<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.............. 31
Statement of Operations.......................... 32
Statement of Changes in Net Assets............... 33
Financial Highlights............................. 34
Notes to Financial Statements.................... 37
</TABLE>
TFIN SAR 5/99
<PAGE> 2
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
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 MARCH 31, 1999
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)..... 0.53% 0.10% 0.15%
Six-month total return(2).................. (4.22%) (3.78%) (0.82%)
One-year total return(2)................... 0.31% 0.53% 3.51%
Five-year average annual total return(2)... 5.85% 5.84% 6.07%
Ten-year average annual total return(2).... 7.13% N/A N/A
Life-of-Fund average annual total
return(2).................................. 8.63% 4.86% 4.68%
Commencement Date.......................... 12/14/84 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution Rate(3)....................... 4.49% 3.94% 3.94%
Taxable Equivalent Distribution Rate(4).... 7.02% 6.16% 6.16%
SEC Yield(5)............................... 3.73% 3.12% 3.15%
</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 March 31, 1999.
The terms of the insurance are more fully described in the Fund's prospectus; no
representation is made as to the insurer's ability to meet its commitments. In
addition, the insurance does not remove market risk, as it does not apply to the
value of the securities in the Fund's portfolio, which may increase or decrease
depending on interest rates and other factors affecting the municipal credit
markets.
Income may subject certain individuals to the federal alternative minimum tax.
See the 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
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 6
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
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 reporting period. The team includes Joseph A. Piraro, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 8
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A We began trimming the Fund's exposure to health care bonds, which still
remain the portfolio's top sector. Our research indicates that some health
care issues are not as attractive as they were when the industry began to
experience the sweeping managed care change that has now taken place. Instead,
we took advantage of the plentiful supply of insured bonds nationwide to replace
some health care issues. Bonds from a range of other sectors helped to diversify
the Fund's holdings.
In addition, we looked to purchase bonds issued in states that have strong
demand for municipal bonds as a result of their heavy state and local taxation.
In particular, we purchased several bonds issued in New York. The large supply
of bonds in that state provided a number of opportunities to find attractive
bonds with appreciation potential. Most of our purchases were bonds with 15 to
20 year maturities because we felt they offered the most value compared to other
maturity ranges. We would have received little incremental yield for assuming
the additional interest rate risk associated with purchasing longer-maturity
bonds. For additional portfolio highlights, please refer to page 9.
Q WHERE DID YOU FIND VALUE IN THE MUNICIPAL MARKET?
A We looked for areas of the municipal marketplace where a large number of
issues had temporarily reduced bond prices. For example, smaller states
often don't have enough demand to immediately absorb a large volume of new
bonds. We took advantage of those situations to purchase bonds at below-market
prices, and then sold them once the issues had been absorbed and prices had
risen.
In addition, we looked to sectors that we felt were undervalued and had the
potential for increased demand going forward. One such area was bonds that are
issued to provide essential services to municipalities, such as schools and
water/sewer facilities. These bonds have tended to see strong demand through a
range of municipal market conditions. On the other hand, we avoided the housing
sector, which we feel is trading at a high level given the increased risk of
prepayment in this low interest rate environment.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A During the past six months, the Fund generated a total return of 0.53
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 1.49 percent over
the same period. This index is a broad-based statistical composite of municipal
bonds and does not reflect any commissions or sales charges that would be paid
by an investor purchasing the securities or investments it represents. The
Fund's tax-exempt distribution rate of 4.49 percent(3)
7
<PAGE> 9
translates into a taxable-equivalent yield of 7.02 percent(4) for an investor in
the 36 percent federal income tax bracket. Past performance does not guarantee
future results.
As we mentioned in our last report, the Fund's monthly dividend was reduced
from $.080 per Class A share to $.076 in November. Given the low interest rate
environment, a number of higher-yielding bonds in the portfolio have been called
away by issuers seeking to refinance the bonds at lower rates. As a result,
we've had to reinvest that money in bonds paying today's lower rates. This
reduction in the Fund's income stream led the Board of Directors to reduce the
dividend. Please refer to the chart and footnotes on page 3 for additional Fund
performance results.
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
[SIG]
Joseph A. Piraro
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INSURED TAX FREE INCOME FUND
TOP TEN STATES AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
California .......................... 20.1%
Illinois ............................ 18.9%
New York ............................ 8.7%
Florida ............................. 5.5%
Pennsylvania ........................ 4.8%
Texas ............................... 3.6%
Georgia ............................. 3.4%
Michigan ............................ 3.2%
Utah ................................ 2.6%
Alabama ............................. 2.3%
</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 MARCH 31, 1999
<S> <C>
Health Care ............... 19.3%
General Purpose............ 12.0%
Public Education .......... 10.0%
Public Building ........... 8.7%
Water & Sewer.............. 8.4%
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Health Care ............... 23.2%
Public Building ........... 11.8%
General Purpose............ 11.1%
Public Education .......... 10.2%
Retail Electric / Gas /
Telephone................ 8.8%
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 99.9%
ALABAMA 2.3%
$ 2,250 Alabama St Brd Edl Rev Shelton St
Cmnty College (MBIA Insd)............ 6.000% 10/01/14 $ 2,474,100
1,955 Alabama Wtr Pollutn Ctl Auth
Revolving Fund Ln Ser A (AMBAC
Insd)................................ 6.750 08/15/17 2,197,948
1,900 Birmingham-Carraway, AL Methodist
Hlth Sys Ser A (Connie Lee Insd)..... 5.875 08/15/25 2,018,484
2,500 Jefferson Cnty, AL Brd Edl Cap Outlay
Sch (Prerefunded @ 02/15/03) (AMBAC
Insd)................................ 5.875 02/15/20 2,725,875
6,000 Jefferson Cnty, AL Swr Rev Cap Impt
Ser A (FGIC Insd).................... 5.000 02/01/33 5,814,060
2,000 Lauderdale Cnty & Florence AL
Hlthcare Auth Rev Eliza Coffee Mem
Hosp Rfdg (MBIA Insd)................ 5.750 07/01/19 2,112,100
5,500 Morgan Cnty Decatur, AL Hlthcare Auth
Hosp Rev Decatur Genl Hosp Rfdg
(Connie Lee Insd).................... 6.250 03/01/13 6,025,085
2,400 Muscle Shoals, AL Util Brd Wtr & Swr
Rev (FSA Insd)....................... 6.500 04/01/16 2,681,568
3,000 Orange Beach, AL Wtr Swr & Fire
Protection Auth Rev (FSA Insd)....... 5.000 05/15/23 2,960,520
1,400 West Morgan East Lawrence Wtr Auth AL
Wtr Rev (FGIC Insd).................. 5.625 08/15/21 1,475,992
1,000 West Morgan East Lawrence Wtr Auth AL
Wtr Rev (FGIC Insd).................. 5.625 08/15/25 1,055,050
--------------
31,540,782
--------------
ALASKA 0.2%
2,355 Ketchikan, AK Muni Util Rev Ser R
(Prerefunded @ 12/01/02) (FSA
Insd)................................ 6.600 12/01/07 2,628,627
--------------
ARIZONA 1.4%
11,000 Arizona St Ctfs Partn Ser B Rfdg
(AMBAC Insd)......................... 6.250 09/01/10 11,912,230
1,945 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson Ser
A Rfdg (FSA Insd).................... 7.250 07/15/10 2,153,018
1,000 Pima Cnty, AZ Metro Domestic Wtr Impt
Dist Wtr Rev Rfdg (FGIC Insd)........ 4.000 01/01/07 987,810
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA (CONTINUED)
$ 1,875 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg (AMBAC
Insd)................................ 6.000% 09/01/12 $ 2,060,531
1,750 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg (AMBAC
Insd)................................ 6.125 09/01/17 1,921,517
--------------
19,035,106
--------------
CALIFORNIA 20.1%
7,750 Alameda Corridor Tran Auth CA Rev Ser
1999 A (MBIA Insd)................... * 10/01/31 1,431,502
10,000 Alameda Corridor Tran Auth CA Rev Ser
1999 A (MBIA Insd)................... * 10/01/32 1,748,900
15,000 Alameda Corridor Tran Auth CA Rev Ser
