,434
Custody..................................................... 2,938
Other....................................................... 8,889
----------
Total Expenses.......................................... 314,842
Less Fees Deferred and Expenses Reimbursed ($111,427 and
$63,258, respectively)................................ 174,685
----------
Net Expenses............................................ 140,157
----------
NET INVESTMENT INCOME....................................... $ 862,810
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 206,247
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 2,085,140
End of the Period......................................... 2,224,591
----------
Net Unrealized Appreciation During the Period............... 139,451
----------
NET REALIZED AND UNREALIZED GAIN............................ $ 345,698
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $1,208,508
==========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 231
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and the
Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 862,810 $ 1,115,725
Net Realized Gain..................................... 206,247 255,029
Net Unrealized Appreciation During the Period......... 139,451 1,117,382
----------- -----------
Change in Net Assets from Operations.................. 1,208,508 2,488,136
----------- -----------
Distributions from Net Investment Income.............. (862,838) (1,126,124)
Distributions in Excess of Net Investment Income...... (23,159) (-0-)
----------- -----------
Distributions from and in Excess of Net Investment
Income*............................................. (885,997) (1,126,124)
Distributions from Net Realized Gains*................ (40,997) (83,754)
----------- -----------
Total Distributions................................... (926,994) (1,209,878)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... 281,514 1,278,258
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 10,695,525 16,610,486
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 584,362 683,838
Cost of Shares Repurchased............................ (2,049,454) (4,637,600)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... 9,230,433 12,656,724
----------- -----------
TOTAL INCREASE IN NET ASSETS.......................... 9,511,947 13,934,982
NET ASSETS:
Beginning of the Period............................... 32,116,588 18,181,606
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of ($23,159) and $28,
respectively)....................................... $41,628,535 $32,116,588
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net Investment
Income:
Class A Shares...................................... $ (517,956) $ (584,822)
Class B Shares...................................... (328,577) (515,371)
Class C Shares...................................... (39,464) (25,931)
----------- -----------
$ (885,997) $(1,126,124)
=========== ===========
Distributions from Net Realized Gain:
Class A Shares...................................... $ (22,101) $ (46,829)
Class B Shares...................................... (16,870) (34,234)
Class C Shares...................................... (2,026) (2,691)
----------- -----------
$ (40,997) $ (83,754)
=========== ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 232
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Six Months Year Ended December 31 Operations) to
Ended --------------------------- December 31,
Class A Shares June 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..... .392 .786 .816 .821 .302
Net Realized and
Unrealized Gain/Loss.... .152 .795 (.074) 1.476 (.722)
------------- ------- ------- ------- ----------
Total from Investment
Operations................ .544 1.581 .742 2.297 (.420)
------------- ------- ------- ------- ----------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .399 .798 .798 .828 .301
Distributions from Net
Realized Gain........... .017 .041 -0- -0- -0-
------------- ------- ------- ------- ----------
Total Distributions......... .416 .839 .798 .828 .301
------------- ------- ------- ------- ----------
Net Asset Value, End of the
Period.................... $ 15.862 $15.734 $14.992 $15.048 $ 13.579
============= ======= ======= ======= ==========
Total Return*(a)............ 3.44%** 10.92% 5.14% 17.33% (2.93%)**
Net Assets at End of the
Period (In millions)...... $ 22.6 $ 18.0 $ 7.7 $ 5.4 $ 2.9
Ratio of Expenses to Average
Net Assets*............... .41% .64% .31% .21% .26%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.98% 5.16% 5.56% 5.63% 5.27%
Portfolio Turnover.......... 40%** 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................ 1.35% 1.47% 1.82% 2.10% 2.73%
Ratio of Net Investment
Income
to Average Net Assets..... 4.04% 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
16
<PAGE> 233
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Six Months Year Ended December 31, Operations) to
Ended --------------------------- December 31,
Class B Shares June 30, 1998 1997 1996 1995 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..... .334 .684 .704 .713 .263
Net Realized and
Unrealized Gain/Loss.... .153 .782 (.068) 1.476 (.722)
------------- ------- ------- ------- ----------
Total from Investment
Operations................ .487 1.466 .636 2.189 (.459)
------------- ------- ------- ------- ----------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .345 .690 .690 .721 .263
Distributions from Net
Realized Gain........... .017 .041 -0- -0- -0-
------------- ------- ------- ------- ----------
Total Distributions......... .362 .731 .690 .721 .263
------------- ------- ------- ------- ----------
Net Asset Value, End of the
Period.................... $ 15.852 $15.727 $14.992 $15.046 $ 13.578
============= ======= ======= ======= ==========
Total Return*(a)............ 3.10%** 10.07% 4.37% 16.47% (3.20%)**
Net Assets at End of the
Period (In millions)...... $ 16.9 $ 13.1 $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to Average
Net Assets*............... 1.17% 1.36% 1.07% .93% .96%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.23% 4.49% 4.79% 4.93% 4.58%
Portfolio Turnover.......... 40%** 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................ 2.10% 2.18% 2.60% 2.82% 3.42%
Ratio of Net Investment
Income to Average Net
Assets.................... 3.29% 3.67% 3.26% 3.04% 2.12%
**Non-Annualized
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
17
<PAGE> 234
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 29, 1994
(Commencement
of Investment
Six Months Year Ended December 31, Operations) to
Ended --------------------------- December 31,
Class C Shares June 30, 1998 1997 1996 1995 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..... .336 .676 .701 .711 .267
Net Realized and
Unrealized Gain/Loss.... .148 .789 (.060) 1.472 (.725)
------------- ------- ------- ------- ----------
Total from Investment
Operations................ .484 1.465 .641 2.183 (.458)
------------- ------- ------- ------- ----------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .345 .690 .690 .721 .263
Distributions from Net
Realized Gain........... .017 .041 -0- -0- -0-
------------- ------- ------- ------- ----------
Total Distributions......... .362 .731 .690 .721 .263
------------- ------- ------- ------- ----------
Net Asset Value, End of the
Period.................... $ 15.848 $15.726 $14.992 $15.041 $13.579
============= ======= ======= ======= ==========
Total Return*(a)............ 3.10%** 10.07% 4.44% 16.39% (3.20%)**
Net Assets at End of the
Period (In millions)...... $ 2.1 $ 1.0 $ .4 $ .4 $ .2
Ratio of Expenses to Average
Net Assets*............... 1.16% 1.41% 1.08% .98% .96%
Ratio of Net Investment
Income to Average Net
Assets*................... 4.16% 4.37% 4.78% 4.81% 4.58%
Portfolio Turnover.......... 40%** 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................ 2.10% 2.23% 2.61% 2.86% 3.42%
Ratio of Net Investment
Income to Average Net
Assets.................... 3.22% 3.55% 3.25% 2.93% 2.12%
**Non-Annualized
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 235
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen New York Tax Free Income Fund, formerly known as Van Kampen American
Capital New York Tax Free Income Fund (the "Fund") is organized as a series of
the Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide
investors with a high level of current income exempt from federal, New York
State and New York City income taxes, consistent with preservation of capital.
The Fund seeks to achieve its investment objective by investing at least 80% of
its assets in a portfolio of New York municipal securities rated investment
grade at the time of investment. The Fund commenced investment operations on
July 29, 1994.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--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.
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
19
<PAGE> 236
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. 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 June 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $40,266,650; the aggregate gross unrealized
appreciation is $2,226,398 and the aggregate gross unrealized depreciation is
$1,807, resulting in net unrealized appreciation of $2,224,591.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ----------------------------------------------------------------------
<S> <C>
First $500 million........................................ .600 of 1%
Over $500 million......................................... .500 of 1%
</TABLE>
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $9,600 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.
20
<PAGE> 237
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $22,500 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 six months ended
June 30, 1998, the Fund recognized expenses of approximately $7,900. 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 June 30, 1998, Van Kampen owned 100 shares each of Classes A, B and C.
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.
21
<PAGE> 238
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $21,478,758, $15,685,732, and
$2,056,412 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 328,507 $ 5,192,043
Class B..................................... 277,861 4,389,896
Class C..................................... 70,003 1,113,586
--------- -----------
Total Sales................................... 676,371 $10,695,525
========= ===========
Dividend Reinvestment:
Class A..................................... 25,258 $ 398,889
Class B..................................... 10,459 165,048
Class C..................................... 1,294 20,425
--------- -----------
Total Dividend Reinvestment................... 37,011 $ 584,362
========= ===========
Repurchases:
Class A..................................... (71,028) $(1,124,602)
Class B..................................... (54,698) (861,134)
Class C..................................... (4,034) (63,718)
--------- -----------
Total Repurchases............................. (129,760) $(2,049,454)
========= ===========
</TABLE>
22
<PAGE> 239
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $17,012,428, $11,991,922, and
$986,119 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 704,992 $10,792,140
Class B.................................. 335,132 5,071,998
Class C.................................. 48,608 746,348
---------- -----------
Total Sales................................ 1,088,732 $16,610,486
========== ===========
Dividend Reinvestment:
Class A.................................. 27,283 $ 418,784
Class B.................................. 15,994 244,789
Class C.................................. 1,318 20,265
---------- -----------
Total Dividend Reinvestment................ 44,595 $ 683,838
========== ===========
Repurchases:
Class A.................................. (103,563) $(1,589,463)
Class B.................................. (193,090) (2,927,339)
Class C.................................. (7,857) (120,798)
---------- -----------
Total Repurchases.......................... (304,510) $(4,637,600)
========== ===========
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ----------------------------------------------------------------------------
<S> <C> <C>
First............................................. 4.00% 1.00%
Second............................................ 3.75% None
Third............................................. 3.50% None
Fourth............................................ 2.50% None
Fifth............................................. 1.50% None
Sixth............................................. 1.00% None
Seventh and Thereafter............................ None None
</TABLE>
23
<PAGE> 240
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $9,700 and CDSC on redeemed shares of approximately $16,300. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $21,655,504 and $14,061,003.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $61,400.