1999 A (MBIA Insd)................... * 10/01/36 2,105,550
4,290 Antioch Area, CA Pub Fac Fin Agy
Cmnty Fac Dist No 1989 (FGIC Insd)... 5.300 08/01/15 4,461,600
2,835 Bay Area Govt Assn CA Rev Tax Alloc
CA Redev Agy Pool Rev Ser A (FSA
Insd)................................ 6.000 12/15/14 3,139,848
5,000 Beverly Hills, CA Pub Fin Auth Lease
Rev Ser A (MBIA Insd)................ 5.650 06/01/15 5,264,650
3,345 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd)........ 8.100 03/01/18 3,408,689
35,000 California St (FGIC Insd)............ 4.500 12/01/24 32,364,150
2,820 California St Pub Wks Brd Lease Rev
CA Cmnty Colleges Ser D Rfdg (AMBAC
Insd)................................ 5.250 10/01/10 3,041,116
10,000 California St Pub Wks Brd Lease Rev
Dept of Corrections CA St Prison D
Susanville (MBIA Insd)............... 5.375 06/01/18 10,198,800
10,000 California Statewide Cmntys Dev Auth
Rev Sherman Oaks Proj Ser A Rfdg
(AMBAC Insd)......................... 5.000 08/01/22 10,019,900
16,770 Capistrano, CA Uni Pub Fin Auth Spl
Tax Rev First Lien Ser A Rfdg (AMBAC
Insd)................................ 5.700 09/01/16 18,063,973
3,000 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd)................................ 6.200 09/01/18 3,302,820
220 Concord, CA Redev Agy Tax Alloc Cent
Concord Redev Proj Ser 3 (BIGI
Insd)................................ 8.000 07/01/18 224,734
1,000 Conejo Vly, CA Uni Sch Dist Ser A
(FSA Insd) (a)....................... 4.300 08/01/11 989,480
500 Conejo Vly, CA Uni Sch Dist Ser A
(FSA Insd) (a)....................... 4.400 08/01/12 493,965
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 805 Corona Norco, CA Uni Sch Dist Lease
Rev Partn Insd Land Acquis Ser A (FSA
Insd)................................ 6.000% 04/15/19 $ 868,329
1,250 Cucamonga, CA Cnty Wtr Dist Ctfs
Partn Fac Refin (FGIC Insd).......... 6.300 09/01/12 1,343,737
425 Earlimart, CA Elem Sch Dist Ser 1
(AMBAC Insd)......................... 6.700 08/01/21 526,392
2,000 East Bay, CA Muni Util Dist Wtr Sys
Rev (MBIA Insd)...................... 4.750 06/01/28 1,904,400
5,675 Escondido, CA Jt Pwrs Fin Auth Lease
Rev Cap Apprec Cent for the Arts Rfdg
(AMBAC Insd)......................... * 09/01/17 1,915,312
2,780 Escondido, CA Jt Pwrs Fin Auth Lease
Rev Mobile Home Pk Proj (AMBAC
Insd)................................ 5.000 03/01/21 2,756,120
1,500 Folsom, CA Pub Fin Auth 1998 Wtr Proj
(FGIC Insd).......................... 4.875 11/01/18 1,488,720
245 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.750 08/01/14 273,011
2,725 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... * 08/01/18 1,028,279
240 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.750 08/01/18 264,490
265 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.750 08/01/19 292,141
370 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.800 02/01/21 410,345
320 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.800 08/01/22 355,709
475 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.800 02/01/23 528,604
370 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.800 02/01/24 412,088
6,500 Grossmont, CA Union High Sch Dist
Ctfs Partn (MBIA Insd)............... * 11/15/21 1,524,770
3,500 Los Angeles Cnty, CA Cap Asset Lease
Corp Leasehold Rev Rfdg (AMBAC
Insd)................................ 6.000 12/01/16 3,798,725
6,500 Los Angeles Cnty, CA Metro Tran Auth
Sales Tax Rev First Tier Prop A Ser A
Rfdg (FSA Insd) (a).................. 5.000 07/01/19 6,508,385
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$13,480 Los Angeles Cnty, CA Metro Tran Prop
A Second Tier Rfdg (MBIA Insd)....... 6.000% 07/01/21 $ 14,585,090
3,000 Los Angeles, CA Cmnty Redev Agy Tax
Alloc Bunker Hill Ser H Rfdg (FSA
Insd)................................ 6.500 12/01/14 3,365,370
1,830 Los Angeles, CA Ser A (FGIC Insd).... 6.125 09/01/13 2,035,234
5,420 Manteca, CA Redev Agy Tax Alloc Redev
Proj No 1 Ser A Rfdg (MBIA Insd)..... 6.700 10/01/21 5,970,130
1,290 Martinez, CA Uni Sch Dist Gtd Ctfs
Elig Rfdg (FSA Insd)................. 6.000 08/01/09 1,360,253
2,745 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)............ * 09/01/20 903,023
2,880 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)............ * 09/01/21 893,750
2,260 Midpeninsula Regl Open Space Dist CA
Fin Auth Rev (AMBAC Insd)............ * 09/01/29 451,435
2,000 MSR Pub Pwr Agy CA San Juan Proj Rev
Ser F Rfdg (AMBAC Insd).............. 6.000 07/01/20 2,177,480
13,610 Norco, CA Redev Agy Tax Alloc Norco
Redev Proj Area No 1 Rfdg (MBIA
Insd)................................ 6.250 03/01/19 14,689,001
1,500 North City West, CA Sch Fac Fin Auth
Spl Tax Ser B Rfdg (FSA Insd)........ 6.000 09/01/19 1,635,690
2,860 Orange Cnty, CA Ctfs Partn Juvenile
Justice Cent Fac Rfdg (AMBAC Insd)... 6.000 06/01/17 3,075,701
2,000 Orange Cnty, CA Loc Tran Auth Sales
Tax Rev Sr Ser A (MBIA Insd) (a)..... 5.500 02/15/11 2,185,180
1,130 Palmdale, CA Civic Auth Rev Merged
Redev Proj Areas Ser A ( MBIA
Insd)................................ 6.000 09/01/15 1,241,294
2,160 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd).......................... 6.250 08/01/11 2,385,115
2,295 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd).......................... 6.250 08/01/12 2,525,005
2,435 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd).......................... 6.250 08/01/13 2,679,036
2,585 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd).......................... 6.250 08/01/14 2,844,069
2,750 Paramount, CA Redev Agy Tax Alloc
(MBIA Insd).......................... 6.250 08/01/15 3,025,605
2,000 Perris, CA Pub Fin Auth Loc Agy Rev
Parity Ser F (FSA Insd).............. 5.850 09/01/24 2,164,980
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,400 Reedley, CA Pub Fin Auth Lease Rev
Wastewtr Treatment Plant Proj (AMBAC
Insd)................................ 6.050% 05/01/15 $ 1,483,874
4,035 Riverside, CA Redev Agy Tax Alloc
Casa Blanca Redev Ser A (AMBAC Insd)
(a).................................. 4.750 08/01/21 3,876,344
600 Roseville, CA City Sch Dist Ctfs
Partn Fin Proj (FSA Insd)............ 4.875 09/01/23 584,106
4,170 Rubidoux, CA Cmnty Svcs Dist Ctfs
Partn Wtr Sys Impt Rfdg (AMBAC
Insd)................................ 5.100 12/01/24 4,250,898
3,900 Sacramento, CA Muni Util Dist Elec
Rev Ser A Rfdg (MBIA Insd)........... 5.750 08/15/13 4,122,573
13,800 San Bernardino Cnty, CA Ctfs Partn
Ser B (Embedded Swap) (MBIA Insd).... 7.700 07/01/16 14,837,484
2,095 San Diego Cnty, CA Ctfs Partn
Downtown Courthouse Rfdg (AMBAC
Insd)................................ 4.500 05/01/23 1,936,765
6,160 San Diego, CA Pub Fac Fin Auth Swr
Rev Ser A (FGIC Insd)................ 5.000 05/15/29 6,088,729
1,400 San Diego, CA Pub Fac Fin Auth Swr
Rev Ser B (FGIC Insd)................ 5.000 05/15/29 1,383,802
1,000 San Jose, CA Fin Auth Rev Convention
Cent Proj Ser C Rfdg (FSA Insd)...... 6.300 09/01/09 1,081,730
2,500 San Mateo Cnty, CA Jt Pwrs Fin Auth
Lease Rev Cap Proj Ser A Rfdg (FSA
Insd)................................ 4.750 07/15/23 2,400,600
2,000 Santa Monica, CA Cmnty College Dist
Ctfs Partn Rfdg (AMBAC Insd)......... 5.000 06/01/24 1,984,300
1,000 Santa Rosa, CA Wastewtr Svc Fac Dist
Rfdg & Impt (AMBAC Insd)............. 6.200 07/02/09 1,090,490
2,000 Santa Rosa, CA Wtr Rev Ser B Rfdg
(FGIC Insd).......................... 6.200 09/01/09 2,174,720
2,510 Solano Cnty, CA Ctfs Partn Solano
Park Hosp Proj (FSA Insd)............ 5.750 08/01/14 2,708,491
12,600 Southern CA Pub Pwr Auth Transmission
Proj Rev (FSA Insd).................. 6.000 07/01/12 13,551,174
3,370 Stockton, CA Pub Fin Auth Rev Ser A
Rfdg (FSA Insd)...................... 5.875 09/02/16 3,679,534
2,500 Temecula Vly, CA Uni Sch Dist Ctfs
Partn Rfdg (FSA Insd)................ 6.000 09/01/25 2,726,150
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 1,000 Temecula Vly, CA Uni Sch Dist Ser B
Rfdg (FGIC Insd)..................... 6.000% 09/01/12 $ 1,081,210
2,460 Torrance, CA Hosp Rev Torrance Mem
Hosp Rfdg (MBIA Insd)................ 6.750 01/01/12 2,503,050
3,845 Vista, CA Uni Sch Dist Ctfs Partn Ser
A Rfdg (FSA Insd).................... * 11/01/17 1,335,484
2,000 William S Hart CA Jt Sch Fin Auth Spl
Tax Rev Cmnty Fac Rfdg (FSA Insd).... 6.500 09/01/14 2,281,480
--------------
273,814,663
--------------
COLORADO 2.3%
3,115 Arvada, CO Sales & Use Tax Rev (FGIC
Insd) (a)............................ 4.750 12/01/18 3,027,500
17,750 Denver, CO City & Cnty Arpt Rev Ser A
(MBIA Insd).......................... 5.700 11/15/25 18,846,772
5,500 Denver, CO City & Cnty Arpt Rev Ser D
Rfdg (MBIA Insd)..................... 5.500 11/15/25 5,705,535
10 Jefferson Cnty, CO Single Family Mtg
Rev Ser A Rfdg (MBIA Insd)........... 8.875 10/01/13 10,607
2,050 Thornton, CO Rfdg (FGIC Insd)........ * 12/01/11 1,129,714
1,100 Thornton, CO Rfdg (FGIC Insd)........ * 12/01/15 480,634
2,000 Westminster, CO Wtr & Wastewtr Util
Enterprise Rev (AMBAC Insd).......... 6.250 12/01/14 2,207,360
--------------
31,408,122
--------------
FLORIDA 5.5%
1,350 Dade Cnty, FL Sch Brd Ctfs Partn Ser
A (Prerefunded @ 05/01/06) (AMBAC