24
<PAGE> 241
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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
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 December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
25
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> INSURED TF CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,286,068,993<F1>
<INVESTMENTS-AT-VALUE> 1,404,010,095<F1>
<RECEIVABLES> 23,940,370<F1>
<ASSETS-OTHER> 40,481<F1>
<OTHER-ITEMS-ASSETS> 279,831<F1>
<TOTAL-ASSETS> 1,428,270,777<F1>
<PAYABLE-FOR-SECURITIES> 43,267,381<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 5,751,420<F1>
<TOTAL-LIABILITIES> 49,018,801<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,174,015,875
<SHARES-COMMON-STOCK> 66,542,873
<SHARES-COMMON-PRIOR> 65,380,120
<ACCUMULATED-NII-CURRENT> (59,494)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 11,900,001<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 117,941,102<F1>
<NET-ASSETS> 1,301,549,952
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 39,086,093<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,286,563)<F1>
<NET-INVESTMENT-INCOME> 32,799,530<F1>
<REALIZED-GAINS-CURRENT> 11,744,686<F1>
<APPREC-INCREASE-CURRENT> (13,095,016)<F1>
<NET-CHANGE-FROM-OPS> 31,449,200<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (31,429,587)
<DISTRIBUTIONS-OF-GAINS> (2,262,624)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,431,139
<NUMBER-OF-SHARES-REDEEMED> (16,464,903)
<SHARES-REINVESTED> 1,196,517
<NET-CHANGE-IN-ASSETS> 18,044,565
<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> 3,384,925<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,286,563<F1>
<AVERAGE-NET-ASSETS> 1,281,742,085
<PER-SHARE-NAV-BEGIN> 19.631
<PER-SHARE-NII> 0.477
<PER-SHARE-GAIN-APPREC> (0.032)
<PER-SHARE-DIVIDEND> (0.480)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.560
<EXPENSE-RATIO> 0.89
<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> 12
<NAME> INSURED TF CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,286,068,993<F1>
<INVESTMENTS-AT-VALUE> 1,404,010,095<F1>
<RECEIVABLES> 23,940,370<F1>
<ASSETS-OTHER> 40,481<F1>
<OTHER-ITEMS-ASSETS> 279,831<F1>
<TOTAL-ASSETS> 1,428,270,777<F1>
<PAYABLE-FOR-SECURITIES> 43,267,381<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 5,751,420<F1>
<TOTAL-LIABILITIES> 49,018,801<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,078,569
<SHARES-COMMON-STOCK> 3,650,989
<SHARES-COMMON-PRIOR> 3,572,287
<ACCUMULATED-NII-CURRENT> (59,494)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 11,900,001<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 117,941,102<F1>
<NET-ASSETS> 71,419,276
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 39,086,093<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,286,563)<F1>
<NET-INVESTMENT-INCOME> 32,799,530<F1>
<REALIZED-GAINS-CURRENT> 11,744,686<F1>
<APPREC-INCREASE-CURRENT> (13,095,016)<F1>
<NET-CHANGE-FROM-OPS> 31,449,200<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,475,768)
<DISTRIBUTIONS-OF-GAINS> (128,797)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 295,527
<NUMBER-OF-SHARES-REDEEMED> (260,846)
<SHARES-REINVESTED> 44,021
<NET-CHANGE-IN-ASSETS> 1,282,742
<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> 3,384,925<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,286,563<F1>
<AVERAGE-NET-ASSETS> 71,219,519
<PER-SHARE-NAV-BEGIN> 19.634
<PER-SHARE-NII> 0.403
<PER-SHARE-GAIN-APPREC> (0.033)
<PER-SHARE-DIVIDEND> (0.406)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.562
<EXPENSE-RATIO> 1.65
<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> 13
<NAME> INSURED TF CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,286,068,993<F1>
<INVESTMENTS-AT-VALUE> 1,404,010,095<F1>
<RECEIVABLES> 23,940,370<F1>
<ASSETS-OTHER> 40,481<F1>
<OTHER-ITEMS-ASSETS> 279,831<F1>
<TOTAL-ASSETS> 1,428,270,777<F1>
<PAYABLE-FOR-SECURITIES> 43,267,381<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 5,751,420<F1>
<TOTAL-LIABILITIES> 49,018,801<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,375,923
<SHARES-COMMON-STOCK> 321,242
<SHARES-COMMON-PRIOR> 284,125
<ACCUMULATED-NII-CURRENT> (59,494)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 11,900,001<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 117,941,102<F1>
<NET-ASSETS> 6,282,748
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 39,086,093<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,286,563)<F1>
<NET-INVESTMENT-INCOME> 32,799,530<F1>
<REALIZED-GAINS-CURRENT> 11,744,686<F1>
<APPREC-INCREASE-CURRENT> (13,095,016)<F1>
<NET-CHANGE-FROM-OPS> 31,449,200<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (117,699)
<DISTRIBUTIONS-OF-GAINS> (9,846)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 359,701
<NUMBER-OF-SHARES-REDEEMED> (326,913)
<SHARES-REINVESTED> 4,329
<NET-CHANGE-IN-ASSETS> 705,396
<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> 3,384,925<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,286,563<F1>
<AVERAGE-NET-ASSETS> 5,660,515
<PER-SHARE-NAV-BEGIN> 19.630
<PER-SHARE-NII> 0.400
<PER-SHARE-GAIN-APPREC> (0.030)
<PER-SHARE-DIVIDEND> (0.406)
<PER-SHARE-DISTRIBUTIONS> (0.036)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.558
<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
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> T.F.H.I. CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 983,587,645 <F1>
<INVESTMENTS-AT-VALUE> 1,038,353,534 <F1>
<RECEIVABLES> 24,429,072 <F1>
<ASSETS-OTHER> 43,136 <F1>
<OTHER-ITEMS-ASSETS> 251,714 <F1>
<TOTAL-ASSETS> 1,063,077,456 <F1>
<PAYABLE-FOR-SECURITIES> 5,878,498 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 5,336,976 <F1>