Insd)................................ 5.500 5/01/25 1,478,304
1,010 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd) (b)...................... 8.000 10/01/03 1,181,902
690 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd).......................... 8.000 10/01/04 825,999
1,180 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd).......................... 8.000 10/01/05 1,440,638
1,275 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd).......................... 8.000 10/01/06 1,584,417
1,375 Dade Cnty, FL Seaport Rev Ser E Rfdg
(MBIA Insd).......................... 8.000 10/01/07 1,734,590
2,095 Dade Cnty, FL Util Pub Impt Rfdg
(FGIC Insd).......................... 12.000 10/01/04 2,906,980
160 Duval Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Ser C (FGIC Insd)..... 7.650 09/01/10 168,229
695 Duval Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Ser C (FGIC Insd)..... 7.700 09/01/24 730,146
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,410 Florida St Dept Corrections Ctfs
Partn Okeechobee Correctional (AMBAC
Insd)................................ 6.250% 03/01/15 $ 1,565,932
2,000 Indian River Cnty, FL Hosp Rev Rfdg
(FSA Insd)........................... 6.100 10/01/18 2,198,820
1,000 Key West, FL Util Brd Elec Rev Ser D
(AMBAC Insd)......................... * 10/01/13 502,690
4,000 Lee Cnty, FL Hosp Brd Dir Hosp Rev
(Inverse Fltg) (MBIA Insd)........... 9.874 04/01/20 4,580,000
14,275 Miami Dade Cnty, FL Solid Waste Sys
Rev (AMBAC Insd)..................... 4.750 10/01/18 13,825,052
17,020 Miami Dade Cnty, FL Spl Oblig Ser B
(MBIA Insd).......................... 5.000 10/01/37 16,720,278
2,000 North Springs Impt Dist FL Wtr & Swr
Rev (MBIA Insd)...................... 4.750 10/01/23 1,906,740
6,000 Orange Cnty, FL Hlth Fac Auth Rev
(Inverse Fltg) (MBIA Insd)........... 9.263 10/29/21 6,990,000
2,000 Palm Beach Cnty, FL Sch Brd Ctfs
Partn Ser A (Prerefunded @ 08/01/04)
(AMBAC Insd)......................... 6.375 08/01/15 2,256,040
1,090 Sarasota Cnty, FL Util Sys Rev
(Prerefunded @ 10/01/04) (FGIC
Insd)................................ 6.500 10/01/14 1,248,748
10,000 Tallahassee, FL Hlth Fac Rev
Tallahassee Mem Regl Med Ser A Rfdg
(MBIA Insd).......................... 6.625 12/01/13 11,295,800
--------------
75,141,305
--------------
GEORGIA 3.4%
1,750 Atlanta, GA Ctfs Partn Atlanta
Pretrial Detention Cent (MBIA
Insd)................................ 6.250 12/01/17 1,930,600
1,250 Atlanta, GA Ctfs Partn Atlanta
Pretrial Detention Cent (Prerefunded
@ 12/01/02) (MBIA Insd).............. 6.250 12/01/08 1,379,000
5,000 Cobb Cnty, GA Hosp Auth Rev
Anticipation Ctfs Ser A (AMBAC
Insd)................................ 4.750 04/01/26 4,706,600
15,550 Georgia Muni Elec Auth Pwr Rev Ser Y
(AMBAC Insd) (b)..................... 6.400 01/01/13 18,177,794
10,000 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (b)...................... 6.500 01/01/17 11,783,000
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GEORGIA (CONTINUED)
$ 6,500 Georgia Muni Elec Auth Pwr Rev Genl
Ser B (BIGI Insd).................... * 01/01/07 $ 4,638,985
4,750 Georgia Muni Elec Auth Pwr Rev Genl
Ser B (BIGI Insd).................... * 01/01/08 3,217,983
--------------
45,833,962
--------------
HAWAII 1.7%
12,785 Hawaii St Arpt Sys Rev Ser 1993 Rfdg
(MBIA Insd).......................... 6.400% 07/01/08 14,177,798
1,265 Honolulu, HI City & Cnty Ser B (FGIC
Insd) (a)............................ 5.000 07/01/21 1,242,407
1,000 Honolulu, HI City & Cnty Ser B (FGIC
Insd) (a)............................ 5.000 07/01/22 981,720
1,000 Honolulu, HI City & Cnty Ser B (FGIC
Insd) (a)............................ 5.000 04/01/24 981,110
7,000 Honolulu, HI City & Cnty Wastewtr Sys
Rev (FGIC Insd)...................... 4.500 07/01/28 6,349,980
--------------
23,733,015
--------------
ILLINOIS 18.9%
1,000 Berwyn, IL (MBIA Insd)............... 7.000 11/15/10 1,071,490
5,000 Chicago, IL (FGIC Insd).............. 5.500 01/01/21 5,195,000
10,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/29 1,985,500
10,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/30 1,881,800
10,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser A (FGIC Insd)............. * 12/01/31 1,783,400
1,400 Chicago, IL Brd of Ed Chicago Sch
Reform (AMBAC Insd).................. 5.750 12/01/20 1,500,842
16,000 Chicago, IL Brd of Ed Chicago Sch
Reform (AMBAC Insd).................. 5.750 12/01/27 17,083,840
25,725 Chicago, IL Brd of Ed Chicago Sch
Reform (Prerefunded @ 12/01/06) (MBIA
Insd)................................ 6.000 12/01/26 29,278,909
5,000 Chicago, IL Brd of Ed Chicago Sch
Reform Brd Ser A (FGIC Insd)......... 5.250 12/01/21 5,137,150
24,925 Chicago, IL Midway Arpt Rev Ser B
(MBIA Insd).......................... 5.000 01/01/35 23,941,709
2,750 Chicago, IL Park Dist Ser B (FGIC
Insd)................................ 4.750 01/01/26 2,577,740
2,720 Chicago, IL Pub Bldg Comm Bldg Rev
Chicago Transit Auth (AMBAC Insd).... 6.600 01/01/15 3,031,821
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,480 Chicago, IL Pub Bldg Comm Bldg Rev
Ser A (MBIA Insd).................... * 01/01/06 $ 2,609,617
3,105 Chicago, IL Pub Bldg Comm Bldg Rev
Ser A (MBIA Insd).................... * 01/01/07 2,222,745
4,150 Chicago, IL Skyway Toll Brdg Rev
(MBIA Insd).......................... 5.500% 01/01/23 4,300,147
2,500 Chicago, IL Tax Increment Alloc Near
South Redev Proj A (AMBAC Insd)...... 4.250 11/15/09 2,448,600
2,000 Chicago, IL Tax Increment Alloc Near
South Redev Proj A (AMBAC Insd)...... 5.000 11/15/10 2,062,280
2,000 Chicago, IL Wastewtr Transmission Rev
(FGIC Insd).......................... 5.125 01/01/25 1,966,140
1,000 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC
Insd) (b)............................ 8.400 01/01/01 1,078,790
5,550 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC Insd)... 8.750 01/01/03 6,461,144
8,460 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC Insd)... 8.750 01/01/04 10,145,401
2,460 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC Insd)... 8.750 01/01/05 3,027,670
3,500 Cook Cnty, IL Cmnty College Dist No
508 Chicago Ctfs Partn (FGIC Insd)... 8.750 01/01/07 4,495,575
1,280 Cook Cnty, IL Cmnty High Sch Dist No
233 Homewood & Flossmor (AMBAC
Insd)................................ * 12/01/05 965,478
8,280 Cook Cnty, IL Cnty Juvenile Detention
Ser A (AMBAC Insd)................... * 11/01/08 5,451,055
1,505 Cook Cnty, IL Sch Dist No 100 Berwyn
South (FSA Insd)..................... 8.200 12/01/14 2,059,577
1,775 Cook Cnty, IL Sch Dist No 100 Berwyn
South (FSA Insd)..................... 8.100 12/01/16 2,437,235
1,005 Evanston, IL Residential Mtg Rev
(AMBAC Insd)......................... 6.375 01/01/09 1,061,139
10,000 Illinois Dev Fin Auth Pollutn Ctl Rev
Comwlth Edison Co Proj Ser D Rfdg
(AMBAC Insd)......................... 6.750 03/01/15 11,291,100
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 40,692,750
5,000 Illinois Dev Fin Auth Pollutn Ctl Rev
IL Pwr Co Proj Ser A Rfdg (MBIA
Insd)................................ 5.400 03/01/28 5,064,100
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,000 Illinois Dev Fin Auth Rev Sch Dist
Pgm Rockford Sch 205 (FSA Insd)...... 6.650% 02/01/11 $ 2,363,740
5,025 Illinois Dev Fin Auth Rev Sch Dist
Pgm Rockford Sch 205 Rfdg (FSA
Insd)................................ 6.650 02/01/12 5,740,108
12,300 Illinois Hlth Fac Auth Rev Alexian
Brothers Hlth Sys (FSA Insd)......... 5.000 01/01/25 11,808,861
971 Illinois Hlth Fac Auth Rev Cmnty Prov
Pooled Pgm Ser B (MBIA Insd)......... 7.900 08/15/03 984,371
220 Illinois Hlth Fac Auth Rev Cmnty Prov
Pooled Pgm Ser B Rfdg (MBIA Insd).... 7.900 08/15/03 249,940
5,000 Illinois Hlth Fac Auth Rev Hosp
Sisters Svcs (Inverse Fltg) (MBIA
Insd)................................ 9.968 06/19/15 5,943,750
5,000 Illinois Hlth Fac Auth Rev Methodist
Hlth Proj (Inverse Fltg) (Prerefunded
@ 05/08/01) (AMBAC Insd)............. 10.277 05/18/21 5,806,250
3,400 Illinois Hlth Fac Auth Rev Rush
Presbyterian Saint Luke Hosp (Inverse
Fltg) (Prerefunded @ 11/01/01) (MBIA
Insd)................................ 10.375 10/01/24 4,012,000
3,000 Illinois Hlth Fac Auth Rev Sarah Bush
Lincoln Hlth Rfdg (AMBAC Insd)....... 6.000 01/01/27 3,217,920
1,930 Melrose Park, IL Tax Increment Ser A
(FSA Insd)........................... 4.750 12/15/18 1,852,298
6,110 Rosemont, IL Tax Increment 3 (FGIC
Insd)................................ * 12/01/06 4,383,070
3,000 Rosemont, IL Tax Increment 3 (FGIC
Insd)................................ * 12/01/07 2,043,420
1,185 Saint Clair Cnty, IL Ctfs Partn (MBIA
Insd)................................ 8.000 12/01/04 1,419,464
1,285 Saint Clair Cnty, IL Ctfs Partn (MBIA
Insd)................................ 8.000 12/01/05 1,568,355
1,500 Will Cnty, IL Cmnty Unit Sch Dist No
201 Ser C (FSA Insd)................. * 10/01/13 734,025
1,000 Will Cnty, IL Cmnty Unit Sch Dist No
201 Ser C (FSA Insd)................. * 10/01/14 461,610
--------------
256,898,926
--------------
INDIANA 1.8%
4,000 Hamilton Cnty, IN Redev Auth Cnty Opt
Income Tax Lease (MBIA Insd) (a)..... 5.000 02/01/20 3,901,160
2,000 Indiana Bond Bank Spl Pgm Ser A
(AMBAC Insd)......................... 9.750 08/01/09 2,628,760
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDIANA (CONTINUED)
$ 5,000 Indiana Hlth Fac Fin Auth Hosp Rev
Cmnty Hosps Proj Rfdg & Impt (MBIA
Insd)................................ 6.400% 05/01/12 $ 5,393,400
12,000 Indiana Hlth Fac Fin Auth Hosp Rev
Sisters of Saint Francis Hlth Ser A
(MBIA Insd).......................... 5.000 11/01/29 11,483,640
1,000 Marion Cnty, IN Convention & Rectnl
Fac Auth Excise Tax Rev Lease Rental
Ser A (AMBAC Insd)................... 7.000 06/01/21 1,080,910
--------------
24,487,870
--------------
KANSAS 2.3%
28,750 Burlington, KS Pollutn Ctl Rev KS Gas
& Elec Co Proj Rfdg (MBIA
Insd) (b)............................ 7.000 06/01/31 31,063,800
--------------
KENTUCKY 0.2%
20,000 Kentucky Cntys Single Family Mtg
Presbyterian Homes Ser A Rfdg (MBIA
Insd)................................ 8.625 09/01/15 20,250
2,000 Kentucky Econ Dev Fin Auth Hosp Fac
Rev Rfdg (Connie Lee Insd)........... 5.700 02/01/28 2,105,180
--------------
2,125,430
--------------
LOUISIANA 2.3%
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 4,734,831
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 6,533,418
310 Louisiana Pub Fac Auth Rev Med Cent
LA at New Orleans Proj (Connie Lee
Insd)................................ 6.250 10/15/10 330,479
5,000 Louisiana Pub Fac Auth Rev Tulane
Univ of LA (AMBAC Insd).............. 6.050 10/01/25 5,498,100
3,000 Louisiana Stadium & Expo Dist Hotel
Occupancy Tax & Stadium Rev Ser B
(FGIC Insd).......................... 4.750 07/01/21 2,847,630
5,000 Louisiana Stadium & Expo Dist Hotel
Occupancy Tax & Stadium Rev Ser B
(FGIC Insd).......................... 5.000 07/01/26 4,894,000
10,000 New Orleans, LA Home Mtg Auth Single
Family Mtg Rev 1985 Ser A (MBIA
Insd)................................ * 09/15/16 1,635,900
4,000 New Orleans, LA Rfdg (FGIC Insd)..... 5.500 12/01/21 4,271,920
--------------
30,746,278
--------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAINE 0.4%
$ 2,750 Easton, ME Indl Dev McCain Food Inc
Proj Ser 1985 (AMBAC Insd)........... 9.200% 08/01/99 $ 2,803,378
35 Maine Hlth & Higher Edl Fac Auth Rev
Ser B (FSA Insd)..................... 7.100 07/01/14 40,324
1,715 Maine Hlth & Higher Edl Fac Auth Rev
Ser B (Prerefunded @ 07/01/04) (FSA
Insd)................................ 7.100 07/01/14 1,997,306
--------------
4,841,008
--------------
MASSACHUSETTS 1.2%
3,000 Boston, MA Wtr & Swr Commn Rev Genl
Sr Ser D (FGIC Insd)................. 4.750 11/01/22 2,839,050
1,700 Massachusetts St Hlth & Edl Fac Auth
Rev Mt Auburn Hosp Ser B1 (MBIA
Insd)................................ 6.250 08/15/14 1,881,441
8,250 Massachusetts St Wtr Res Auth Houston
Ind Inc Proj Ser A (FSA Insd)........ 4.750 08/01/37 7,641,728
3,250 Massachusetts St Wtr Res Auth Genl
Ser A (Prerefunded @ 11/01/06) (FGIC
Insd)................................ 5.500 11/01/21 3,571,100
--------------
15,933,319
--------------
MICHIGAN 3.2%
2,325 Bay City, MI (AMBAC Insd)............ * 06/01/15 1,036,508
1,000 Bay City, MI (AMBAC Insd)............ * 06/01/16 420,550
1,750 Big Rapids, MI Pub Schs Dist Rfdg
(FSA Insd)........................... 4.750 05/01/25 1,660,908
3,250 Central MI Univ Rev (FGIC Insd)...... 5.625 10/01/22 3,591,055
1,100 Central MI Univ Rev (FGIC Insd)...... 5.500 10/01/26 1,206,172
4,270 Detroit, MI City Sch Dist Ser B (FGIC
Insd)................................ 5.000 05/01/21 4,200,826
2,000 Durand, MI Area Schs (FGIC Insd)..... 5.375 05/01/23 2,041,940
5,000 Ecorse, MI Pub Sch Dist (FGIC
Insd)................................ 5.500 05/01/27 5,226,100
3,310 Fowlerville, MI Cmnty Schs Sch Dist
Rfdg (FSA Insd)...................... 4.750 05/01/26 3,175,945
3,000 Hazel Park, MI Bldg Auth Ice Arena
(AMBAC Insd)......................... 4.700 04/01/24 2,833,530
3,000 Lake Shore, MI Pub Schs Macomb Cnty
(FSA Insd)........................... 5.500 05/01/20 3,113,760
21,000 Livonia, MI Pub Sch Dist Ser II (FGIC
Insd)................................ * 05/01/21 5,579,700
5,000 Michigan St Hosp Fin Auth Rev Hosp
Sparrow Oblig Group (MBIA Insd)...... 6.000 11/15/36 5,410,150
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 2,000 Michigan St Hsg Dev Auth Rental Hsg
Rev Ser B (AMBAC Insd)............... 4.850% 04/01/04 $ 2,040,000
5,000 Mount Clemens, MI Cmnty Sch Dist Cap
Apprec (Prerefunded @ 05/01/07) (MBIA
Insd)................................ * 05/01/17 1,784,200
--------------
43,321,344
--------------
MINNESOTA 0.5%
1,000 Brainerd, MN Rev Evangelical Lutheran
Ser B Rfdg (FSA Insd)................ 6.650 03/01/17 1,087,590
5,600 Minneapolis-St Paul, MN Hsg & Redev
Auth Hlthcare Sys Rev Hlth One Ser A
(MBIA Insd).......................... 7.400 08/15/11 6,011,544
--------------
7,099,134
--------------
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 1,374,490
--------------
MISSOURI 0.4%
1,490 Green Cnty, MO Single Family Mtg Rev
(AMBAC Insd)......................... * 12/01/16 263,089
4,585 Missouri St Hlth & Edl Fac Auth (MBIA
Insd)................................ 6.250 06/01/16 4,950,287
145,000 Saint Louis Cnty, MO Single Family
Mtg Rev (AMBAC Insd)................. 9.250 10/01/16 154,566
--------------
5,367,942
--------------
NEVADA 0.6%
1,000 Carson City, NV Hosp Rev Ser B (AMBAC
Insd)................................ 5.400 03/01/17 1,024,760
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co
Proj Ser C Rfdg (AMBAC Insd)......... 7.200 10/01/22 2,229,040
1,675 Clark Cnty, NV Pub Fac Ser C (FGIC
Insd)................................ 5.000 06/01/24 1,640,813
3,720 Washoe Cnty, NV Rfdg & Impt (MBIA
Insd)................................ * 07/01/07 2,591,501
--------------
7,486,114
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW HAMPSHIRE 2.0%
$ 5,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev (AMBAC Insd)................ 6.000% 10/01/26 $ 5,422,800
2,500 New Hampshire St Tpk Sys Rev Rfdg
(Inverse Fltg) (FGIC Insd)........... 10.083 11/01/17 3,334,375
19,500 New Hampshire St Tpk Sys Rev Ser A
(FGIC Insd).......................... 4.750 04/01/29 18,414,240
--------------
27,171,415
--------------
NEW JERSEY 0.7%
5,500 Howell Twp, NJ Rfdg (FGIC Insd)...... 6.800 01/01/14 5,991,700
3,625 Morristown, NJ Rfdg (FSA Insd)....... 6.400 08/01/14 4,101,506
--------------
10,093,206
--------------
NEW YORK 8.7%
8,000 Metropolitan Tran Auth NY Commuter
Fac Rev Ser A (MBIA Insd)............ 5.625 07/01/27 8,485,520
10,000 Metropolitan Tran Auth NY Tran Fac
Ser C (FSA Insd)..................... 4.750 07/01/16 9,774,700
4,350 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd)................................ 6.375 11/15/14 4,856,688
35,960 New York City Muni Wtr Fin Auth Wtr &
Swr Sys Rev Ser A (FGIC Insd)........ 4.750 06/15/31 33,788,016
50 New York City Ser C SubSer C1 (FSA
Insd)................................ 6.250 08/01/09 54,443
18,000 New York City Ser G (FGIC Insd)...... 5.750 02/01/14 19,305,360
2,090 New York City Ser G (MBIA Insd)...... 5.750 02/01/14 2,241,567
3,000 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Pgm Ser A (FSA Insd)... 5.500 05/15/25 3,133,590
2,775 New York St Dorm Auth Rev City Univ
Ser C
(FGIC Insd).......................... 7.000 07/01/14 2,944,774
505 New York St Dorm Auth Rev Green
Chimneys Sch Ser A (AMBAC Insd)
(a).................................. 4.250 07/01/07 506,192
530 New York St Dorm Auth Rev Green
Chimneys Sch Ser A (AMBAC Insd)
(a).................................. 4.300 07/01/08 529,528
4,700 New York St Dorm Auth Rev Insd Pace
Univ Rfdg (MBIA Insd)................ 5.750 07/01/26 5,064,485
3,180 New York St Dorm Auth Rev Upstate
Cmnty Colleges Ser A (AMBAC Insd)
(a).................................. 4.250 07/01/08 3,176,216
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 3,440 New York St Dorm Auth Rev Upstate
Cmnty Colleges Ser A (AMBAC Insd)
(a).................................. 4.375% 07/01/09 $ 3,438,383
15 New York St Med Care Fac Fin Agy Rev
(FSA Insd)........................... 6.500 08/15/15 16,864
170 New York St Med Care Fac Fin Agy Rev
IBC Mental Hlth Svcs Ser A (MBIA
Insd)................................ 7.750 08/15/10 179,381
17,000 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 19,698,410
1,500 New York St Urban Dev Corp Rev
Correctional Fac Rfdg (AMBAC Insd)... 5.250 01/01/18 1,520,295
--------------
118,714,412
--------------
NORTH CAROLINA 0.4%
1,250 Franklin Cnty, NC Ctfs Partn Jail &
Sch Projs (FGIC Insd)................ 6.625 06/01/14 1,398,087
4,305 North Carolina Eastern Muni Pwr Agy
Pwr Sys Rev (MBIA Insd).............. 5.375 01/01/24 4,407,072
--------------
5,805,159
--------------
NORTH DAKOTA 0.8%
4,595 Grand Forks, ND Sales Tax Rev Aurora
Proj Ser A (MBIA Insd)............... 5.625 12/15/29 4,836,743
5,000 Mercer Cnty, ND Pollutn Ctl Rev
Antelope Vly Station Rfdg (AMBAC
Insd)................................ 7.200 06/30/13 6,188,900
--------------
11,025,643
--------------
OHIO 1.6%
5,000 Clermont Cnty, OH Hosp Fac Rev Muni
(Inverse Fltg) (Prerefunded @
09/25/01) (AMBAC Insd)............... 9.996 10/05/21 5,875,000
2,010 Cleveland, OH (Prerefunded @