<TOTAL-LIABILITIES> 11,215,474 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 788,911,394
<SHARES-COMMON-STOCK> 49,433,838
<SHARES-COMMON-PRIOR> 47,576,526
<ACCUMULATED-NII-CURRENT> (10,189,453)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (98,122,528)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 54,765,889 <F1>
<NET-ASSETS> 733,567,065
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 32,271,647 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (5,677,325)<F1>
<NET-INVESTMENT-INCOME> 26,594,322 <F1>
<REALIZED-GAINS-CURRENT> (3,385,420)<F1>
<APPREC-INCREASE-CURRENT> 4,068,142 <F1>
<NET-CHANGE-FROM-OPS> 27,277,044 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (20,471,505)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,233,096
<NUMBER-OF-SHARES-REDEEMED> (2,986,122)
<SHARES-REINVESTED> 610,338
<NET-CHANGE-IN-ASSETS> 27,292,327
<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> 2,387,788 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 5,677,325 <F1>
<AVERAGE-NET-ASSETS> 720,716,120
<PER-SHARE-NAV-BEGIN> 14.845
<PER-SHARE-NII> 0.413
<PER-SHARE-GAIN-APPREC> 0.003
<PER-SHARE-DIVIDEND> (0.422)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.839
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> T.F.H.I. CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 983,587,645 <F1>
<INVESTMENTS-AT-VALUE> 1,038,353,534 <F1>
<RECEIVABLES> 24,429,072 <F1>
<ASSETS-OTHER> 43,136 <F1>
<OTHER-ITEMS-ASSETS> 251,714 <F1>
<TOTAL-ASSETS> 1,063,077,456 <F1>
<PAYABLE-FOR-SECURITIES> 5,878,498 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 5,336,976 <F1>
<TOTAL-LIABILITIES> 11,215,474 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 260,451,038
<SHARES-COMMON-STOCK> 17,656,586
<SHARES-COMMON-PRIOR> 15,466,416
<ACCUMULATED-NII-CURRENT> (10,189,453)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (98,122,528)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 54,765,889 <F1>
<NET-ASSETS> 261,951,697
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 32,271,647 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (5,677,325)<F1>
<NET-INVESTMENT-INCOME> 26,594,322 <F1>
<REALIZED-GAINS-CURRENT> (3,385,420)<F1>
<APPREC-INCREASE-CURRENT> 4,068,142 <F1>
<NET-CHANGE-FROM-OPS> 27,277,044 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (6,109,335)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,180,368
<NUMBER-OF-SHARES-REDEEMED> (1,148,948)
<SHARES-REINVESTED> 158,750
<NET-CHANGE-IN-ASSETS> 32,375,709
<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> 2,387,788 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 5,677,325 <F1>
<AVERAGE-NET-ASSETS> 247,471,918
<PER-SHARE-NAV-BEGIN> 14.844
<PER-SHARE-NII> 0.350
<PER-SHARE-GAIN-APPREC> 0.009
<PER-SHARE-DIVIDEND> (0.367)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.836
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 23
<NAME> T.F.H.I. CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 983,587,645 <F1>
<INVESTMENTS-AT-VALUE> 1,038,353,534 <F1>
<RECEIVABLES> 24,429,072 <F1>
<ASSETS-OTHER> 43,136 <F1>
<OTHER-ITEMS-ASSETS> 251,714 <F1>
<TOTAL-ASSETS> 1,063,077,456 <F1>
<PAYABLE-FOR-SECURITIES> 5,878,498 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 5,336,976 <F1>
<TOTAL-LIABILITIES> 11,215,474 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,045,642
<SHARES-COMMON-STOCK> 3,798,213
<SHARES-COMMON-PRIOR> 2,602,078
<ACCUMULATED-NII-CURRENT> (10,189,453)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (98,122,528)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 54,765,889 <F1>
<NET-ASSETS> 56,343,220
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 32,271,647 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (5,677,325)<F1>
<NET-INVESTMENT-INCOME> 26,594,322 <F1>
<REALIZED-GAINS-CURRENT> (3,385,420)<F1>
<APPREC-INCREASE-CURRENT> 4,068,142 <F1>
<NET-CHANGE-FROM-OPS> 27,277,044 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (1,156,693)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,327,094
<NUMBER-OF-SHARES-REDEEMED> (175,439)
<SHARES-REINVESTED> 44,480
<NET-CHANGE-IN-ASSETS> 17,721,940
<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> 2,387,788 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 5,677,325 <F1>
<AVERAGE-NET-ASSETS> 47,069,908
<PER-SHARE-NAV-BEGIN> 14.842
<PER-SHARE-NII> 0.353
<PER-SHARE-GAIN-APPREC> 0.006
<PER-SHARE-DIVIDEND> (0.367)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.834
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 31
<NAME> CAL INS CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 168,614,705<F1>
<INVESTMENTS-AT-VALUE> 183,156,783<F1>
<RECEIVABLES> 4,930,789<F1>
<ASSETS-OTHER> 19,533<F1>
<OTHER-ITEMS-ASSETS> 66,950<F1>
<TOTAL-ASSETS> 188,174,055<F1>
<PAYABLE-FOR-SECURITIES> 3,488,960<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 868,667<F1>
<TOTAL-LIABILITIES> 4,357,627<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131,990,509
<SHARES-COMMON-STOCK> 7,851,326
<SHARES-COMMON-PRIOR> 7,688,471
<ACCUMULATED-NII-CURRENT> 323,320<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (2,385,376)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,542,078<F1>
<NET-ASSETS> 143,810,250
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 4,933,846<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (923,322)<F1>
<NET-INVESTMENT-INCOME> 4,010,524<F1>
<REALIZED-GAINS-CURRENT> 1,498,106<F1>
<APPREC-INCREASE-CURRENT> (1,087,747)<F1>
<NET-CHANGE-FROM-OPS> 4,420,883<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,420,983)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 489,586
<NUMBER-OF-SHARES-REDEEMED> (438,256)
<SHARES-REINVESTED> 111,525