11/15/04) (MBIA Insd)................ 6.500 11/15/09 2,304,344
2,285 Cleveland, OH (Prerefunded @
11/15/04) (MBIA Insd)................ 6.500 11/15/10 2,619,616
1,500 Ohio St Air Quality Dev Auth Rev
Pollutn Ctl Cleveland Co Proj Rfdg
(FGIC Insd).......................... 8.000 12/01/13 1,707,900
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO (CONTINUED)
$ 2,500 Ohio St Air Quality Dev Auth Rev
Pollutn Ctl OH Edison Ser A Rfdg
(FGIC Insd).......................... 7.450% 03/01/16 $ 2,634,200
6,500 Ohio St Higher Edl Fac Comm Higher
Edl Fac Wittenberg Univ (AMBAC Insd)
(a).................................. 5.000 06/01/29 6,385,275
--------------
21,526,335
--------------
OKLAHOMA 0.3%
1,760 McAlester, OK Pub Wks Auth Rev Rfdg &
Impt (FSA Insd)...................... 5.250 12/01/20 1,798,315
2,200 Oklahoma Hsg Fin Agy Single Family
Rev Mtg Ser A (MBIA Insd)............ 7.200 03/01/11 2,306,260
--------------
4,104,575
--------------
OREGON 0.1%
1,000 Wasco Cnty, OR Vet Home (Prerefunded
@ 06/01/05) (FSA Insd)............... 6.200 06/01/13 1,123,470
--------------
PENNSYLVANIA 4.8%
4,875 Allegheny Cnty, PA Hosp Dev Auth Rev
Pittsburgh Mercy Hlth Sys Inc (AMBAC
Insd)................................ 5.625 08/15/26 5,247,109
2,985 Butler, PA Area Sch Dist Cap Apprec
(Prerefunded @ 11/15/07) (FGIC
Insd)................................ * 11/15/23 818,039
5,650 Butler, PA Area Sch Dist Cap Apprec
(Prerefunded @ 11/15/07) (FGIC
Insd)................................ * 11/15/26 1,290,404
31,250 Dauphin Cnty, PA Genl Auth Hlth Sys
Rev Pinnacle Hlth Sys Proj Rfdg (MBIA
Insd)................................ 5.500 05/15/27 32,289,375
2,000 Dauphin Cnty, PA Genl Auth Hosp Rev
Hapsco Phoenixville Hosp Proj Ser B
(FGIC Insd).......................... 6.125 07/01/10 2,228,480
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 1,095,460
3,750 Montgomery Cnty, PA Indl Dev Auth Rev
Pollutn Ctl Ser E Rfdg (MBIA Insd)... 6.700 12/01/21 4,058,287
1,000 New Kensington Arnold, PA Sch Dist
(FGIC Insd).......................... 5.500 05/15/26 1,036,020
8,065 Northeastern PA Hosp & Edl Auth
Wyoming Vly Hlthcare Ser A (AMBAC
Insd)................................ 5.250 01/01/26 8,035,563
1,000 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Bryn Mawr College
(MBIA Insd).......................... 5.625 12/01/27 1,053,750
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,250 Philadelphia, PA Gas Wks Rev 14th Ser
A Rfdg (FSA Insd).................... 6.375% 07/01/14 $ 2,477,587
1,500 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)................................ 4.750 04/01/27 1,421,115
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA
Rev Franciscan Hlth Saint Mary Ser A
(Prerefunded @ 07/01/02) (MBIA
Insd)................................ 6.500 07/01/22 1,101,550
1,000 Saint Mary's Hosp Auth Bucks Cnty, PA
Rev Franciscan Hlth Sys Ser B
(Prerefunded @ 07/01/02) (MBIA
Insd)................................ 6.500 07/01/12 1,101,550
1,000 Sayre, PA Hlthcare Fac Auth Rev VHA
Cap Asset Fin Pgm Ser H2 (AMBAC
Insd)................................ 7.625 12/01/15 1,056,680
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 1,128,580
--------------
65,439,549
--------------
RHODE ISLAND 0.2%
2,000 Rhode Island St Hlth & Edl Bldg Corp
Rev Higher Edl Fac Roger Williams
(Prerefunded @ 11/15/04) (Connie Lee
Insd)................................ 7.250 11/15/24 2,364,600
--------------
SOUTH CAROLINA 0.1%
70 Charleston Cnty, SC Ctfs Partn Ser B
(MBIA Insd).......................... 6.875 06/01/14 79,181
1,430 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA
Insd)................................ 6.875 06/01/14 1,651,750
--------------
1,730,931
--------------
SOUTH DAKOTA 0.8%
5,205 South Dakota St Lease Rev Trust Ctfs
Ser A (FSA Insd)..................... 6.625 09/01/12 6,225,180
4,000 South Dakota St Lease Rev Trust Ctfs
Ser A (FSA Insd)..................... 6.700 09/01/17 4,825,640
--------------
11,050,820
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 28
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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)................. 10.483% 05/25/21 $ 2,317,500
3,320 Johnson City, TN Sch Sales Tax
(Prerefunded @ 05/01/06) (AMBAC
Insd)................................ 6.700 05/01/18 3,851,399
--------------
6,168,899
--------------
TEXAS 3.6%
3,000 Amarillo, TX Hlth Fac Corp Hosp Rev
High Plains Baptist Hosp (Inverse
Fltg) (FSA Insd)..................... 9.544 01/01/22 3,513,750
12,500 Austin, TX Util Sys Rev Ser A Rfdg
(MBIA Insd).......................... * 11/15/10 7,276,625
2,315 Corpus Christi, TX Hsg Fin Corp
Single Family Mtg Rev Ser A Rfdg
(MBIA Insd).......................... 7.700 07/01/11 2,518,211
6,525 Dallas Cnty, TX Util & Reclamation
Dist (MBIA Insd)..................... * 02/15/07 3,936,206
6,780 Dallas Cnty, TX Util & Reclamation
Dist (MBIA Insd)..................... * 02/15/08 3,796,054
7,705 Dallas Cnty, TX Util & Reclamation
Dist (MBIA Insd)..................... * 02/15/09 3,986,567
3,210 El Paso, TX Hsg Fin Corp Mtg Rev
Single Family (FGIC Insd)............ * 11/01/16 500,375
1,250 Harris Cnty, TX Hlth Fac Dev Corp
Thermal Util Rev Teco Proj Ser A
(AMBAC Insd)......................... 7.250 02/15/15 1,314,237
4,615 Harris Cnty, TX Toll Rd Tax & Sub
Lien Ser A Rfdg (FGIC Insd).......... * 08/15/07 3,197,826
8,485 Harris Cnty-Houston, TX Sports Auth
Spl Rev Ser A (MBIA Insd)............ 5.000 11/15/28 8,285,857
245 Henderson, TX (AMBAC Insd)........... 9.125 05/15/04 303,398
2,505 Montgomery Cnty, TX Cap Apprec Rfdg
(MBIA Insd).......................... * 03/01/15 1,108,613
1,000 Montgomery Cnty, TX Cap Apprec Rfdg
(MBIA Insd).......................... * 03/01/16 416,130
1,305 Montgomery Cnty, TX Cap Apprec Rfdg
(MBIA Insd).......................... * 03/01/17 511,704
5,000 North Cent, TX Hlth Fac Dev TX Hlth
Res Sys Ser B (MBIA Insd)............ 5.375 02/15/26 5,082,050
</TABLE>
See Notes to Financial Statements
27
<PAGE> 29
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,000 San Antonio, TX Indpt Sch Dist Pub
Fac Corp Lease Rev (AMBAC Insd)...... 5.850% 10/15/10 $ 1,094,390
1,750 Tarrant Cnty, TX Hlth Fac Dev Corp
Hlth Sys Rev Ser B (FGIC Insd)....... 5.000 09/01/15 1,772,470
--------------
48,614,463
--------------
UTAH 2.6%
21,000 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd)........... 5.750 07/01/19 22,466,850
750 Provo, UT Elec Rev 1984 Ser A Rfdg
(AMBAC Insd)......................... 10.375 09/15/15 1,102,890
7,385 Utah St Muni Fin Co-op Local Govt Rev
Pool Cap Salt Lake (FSA Insd)........ * 03/01/09 4,695,088
3,115 West Jordan, UT Multi-Family Rev
Broadmoor Vlg Apts Proj Ser A Rfdg
(FSA Insd)........................... 6.800 01/01/15 3,342,052
4,540 West Valley City, UT Muni Bldg Lease
Ser A Rfdg (AMBAC Insd).............. 4.750 04/15/19 4,372,247
--------------
35,979,127
--------------
VIRGINIA 0.4%
4,000 Loudoun Cnty, VA Ctfs Partn (FSA
Insd)................................ 6.800 03/01/14 4,489,440
750,000 University of VA Hosp Rev Ser C Rfdg
(Prerefunded @ 06/01/00) (AMBAC
Insd)................................ 9.375 06/01/07 809,370
--------------
5,298,810
--------------
WASHINGTON 1.8%
4,000 Central Puget Sound, WA Regl Tran
Auth Sales Tax & Motor Vehicle Excise
Tax Rev (FGIC Insd).................. 4.750 02/01/28 3,738,000
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 3,265,089
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 2,529,739
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 1,433,587
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 1,110,485
350 Pierce Cnty, WA Swr Rev Ser A (MBIA
Insd)................................ 9.000 02/01/05 439,698
</TABLE>
See Notes to Financial Statements
28
<PAGE> 30
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 1,000 Snohomish Cnty, WA Solid Waste Rev
(Prerefunded @ 12/01/01) (MBIA
Insd)................................ 7.000% 12/01/10 $ 1,104,860
5,000 Spokane, WA Regl Solid Waste Mgmt Sys
Rev (AMBAC Insd)..................... 6.250 12/01/11 5,448,350
160 University of WA Univ Rev (MBIA
Insd)................................ 7.000 12/01/21 174,976
3,090 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev Ser A Rfdg
(AMBAC Insd)......................... 5.700 07/01/09 3,358,737
3,015 Washington St Pub Pwr Supply Sys
Nuclear Proj No 2 Rev Ser C Rfdg
(MBIA Insd).......................... * 07/01/04 2,428,914
--------------
25,032,435
--------------
WISCONSIN 1.3%
2,750 Waupun, WI Sch Dist Rfdg (FGIC
Insd)................................ 4.750 04/01/18 2,641,842
12,490 Wisconsin St Hlth & Edl Fac Auth Rev
Aurora Med Group Inc Proj (FSA Insd)
(b).................................. 5.750 11/15/25 13,154,718
1,000 Wisconsin St Hlth & Edl Fac Auth Rev
Med College of WI Inc Proj (MBIA
Insd)................................ 5.500 03/01/17 1,033,540
1,000 Wisconsin St Hlth & Edl Fac Auth Rev
Med College of WI Inc Proj (MBIA
Insd)................................ 5.750 03/01/27 1,064,070
--------------
17,894,170
--------------
WYOMING 0.2%
2,000 Laramie Cnty, WY Hosp Rev Mem Hosp
Proj (AMBAC Insd).................... 6.700 05/01/12 2,196,640
--------------
PUERTO RICO 0.2%
3,000 Puerto Rico Indl Tourist Edl Med &
Environmental Ctl Fac Hosp Aux (MBIA
Insd)................................ 6.250 07/01/16 3,341,130
--------------
TOTAL LONG-TERM INVESTMENTS 99.9%
(Cost $1,252,794,901)........................................... 1,358,557,026
</TABLE>
See Notes to Financial Statements
29
<PAGE> 31
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 2.3%
(Cost $31,250,000).................................................. $ 31,250,000
--------------
TOTAL INVESTMENTS 102.2%
(Cost $1,284,044,901)............................................... 1,389,807,026
LIABILITIES IN EXCESS OF OTHER ASSETS (2.2%)......................... (30,364,942)
--------------
NET ASSETS 100.0%.................................................... $1,359,442,084
==============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
30
<PAGE> 32
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,284,044,901)..................... $1,389,807,026
Cash........................................................ 312,678
Receivables:
Interest.................................................. 18,163,158
Investments Sold.......................................... 7,185,785
Fund Shares Sold.......................................... 233,056
Other....................................................... 12,665
--------------
Total Assets.......................................... 1,415,714,368
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 48,869,667
Fund Shares Repurchased................................... 3,812,408
Income Distributions...................................... 1,680,216
Distributor and Affiliates................................ 674,188
Investment Advisory Fee................................... 581,794
Variation Margin on Futures............................... 113,062
Accrued Expenses............................................ 361,186
Trustees' Deferred Compensation and Retirement Plans........ 179,763
--------------
Total Liabilities..................................... 56,272,284
--------------
NET ASSETS.................................................. $1,359,442,084
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,242,576,685
Net Unrealized Appreciation................................. 105,178,963
Accumulated Net Realized Gain............................... 12,148,351
Accumulated Distributions in Excess of Net Investment
Income.................................................... (461,915)
--------------
NET ASSETS.................................................. $1,359,442,084
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,284,981,329 and 66,362,853 shares of
beneficial interest issued and outstanding)............. $19.36
Maximum sales charge (4.75%* of offering price)......... .97
--------------
Maximum offering price to public........................ $20.33
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $66,942,571 and 3,457,171 shares of
beneficial interest issued and outstanding)............. $19.36
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $7,518,184 and 388,343 shares of
beneficial interest issued and outstanding)............. $19.36
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
31
<PAGE> 33
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest................................................... $ 38,597,087
----------------
EXPENSES:
Investment Advisory Fee.................................... 3,451,865
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B, and C of $1,511,522, $350,741 and $36,675,
respectively)............................................ 1,898,938
Shareholder Services....................................... 612,698
Legal...................................................... 28,400
Insurance.................................................. 25,463
Custody.................................................... 22,300
Trustees' Fees and Expenses................................ 20,137
Other...................................................... 399,755
----------------
Total Operating Expenses............................... 6,459,556
----------------
Interest Expense....................................... 110,884
----------------
NET INVESTMENT INCOME...................................... $ 32,026,647
================
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments.............................................. $ 13,745,628
Futures.................................................. (19,303)
----------------
Net Realized Gain.......................................... 13,726,325
----------------
Unrealized Appreciation/Depreciation:
Beginning of the Period.................................. 143,148,176
----------------
End of the Period:
Investments............................................ 105,762,125
Futures................................................ (583,162)
----------------
105,178,963
----------------
Net Unrealized Depreciation During the Period.............. (37,969,213)
----------------
NET REALIZED AND UNREALIZED LOSS........................... $ (24,242,888)
================
NET INCREASE IN NET ASSETS FROM OPERATIONS................. $ 7,783,759
================
See Notes to Financial Statements
32
<PAGE> 34
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999,
the Nine Months Ended September 30, 1998
and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................ $ 32,026,647 $ 49,110,538 $ 68,037,607
Net Realized Gain.................... 13,726,325 15,077,312 8,525,006
Net Unrealized
Appreciation/Depreciation During
the Period......................... (37,969,213) 12,112,058 31,101,903
------------- ------------- -------------
Change in Net Assets from
Operations......................... 7,783,759 76,299,908 107,664,516
------------- ------------- -------------
Distributions from Net Investment
Income............................. (31,966,572) (49,274,568) (67,785,067)
Distributions in Excess of Net
Investment Income.................. -0- (521,990) -0-
------------- ------------- -------------
Distributions from and in Excess of
Net Investment Income*............. (31,966,572) (49,796,558) (67,785,067)
Distributions from Net Realized
Gain*.............................. (16,810,583) (2,401,285) (11,111,608)
------------- ------------- -------------
Total Distributions................ (48,777,155) (52,197,843) (78,896,675)
------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.............. (40,993,396) 24,102,065 28,767,841
------------- ------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............ 400,601,882 505,859,955 631,717,458
Net Asset Value of Shares Issued
Through Dividend Reinvestment...... 35,196,573 35,644,233 54,493,315
Cost of Shares Repurchased........... (467,946,560) (492,241,941) (716,001,683)
------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS....................... (32,148,105) 49,262,247 (29,790,910)
------------- ------------- -------------
TOTAL INCREASE/DECREASE IN NET
ASSETS............................. (73,141,501) 73,364,312 (1,023,069)
NET ASSETS:
Beginning of the Period.............. 1,432,583,585 1,359,219,273 1,360,242,342
------------- ------------- -------------
End of the Period (Including
accumulated undistributed net
investment income of $(461,915),
$(521,990) and $164,030,
respectively)...................... $1,359,442,084 $1,432,583,585 $1,359,219,273
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
* DISTRIBUTIONS BY CLASS
Distributions from and in Excess of
Net Investment Income:
<S> <C> <C> <C>
Class A Shares....................... $(30,444,993) $(47,397,474) $(64,607,170)
Class B Shares....................... (1,377,661) (2,215,435) (2,965,479)
Class C Shares....................... (143,918) (183,649) (212,418)
------------- ------------- -------------
$(31,966,572) $(49,796,558) $(67,785,067)
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Distributions from Net Realized Gain:
<S> <C> <C> <C>
Class A Shares....................... $(15,893,770) $(2,262,642) $(10,489,973)
Class B Shares....................... (826,371) (128,797) (580,452)
Class C Shares....................... (90,442) (9,846) (41,183)
------------- ------------- -------------
$(16,810,583) $(2,401,285) $(11,111,608)
============= ============= =============
</TABLE>
See Notes to Financial Statements
33
<PAGE> 35
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Six Months Ended Year Ended December 31,
Ended September 30, -----------------------------------------
Class A Shares March 31, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $19.956 $19.631 $ 19.238 $ 19.549 $ 17.572 $ 19.857
------- ------- -------- -------- -------- --------
Net Investment Income...... .461 .710 .974 .980 1.021 1.051
Net Realized and Unrealized
Gain/Loss................ (.360) .371 .551 (.304) 1.982 (2.280)
------- ------- -------- -------- -------- --------
Total from Investment
Operations............... .101 1.081 1.525 .676 3.003 (1.229)
------- ------- -------- -------- -------- --------
Less:
Distributions from and in
Excess of Net
Investment Income...... .460 .720 .971 .987 1.026 1.056
Distributions from Net
Realized Gain.......... .234 .036 .161 -0- -0- -0-