<NET-CHANGE-IN-ASSETS> 3,155,640
<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> 423,328<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 923,322<F1>
<AVERAGE-NET-ASSETS> 141,943,421
<PER-SHARE-NAV-BEGIN> 18.294
<PER-SHARE-NII> 0.424
<PER-SHARE-GAIN-APPREC> 0.040
<PER-SHARE-DIVIDEND> (0.441)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.317
<EXPENSE-RATIO> 0.89
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 168,614,705<F1>
<INVESTMENTS-AT-VALUE> 183,156,783<F1>
<RECEIVABLES> 4,930,789<F1>
<ASSETS-OTHER> 19,533<F1>
<OTHER-ITEMS-ASSETS> 66,950<F1>
<TOTAL-ASSETS> 188,174,055<F1>
<PAYABLE-FOR-SECURITIES> 3,488,960<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 868,667<F1>
<TOTAL-LIABILITIES> 4,357,627<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,677,315
<SHARES-COMMON-STOCK> 1,945,162
<SHARES-COMMON-PRIOR> 1,696,407
<ACCUMULATED-NII-CURRENT> 323,320<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (2,385,376)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,542,078<F1>
<NET-ASSETS> 35,613,797
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 4,933,846<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (923,322)<F1>
<NET-INVESTMENT-INCOME> 4,010,524<F1>
<REALIZED-GAINS-CURRENT> 1,498,106<F1>
<APPREC-INCREASE-CURRENT> (1,087,747)<F1>
<NET-CHANGE-FROM-OPS> 4,420,883<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (667,012)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 358,724
<NUMBER-OF-SHARES-REDEEMED> (133,692)
<SHARES-REINVESTED> 23,723
<NET-CHANGE-IN-ASSETS> 4,587,622
<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> 423,328<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 923,322<F1>
<AVERAGE-NET-ASSETS> 32,591,849
<PER-SHARE-NAV-BEGIN> 18.289
<PER-SHARE-NII> 0.350
<PER-SHARE-GAIN-APPREC> 0.045
<PER-SHARE-DIVIDEND> (0.375)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.309
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 168,614,705<F1>
<INVESTMENTS-AT-VALUE> 183,156,783<F1>
<RECEIVABLES> 4,930,789<F1>
<ASSETS-OTHER> 19,533<F1>
<OTHER-ITEMS-ASSETS> 66,950<F1>
<TOTAL-ASSETS> 188,174,055<F1>
<PAYABLE-FOR-SECURITIES> 3,488,960<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 868,667<F1>
<TOTAL-LIABILITIES> 4,357,627<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,668,582
<SHARES-COMMON-STOCK> 239,923
<SHARES-COMMON-PRIOR> 206,908
<ACCUMULATED-NII-CURRENT> 323,320<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (2,385,376)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 14,542,078<F1>
<NET-ASSETS> 4,392,381
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 4,933,846<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (923,322)<F1>
<NET-INVESTMENT-INCOME> 4,010,524<F1>
<REALIZED-GAINS-CURRENT> 1,498,106<F1>
<APPREC-INCREASE-CURRENT> (1,087,747)<F1>
<NET-CHANGE-FROM-OPS> 4,420,883<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (85,357)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 82,584
<NUMBER-OF-SHARES-REDEEMED> (52,073)
<SHARES-REINVESTED> 2,504
<NET-CHANGE-IN-ASSETS> 608,818
<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> 423,328<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 923,322<F1>
<AVERAGE-NET-ASSETS> 4,169,387
<PER-SHARE-NAV-BEGIN> 18.286
<PER-SHARE-NII> 0.353
<PER-SHARE-GAIN-APPREC> 0.043
<PER-SHARE-DIVIDEND> (0.375)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 18.307
<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> 41
<NAME> MUNI INC CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 908,436,085<F1>
<INVESTMENTS-AT-VALUE> 987,835,798<F1>
<RECEIVABLES> 43,442,548<F1>
<ASSETS-OTHER> 22,012<F1>
<OTHER-ITEMS-ASSETS> 107,936<F1>
<TOTAL-ASSETS> 1,031,408,294<F1>
<PAYABLE-FOR-SECURITIES> 21,386,311<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,361,426<F1>
<TOTAL-LIABILITIES> 25,747,737<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 729,414,122
<SHARES-COMMON-STOCK> 49,976,424
<SHARES-COMMON-PRIOR> 48,593,827
<ACCUMULATED-NII-CURRENT> 600,632<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (14,911,024)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 79,399,713<F1>
<NET-ASSETS> 785,937,321
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 31,135,439<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4,991,458)<F1>
<NET-INVESTMENT-INCOME> 26,143,981<F1>
<REALIZED-GAINS-CURRENT> 2,890,014<F1>
<APPREC-INCREASE-CURRENT> (5,170,798)<F1>
<NET-CHANGE-FROM-OPS> 23,863,197<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (20,893,656)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,381,598
<NUMBER-OF-SHARES-REDEEMED> (23,672,374)
<SHARES-REINVESTED> 673,373
<NET-CHANGE-IN-ASSETS> 19,772,415
<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> 2,355,248<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,991,458<F1>
<AVERAGE-NET-ASSETS> 777,053,985
<PER-SHARE-NAV-BEGIN> 15.767
<PER-SHARE-NII> 0.425
<PER-SHARE-GAIN-APPREC> (0.043)
<PER-SHARE-DIVIDEND> (0.423)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.726
<EXPENSE-RATIO> 0.83
<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> 42
<NAME> MUNI INC CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 908,436,085<F1>
<INVESTMENTS-AT-VALUE> 987,835,798<F1>
<RECEIVABLES> 43,442,548<F1>
<ASSETS-OTHER> 22,012<F1>
<OTHER-ITEMS-ASSETS> 107,936<F1>
<TOTAL-ASSETS> 1,031,408,294<F1>
<PAYABLE-FOR-SECURITIES> 21,386,311<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,361,426<F1>
<TOTAL-LIABILITIES> 25,747,737<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 197,465,090
<SHARES-COMMON-STOCK> 13,071,321
<SHARES-COMMON-PRIOR> 13,395,856
<ACCUMULATED-NII-CURRENT> 600,632<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (14,911,024)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 79,399,713<F1>