------- ------- -------- -------- -------- --------
Total Distributions........ .694 .756 1.132 .987 1.026 1.056
------- ------- -------- -------- -------- --------
Net Asset Value, End of the
Period................... $19.363 $19.956 $ 19.631 $ 19.238 $ 19.549 $ 17.572
======= ======= ======== ======== ======== ========
Total Return (a)........... 0.53%* 5.61%* 8.19% 3.65% 17.49% (6.31%)
Net Assets at End of the
Period (In millions)..... $1,285.0 $1,353.9 $1,283.5 $1,283.7 $1,365.4 $1,110.2
Ratio of Expenses to
Average Net Assets (b)... .91% .90% .92% .95% .88% .88%
Ratio of Net Investment
Income to Average
Net Assets (b)........... 4.71% 4.85% 5.07% 5.11% 5.44% 5.70%
Portfolio Turnover......... 48%* 62%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
34
<PAGE> 36
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Six Months Ended Year Ended December 31,
Ended September 30, -------------------------------------
Class B Shares March 31, 1999 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $19.957 $19.634 $19.240 $19.549 $17.563 $19.824
------- ------- ------- ------- ------- -------
Net Investment Income....... .386 .598 .826 .832 .890 .899
Net Realized and Unrealized
Gain/Loss................. (.361) .370 .551 (.304) 1.978 (2.276)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ .025 .968 1.377 .528 2.868 (1.377)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .385 .609 .822 .837 .882 .884
Distributions from Net
Realized Gain........... .234 .036 .161 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions......... .619 .645 .983 .837 .882 .884
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $19.363 $19.957 $19.634 $19.240 $19.549 $17.563
======= ======= ======= ======= ======= =======
Total Return (a)............ 0.10%* 5.07%* 7.36% 2.83% 16.67% (7.03%)
Net Assets at End of the
Period (In millions)...... $66.9 $71.9 $70.1 $71.6 $75.3 $30.0
Ratio of Expenses to Average
Net Assets (b)............ 1.68% 1.66% 1.69% 1.74% 1.67% 1.71%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 3.93% 4.08% 4.29% 4.38% 4.69% 4.88%
Portfolio Turnover.......... 48%* 62%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sale charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
35
<PAGE> 37
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 Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, -------------------------------------
Class C Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $19.952 $19.630 $19.239 $19.548 $17.568 $19.823
------- ------- ------- ------- ------- -------
Net Investment Income......... .384 .594 .822 .830 .883 .908
Net Realized and Unrealized
Gain/Loss................... (.357). .373 .552 (.302) 1.979 (2.279)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. .027 .967 1.374 .528 2.862 (1.371)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .385 .609 .822 .837 .882 .884
Distributions from Net
Realized Gain............. .234 .036 .161 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions........... .619 .645 .983 .837 .882 .884
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $19.360 $19.952 $19.630 $19.239 $19.548 $17.568
======= ======= ======= ======= ======= =======
Total Return (a).............. 0.15%* 5.02%* 7.36% 2.83% 16.60% (6.98%)
Net Assets at End of the
Period (In millions)........ $7.5 $6.8 $5.6 $4.9 $5.1 $3.5
Ratio of Expenses to Average
Net Assets (b).............. 1.68% 1.66% 1.69% 1.74% 1.67% 1.70%
Ratio of Net Investment Income
to Average Net Assets (b)... 3.92% 4.06% 4.29% 4.37% 4.68% 4.89%
Portfolio Turnover............ 48%* 62%* 82% 92% 70% 48%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
See Notes to Financial Statements
36
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Insured Tax Free Income Fund (the "Fund") is organized as a series of
Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors with a high level of current income exempt from federal
income taxes, with liquidity and safety of principal, primarily through an
investment in a diversified portfolio of insured municipal securities. The Fund
commenced the distribution of its Class B and Class C shares on May 1, 1993 and
August 13, 1993, respectively. In July, 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from December 31 to September
30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may purchase and sell securities on a "when issued" or "delayed
delivery" basis, with settlement to occur at a later date. The value of the
security so purchased is subject to market fluctuations during this period. The
Fund will maintain, in a segregated account with its custodian, assets having an
aggregate value at least equal to the amount of the when issued or delayed
delivery purchase commitments until payment is made.
37
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral for tax purposes of losses
resulting from wash sales.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $1,284,049,228; the aggregate gross unrealized
appreciation is $108,736,203 and the aggregate gross unrealized depreciation is
$2,978,405, resulting in net unrealized appreciation on long- and short-term
investments of $105,757,798.
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.
38
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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.................................... .525 of 1%
Next $500 million.................................... .500 of 1%
Next $500 million.................................... .475 of 1%
Over $1.5 billion.................................... .450 of 1%
</TABLE>
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $22,400 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 March 31, 1999, the Fund recognized expenses of
approximately $155,600 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
March 31, 1999, the Fund recognized expenses of approximately $446,400. 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.
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 March 31, 1999, capital aggregated $1,169,596,312, $65,285,884 and
$7,694,489 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 19,559,820 $ 383,702,323
Class B.................................... 397,677 7,815,739
Class C.................................... 463,272 9,083,820
----------- -------------
Total Sales.................................. 20,420,769 $ 400,601,882
=========== =============
Dividend Reinvestment:
Class A.................................... 1,726,672 $ 33,759,651
Class B.................................... 64,910 1,268,968
Class C.................................... 8,594 167,954
----------- -------------
Total Dividend Reinvestment.................. 1,800,176 $ 35,196,573
=========== =============
Repurchases:
Class A.................................... (22,766,683) $(447,706,788)
Class B.................................... (606,508) (11,890,544)
Class C.................................... (426,085) (8,349,228)
----------- -------------
Total Repurchases............................ (23,799,276) $(467,946,560)
=========== =============
</TABLE>
40
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $1,199,841,126, $68,091,721 and
$6,791,943 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 24,717,457 $ 483,526,778
Class B.................................... 517,918 10,164,399
Class C.................................... 621,935 12,168,778
----------- -------------
Total Sales.................................. 25,857,310 $ 505,859,955
=========== =============
Dividend Reinvestment:
Class A.................................... 1,747,169 $ 34,263,263
Class B.................................... 63,858 1,252,254
Class C.................................... 6,563 128,716
----------- -------------
Total Dividend Reinvestment.................. 1,817,590 $ 35,644,233
=========== =============
Repurchases:
Class A.................................... (24,001,702) $(470,222,851)
Class B.................................... (552,971) (10,848,637)
Class C.................................... (570,061) (11,170,453)
----------- -------------
Total Repurchases............................ (25,124,734) $(492,241,941)
=========== =============
</TABLE>
41
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
most redemptions made within six years of the purchase for Class B and one year
of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First............................................... 4.00% 1.00%
Second.............................................. 3.75% None
Third............................................... 3.50% None
Fourth.............................................. 2.50% None
Fifth............................................... 1.50% None
Sixth............................................... 1.00% None
Seventh and Thereafter.............................. None None
</TABLE>
For the six months ended March 31, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $51,400 and CDSC on redeemed shares of approximately $35,500.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments were $657,463,945 and
$678,377,032, 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.