<NET-ASSETS> 205,468,292
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 31,135,439<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4,991,458)<F1>
<NET-INVESTMENT-INCOME> 26,143,981<F1>
<REALIZED-GAINS-CURRENT> 2,890,014<F1>
<APPREC-INCREASE-CURRENT> (5,170,798)<F1>
<NET-CHANGE-FROM-OPS> 23,863,197<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (4,837,318)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 583,464
<NUMBER-OF-SHARES-REDEEMED> (1,070,062)
<SHARES-REINVESTED> 162,063
<NET-CHANGE-IN-ASSETS> (5,698,057)
<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> 2,355,248<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,991,458<F1>
<AVERAGE-NET-ASSETS> 207,914,511
<PER-SHARE-NAV-BEGIN> 15.764
<PER-SHARE-NII> 0.364
<PER-SHARE-GAIN-APPREC> (0.043)
<PER-SHARE-DIVIDEND> (0.366)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.719
<EXPENSE-RATIO> 1.61
<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> 43
<NAME> MUNI INC CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 908,436,085<F1>
<INVESTMENTS-AT-VALUE> 987,835,798<F1>
<RECEIVABLES> 43,442,548<F1>
<ASSETS-OTHER> 22,012<F1>
<OTHER-ITEMS-ASSETS> 107,936<F1>
<TOTAL-ASSETS> 1,031,408,294<F1>
<PAYABLE-FOR-SECURITIES> 21,386,311<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 4,361,426<F1>
<TOTAL-LIABILITIES> 25,747,737<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,692,024
<SHARES-COMMON-STOCK> 907,828
<SHARES-COMMON-PRIOR> 970,252
<ACCUMULATED-NII-CURRENT> 600,632<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (14,911,024)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 79,399,713<F1>
<NET-ASSETS> 14,254,944
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 31,135,439<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4,991,458)<F1>
<NET-INVESTMENT-INCOME> 26,143,981<F1>
<REALIZED-GAINS-CURRENT> 2,890,014<F1>
<APPREC-INCREASE-CURRENT> (5,170,798)<F1>
<NET-CHANGE-FROM-OPS> 23,863,197<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (347,481)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 95,611
<NUMBER-OF-SHARES-REDEEMED> (170,938)
<SHARES-REINVESTED> 12,903
<NET-CHANGE-IN-ASSETS> (1,024,056)
<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> 2,355,248<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,991,458<F1>
<AVERAGE-NET-ASSETS> 14,895,465
<PER-SHARE-NAV-BEGIN> 15.747
<PER-SHARE-NII> 0.364
<PER-SHARE-GAIN-APPREC> (0.043)
<PER-SHARE-DIVIDEND> (0.366)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.702
<EXPENSE-RATIO> 1.61
<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> 51
<NAME> INTERMEDIATE TERM MUNICIPAL A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 37,078,152<F1>
<INVESTMENTS-AT-VALUE> 39,659,628<F1>
<RECEIVABLES> 2,248,317<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 329<F1>
<TOTAL-ASSETS> 41,908,274<F1>
<PAYABLE-FOR-SECURITIES> 2,547,492<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,420,079<F1>
<TOTAL-LIABILITIES> 3,967,571<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,193,417
<SHARES-COMMON-STOCK> 1,803,742
<SHARES-COMMON-PRIOR> 1,226,471
<ACCUMULATED-NII-CURRENT> 34,186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (299,447)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,581,476<F1>
<NET-ASSETS> 19,099,931
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,079,690<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (304,553)<F1>
<NET-INVESTMENT-INCOME> 775,137<F1>
<REALIZED-GAINS-CURRENT> 38,959<F1>
<APPREC-INCREASE-CURRENT> 147,743<F1>
<NET-CHANGE-FROM-OPS> 961,839<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (398,519)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 765,010
<NUMBER-OF-SHARES-REDEEMED> (215,629)
<SHARES-REINVESTED> 27,890
<NET-CHANGE-IN-ASSETS> 6,177,489
<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> 90,569<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 304,553<F1>
<AVERAGE-NET-ASSETS> 17,424,077
<PER-SHARE-NAV-BEGIN> 10.536
<PER-SHARE-NII> 0.236
<PER-SHARE-GAIN-APPREC> 0.060
<PER-SHARE-DIVIDEND> (0.243)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.589
<EXPENSE-RATIO> 1.28
<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> INTERMEDIATE TERM MUNICIPAL B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 37,078,152<F1>
<INVESTMENTS-AT-VALUE> 39,659,628<F1>
<RECEIVABLES> 2,248,317<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 329<F1>
<TOTAL-ASSETS> 41,908,274<F1>
<PAYABLE-FOR-SECURITIES> 2,547,492<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,420,079<F1>
<TOTAL-LIABILITIES> 3,967,571<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,808,385
<SHARES-COMMON-STOCK> 1,491,739
<SHARES-COMMON-PRIOR> 1,559,757
<ACCUMULATED-NII-CURRENT> 34,186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (299,447)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,581,476<F1>
<NET-ASSETS> 15,778,391
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,079,690<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (304,553)<F1>
<NET-INVESTMENT-INCOME> 775,137<F1>
<REALIZED-GAINS-CURRENT> 38,959<F1>
<APPREC-INCREASE-CURRENT> 147,743<F1>
<NET-CHANGE-FROM-OPS> 961,839<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (317,217)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 74,455
<NUMBER-OF-SHARES-REDEEMED> (159,577)
<SHARES-REINVESTED> 17,104
<NET-CHANGE-IN-ASSETS> (640,091)
<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> 90,569<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 304,553<F1>
<AVERAGE-NET-ASSETS> 16,173,013
<PER-SHARE-NAV-BEGIN> 10.526
<PER-SHARE-NII> 0.206
<PER-SHARE-GAIN-APPREC> 0.052
<PER-SHARE-DIVIDEND> (0.207)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.577
<EXPENSE-RATIO> 2.04
<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> INTERMEDIATE TERM MUNICIPAL C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 37,078,152<F1>
<INVESTMENTS-AT-VALUE> 39,659,628<F1>
<RECEIVABLES> 2,248,317<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 329<F1>
<TOTAL-ASSETS> 41,908,274<F1>
<PAYABLE-FOR-SECURITIES> 2,547,492<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,420,079<F1>
<TOTAL-LIABILITIES> 3,967,571<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,622,686
<SHARES-COMMON-STOCK> 289,566
<SHARES-COMMON-PRIOR> 290,114
<ACCUMULATED-NII-CURRENT> 34,186<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (299,447)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,581,476<F1>
<NET-ASSETS> 3,062,381
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,079,690<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (304,553)<F1>
<NET-INVESTMENT-INCOME> 775,137<F1>
<REALIZED-GAINS-CURRENT> 38,959<F1>
<APPREC-INCREASE-CURRENT> 147,743<F1>
<NET-CHANGE-FROM-OPS> 961,839<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (58,539)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,670
<NUMBER-OF-SHARES-REDEEMED> (43,875)
<SHARES-REINVESTED> 4,657
<NET-CHANGE-IN-ASSETS> 8,837
<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> 90,569<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 304,553<F1>
<AVERAGE-NET-ASSETS> 2,980,298
<PER-SHARE-NAV-BEGIN> 10.525
<PER-SHARE-NII> 0.206
<PER-SHARE-GAIN-APPREC> 0.052
<PER-SHARE-DIVIDEND> (0.207)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.576
<EXPENSE-RATIO> 2.05
<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
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 61
<NAME> FL INSD A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 49,329,914 <F1>
<INVESTMENTS-AT-VALUE> 52,781,082 <F1>
<RECEIVABLES> 1,710,062 <F1>
<ASSETS-OTHER> 15,059 <F1>
<OTHER-ITEMS-ASSETS> 524,836 <F1>
<TOTAL-ASSETS> 55,031,039 <F1>
<PAYABLE-FOR-SECURITIES> 4,383,000 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 326,470 <F1>
<TOTAL-LIABILITIES> 4,709,470 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,470,490
<SHARES-COMMON-STOCK> 1,673,866
<SHARES-COMMON-PRIOR> 1,887,297
<ACCUMULATED-NII-CURRENT> (61,601)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (313,484)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 3,451,168 <F1>
<NET-ASSETS> 26,048,652
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 1,354,871 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (256,823)<F1>
<NET-INVESTMENT-INCOME> 1,098,048 <F1>
<REALIZED-GAINS-CURRENT> 279,914 <F1>
<APPREC-INCREASE-CURRENT> (186,601)<F1>
<NET-CHANGE-FROM-OPS> 1,191,361 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (651,842)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 252,443
<NUMBER-OF-SHARES-REDEEMED> (485,672)
<SHARES-REINVESTED> 19,798
<NET-CHANGE-IN-ASSETS> (3,298,369)
<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> 123,820 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 386,898 <F1>
<AVERAGE-NET-ASSETS> 26,181,212
<PER-SHARE-NAV-BEGIN> 15.550
<PER-SHARE-NII> 0.368
<PER-SHARE-GAIN-APPREC> 0.031
<PER-SHARE-DIVIDEND> (0.387)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.562
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 62
<NAME> FL INSD B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 49,329,914 <F1>
<INVESTMENTS-AT-VALUE> 52,781,082 <F1>
<RECEIVABLES> 1,710,062 <F1>
<ASSETS-OTHER> 15,059 <F1>
<OTHER-ITEMS-ASSETS> 524,836 <F1>
<TOTAL-ASSETS> 55,031,039 <F1>
<PAYABLE-FOR-SECURITIES> 4,383,000 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 326,470 <F1>
<TOTAL-LIABILITIES> 4,709,470 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,591,580
<SHARES-COMMON-STOCK> 1,481,431
<SHARES-COMMON-PRIOR> 1,446,624
<ACCUMULATED-NII-CURRENT> (61,601)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (313,484)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 3,451,168 <F1>
<NET-ASSETS> 23,060,946
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 1,354,871 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (256,823)<F1>
<NET-INVESTMENT-INCOME> 1,098,048 <F1>
<REALIZED-GAINS-CURRENT> 279,914 <F1>
<APPREC-INCREASE-CURRENT> (186,601)<F1>
<NET-CHANGE-FROM-OPS> 1,191,361 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (480,487)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 171,094
<NUMBER-OF-SHARES-REDEEMED> (149,758)
<SHARES-REINVESTED> 13,471
<NET-CHANGE-IN-ASSETS> 559,009
<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> 123,820 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 386,898 <F1>
<AVERAGE-NET-ASSETS> 22,656,258
<PER-SHARE-NAV-BEGIN> 15.554
<PER-SHARE-NII> 0.312
<PER-SHARE-GAIN-APPREC> 0.031
<PER-SHARE-DIVIDEND> (0.330)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.567
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 63
<NAME> FL INSD C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 49,329,914 <F1>
<INVESTMENTS-AT-VALUE> 52,781,082 <F1>
<RECEIVABLES> 1,710,062 <F1>
<ASSETS-OTHER> 15,059 <F1>
<OTHER-ITEMS-ASSETS> 524,836 <F1>
<TOTAL-ASSETS> 55,031,039 <F1>
<PAYABLE-FOR-SECURITIES> 4,383,000 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 326,470 <F1>
<TOTAL-LIABILITIES> 4,709,470 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,183,416
<SHARES-COMMON-STOCK> 77,771
<SHARES-COMMON-PRIOR> 76,703
<ACCUMULATED-NII-CURRENT> (61,601)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (313,484)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 3,451,168 <F1>
<NET-ASSETS> 1,211,971
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 1,354,871 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (256,823)<F1>
<NET-INVESTMENT-INCOME> 1,098,048 <F1>
<REALIZED-GAINS-CURRENT> 279,914 <F1>
<APPREC-INCREASE-CURRENT> (186,601)<F1>
<NET-CHANGE-FROM-OPS> 1,191,361 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (22,764)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35,454
<NUMBER-OF-SHARES-REDEEMED> (35,293)
<SHARES-REINVESTED> 907
<NET-CHANGE-IN-ASSETS> 16,886
<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> 123,820 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 386,898 <F1>
<AVERAGE-NET-ASSETS> 1,082,629
<PER-SHARE-NAV-BEGIN> 15.581
<PER-SHARE-NII> 0.313
<PER-SHARE-GAIN-APPREC> 0.020
<PER-SHARE-DIVIDEND> (0.330)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.584
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 81
<NAME> N.Y.T.F. CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 40,266,650 <F1>
<INVESTMENTS-AT-VALUE> 42,491,241 <F1>
<RECEIVABLES> 1,046,521 <F1>
<ASSETS-OTHER> 16,147 <F1>
<OTHER-ITEMS-ASSETS> 27,116 <F1>
<TOTAL-ASSETS> 43,581,025 <F1>
<PAYABLE-FOR-SECURITIES> 1,760,678 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 191,812 <F1>
<TOTAL-LIABILITIES> 1,952,490 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,478,758
<SHARES-COMMON-STOCK> 1,425,074
<SHARES-COMMON-PRIOR> 1,142,337
<ACCUMULATED-NII-CURRENT> (23,159)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 206,201 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 2,224,591 <F1>
<NET-ASSETS> 22,604,845
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 1,002,967 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (140,157)<F1>
<NET-INVESTMENT-INCOME> 862,810 <F1>
<REALIZED-GAINS-CURRENT> 206,247 <F1>
<APPREC-INCREASE-CURRENT> 139,451 <F1>
<NET-CHANGE-FROM-OPS> 1,208,508 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (517,956)
<DISTRIBUTIONS-OF-GAINS> (22,101)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 328,507
<NUMBER-OF-SHARES-REDEEMED> (71,028)
<SHARES-REINVESTED> 25,258
<NET-CHANGE-IN-ASSETS> 4,630,506
<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> 111,427 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 314,842 <F1>
<AVERAGE-NET-ASSETS> 20,568,769
<PER-SHARE-NAV-BEGIN> 15.734
<PER-SHARE-NII> 0.392
<PER-SHARE-GAIN-APPREC> 0.152
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> (0.017)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.862
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 82
<NAME> N.Y.T.F. CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 40,266,650 <F1>
<INVESTMENTS-AT-VALUE> 42,491,241 <F1>
<RECEIVABLES> 1,046,521 <F1>
<ASSETS-OTHER> 16,147 <F1>
<OTHER-ITEMS-ASSETS> 27,116 <F1>
<TOTAL-ASSETS> 43,581,025 <F1>
<PAYABLE-FOR-SECURITIES> 1,760,678 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 191,812 <F1>
<TOTAL-LIABILITIES> 1,952,490 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,685,732
<SHARES-COMMON-STOCK> 1,067,270
<SHARES-COMMON-PRIOR> 833,648
<ACCUMULATED-NII-CURRENT> (23,159)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 206,201 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 2,224,591 <F1>
<NET-ASSETS> 16,917,885
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 1,002,967 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (140,157)<F1>
<NET-INVESTMENT-INCOME> 862,810 <F1>
<REALIZED-GAINS-CURRENT> 206,247 <F1>
<APPREC-INCREASE-CURRENT> 139,451 <F1>
<NET-CHANGE-FROM-OPS> 1,208,508 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (328,577)
<DISTRIBUTIONS-OF-GAINS> (16,870)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 277,861
<NUMBER-OF-SHARES-REDEEMED> (54,698)
<SHARES-REINVESTED> 10,459
<NET-CHANGE-IN-ASSETS> 3,807,408
<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> 111,427 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 314,842 <F1>
<AVERAGE-NET-ASSETS> 15,134,676
<PER-SHARE-NAV-BEGIN> 15.727
<PER-SHARE-NII> 0.334
<PER-SHARE-GAIN-APPREC> 0.153
<PER-SHARE-DIVIDEND> (0.345)
<PER-SHARE-DISTRIBUTIONS> (0.017)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.852
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 83
<NAME> N.Y.T.F. CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 40,266,650 <F1>
<INVESTMENTS-AT-VALUE> 42,491,241 <F1>
<RECEIVABLES> 1,046,521 <F1>
<ASSETS-OTHER> 16,147 <F1>
<OTHER-ITEMS-ASSETS> 27,116 <F1>
<TOTAL-ASSETS> 43,581,025 <F1>
<PAYABLE-FOR-SECURITIES> 1,760,678 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 191,812 <F1>
<TOTAL-LIABILITIES> 1,952,490 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,056,412
<SHARES-COMMON-STOCK> 132,873
<SHARES-COMMON-PRIOR> 65,610
<ACCUMULATED-NII-CURRENT> (23,159)<F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 206,201 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 2,224,591 <F1>
<NET-ASSETS> 2,105,805
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 1,002,967 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (140,157)<F1>
<NET-INVESTMENT-INCOME> 862,810 <F1>
<REALIZED-GAINS-CURRENT> 206,247 <F1>
<APPREC-INCREASE-CURRENT> 139,451 <F1>
<NET-CHANGE-FROM-OPS> 1,208,508 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (39,464)
<DISTRIBUTIONS-OF-GAINS> (2,026)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 70,003
<NUMBER-OF-SHARES-REDEEMED> (4,034)
<SHARES-REINVESTED> 1,294
<NET-CHANGE-IN-ASSETS> 1,074,033
<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> 111,427 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 314,842 <F1>
<AVERAGE-NET-ASSETS> 1,826,868
<PER-SHARE-NAV-BEGIN> 15.726
<PER-SHARE-NII> 0.336
<PER-SHARE-GAIN-APPREC> 0.148
<PER-SHARE-DIVIDEND> (0.345)
<PER-SHARE-DISTRIBUTIONS> (0.017)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.848
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