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the six months ended March 31, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998........................... -0-
Futures Opened.............................................. 5,353
Futures Closed.............................................. (4,951)
-------
Outstanding at March 31, 1999............................... 402
=======
</TABLE>
The futures contracts outstanding as of March 31, 1999, and the description
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DESCRIPTION CONTRACTS (DEPRECIATION)
- --------------------------------------------------------------------------------
<S> <C> <C>
Short Contracts -- Municipal Bond Index Futures
June 1999
(Current notional value $123,594 per
contract).................................... 402 $ (583,162)
=== ==========
</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
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 March 31, 1999, are payments retained by Van Kampen of
approximately $413,700.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the fund complex, has entered into a $100 million revolving
credit agreement which expires September 27, 1999. The maximum amount available
to any single fund is $75 million. Interest is charged under the agreement at a
rate of .45% above the federal funds rate. An annual facility fee of .06% is
charged on the unused portion of the credit facility.
The average daily balance of bank borrowings for the six months ended March
31, 1999 was approximate $4,007,800 with an average interest rate of 5.55%. At
March 31, 1999, the Fund did not have any outstanding borrowings under the
agreement.
45
<PAGE> 47
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
46
<PAGE> 48
VAN KAMPEN INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN*
Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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. 1999 All rights reserved.
(SM)denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After August 31, 1999, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
47
<PAGE> 49
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
48
<PAGE> 50
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.............. 35
Statement of Operations.......................... 36
Statement of Changes in Net Assets............... 37
Financial Highlights............................. 38
Notes to Financial Statements.................... 41
</TABLE>
TFHI SAR 5/99
<PAGE> 51
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 52
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 53
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN TAX FREE HIGH INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... .53% .22% .22%
Six-month total return(2)................ (4.24%) (3.69%) (.76%)
One-year total return(2)................. .04% .35% 3.34%
Five-year average annual total
return(2)................................ 5.86% 5.82% 6.07%
Ten-year average annual total
return(2)................................ 5.92% N/A N/A
Life-of-Fund average annual total
return(2)................................ 7.43% 5.80% 5.42%
Commencement date........................ 06/28/85 05/01/93 08/13/93
DISTRIBUTION RATES
Distribution rate(3)..................... 5.19% 4.68% 4.68%
Taxable equivalent distribution
rate(4).................................. 8.11% 7.31% 7.31%
SEC Yield(5)............................. 4.97% 4.42% 4.42%
</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 March 31, 1999.
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> 54
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 55
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 56
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN TAX FREE HIGH INCOME FUND
We recently spoke with the management team of the Van Kampen Tax Free High
Income Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes David C. Johnson, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investment. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about
80 to 90 percent as much yield as comparable Treasury bonds because their
interest payments are exempt from federal income taxes. However, as Treasury
yields fell and municipal yields remained stable, the yield difference between
the two types of bonds shrank. Early in 1999, investors realized the tremendous
opportunities available in the municipal market, and demand for municipals began
to increase. In conjunction with a recent slowdown in
6
<PAGE> 57
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A As the issuance of higher-yielding non-rated bonds increased, we made
selective purchases in that sector of the market and sold some of our
higher-quality, lower-yielding bonds. We chose lower-rated bonds whose
credit quality appeared strong because they offered better yields than
higher-rated issues and strong potential for price appreciation. This
lower-rated portion of the portfolio is balanced with approximately 31 percent
in AAA bonds to help moderate the fund's credit risk. In addition, most of our
purchases were bonds with 15 to 20 year maturities because we felt they offered
the most value compared to other maturity ranges. We would have received little
incremental yield for assuming the additional interest rate risk associated with
purchasing longer-maturity bonds. For additional portfolio highlights, please
refer to page 9.
Q WHERE DID YOU FIND VALUE IN THE MUNICIPAL MARKET?
A We found value in sectors that are undergoing rapid transitions--areas
like health care and electric utilities. This changing environment allowed
us to take advantage of our research capabilities to seek out those
issuers we felt have the potential to perform well as their industries are
transformed. We also added to our position in industrial revenue bonds, which
represent the fund's largest sector at more than 17 percent of the long-term
investments. This sector provided a wide range of higher-yielding municipal
bonds from which to choose.
In addition, we looked for areas of the municipal marketplace where a large
number of issues had temporarily reduced bond prices. For example, smaller
states often don't have enough demand to immediately absorb a large volume of
new bonds. We took advantage of those situations to purchase bonds at
below-market prices, and then sold them once the issues had been absorbed and
prices had risen.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A During the past six months, the fund generated a total return of 0.53
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 1.49 percent over
the same period. This index is a broad-based statistical composite of municipal
bonds and does not reflect any commissions or sales charges that would be paid
by an investor purchasing the securities or investments it represents. Past
performance does not guarantee future results.
The fund's monthly dividend was reduced from $0.069 per Class A share to
$0.067 in January as a result of the low interest rate environment. As
higher-yielding bonds matured or were called away from the portfolio, they were
replaced with bonds paying today's lower rates. Despite this dividend
adjustment, the Fund still provides a very
7
<PAGE> 58
competitive tax-exempt distribution rate of 5.19 percent(3), which translates
into a taxable-equivalent yield of 8.11 percent(4) for an investor in the 36
percent federal income tax bracket. Please refer to the chart and footnotes on
page 3 for additional Fund performance results.
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
[SIG]
David C. Johnson
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 59
PORTFOLIO HIGHLIGHTS
VAN KAMPEN TAX FREE HIGH INCOME FUND
TOP TEN STATES AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Texas ......................... 9.4%
Florida ....................... 9.1%
Illinois ...................... 8.7%
Pennsylvania .................. 7.3%
California .................... 5.9%
New York ...................... 5.6%
Colorado ...................... 4.9%
Georgia ....................... 4.9%
Ohio .......................... 3.6%
Massachusetts ................. 3.5%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
As of March 31, 1999
AAA AA A BBB BB B NON-RATED
- --- -- - --- -- - ---------
<S> <C> <C> <C> <C> <C> <C>
31.1 2.30 6.50 12.00 2.70 0.40 45.00
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
As of September 30, 1998
AAA AA A BBB BB NON-RATED
- --- -- - --- -- ---------
<S> <C> <C> <C> <C> <C>
31 3.80 6.60 12.80 3.00 42.80
</TABLE>
[PIE CHART]
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF SEPTEMBER 30, 1998
<S> <C> <C> <C>
Industrial Revenue ........ 17.5% Industrial Revenue ........ 15.3%
Health Care ............... 13.4% Health Care ............... 14.8%
Multi-Family Housing ...... 11.1% Multi-Family Housing ...... 10.5%
Other Care ................ 10.1% Other Care ................ 10.0%
General Purpose ........... 9.6% General Purpose ........... 9.6%
</TABLE>
9
<PAGE> 60
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 102.0%
ALABAMA 1.2%
$ 3,000 Mobile, AL Indl Dev Brd Pollutn Ctl
Rev Intl Paper Co Proj Rfdg........... 4.750% 04/01/10 $ 2,957,824
250 Mobile, AL Indl Dev Brd Solid Waste
Disp Rev Mobile Energy Svcs Co Proj
Rfdg.................................. 6.950 01/01/20 87,500
2,150 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A................. 5.650 11/01/22 2,114,138
1,395 Valley, AL Spl Care Fac Fin Auth Rev
Lanier Mem Hosp Ser A................. 5.600 11/01/16 1,385,681
1,000 West Jefferson Cnty, AL Amusement &
Pub Park Auth (Prerefunded @
12/01/06)............................. 7.500 12/01/08 1,229,480
2,000 West Jefferson Cnty, AL Amusement &
Pub Park Auth (Prerefunded @
12/01/06)............................. 6.375 02/01/29 2,011,580
3,000 West Jefferson Cnty, AL Amusement &
Pub Park Auth (Prerefunded @
12/01/06)............................. 8.000 12/01/26 3,799,020
--------------
13,585,223
--------------
ALASKA 0.2%
2,250 Seward, AK Rev AK Sealife Cent Proj... 7.650 10/01/16 2,389,838
--------------
ARIZONA 1.9%
6,169 Chandler, AZ Indl Dev Auth Rev
Chandler Finl Cent Proj Ser 1986 (c)
(g)................................... 7.125 12/01/16 5,243,773
4,000 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev.................. 6.625 07/01/33 4,034,640
2,605 Maricopa Cnty, AZ Indl Dev Auth Sr
Living Fac Rev........................ 7.750 04/01/15 2,773,700
2,700 Maricopa Cnty, AZ Uni Sch Dist No 41
Gilbert Rfdg (FGIC Insd).............. * 01/01/08 1,832,301
2,420 Pima Cnty, AZ Indl Dev Auth Sr Living
Facs Catilina Vlg Ser A Rev........... 6.500 07/01/29 2,394,421
2,160 Pima Cnty, AZ Indl Dev Auth
Multi-Family Rev...................... 6.625 10/01/28 2,191,234
580 Pinal Cnty, AZ Sch Dist No 8 Mammoth
Ser A................................. 11.000 07/01/00 612,729
</TABLE>
See Notes to Financial Statements
10
<PAGE> 61
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARIZONA (CONTINUED)
$ 1,900 Red Hawk Canyon Cmnty Facs Dist No 2
AZ Dist Assmt Rev..................... 6.500% 12/01/12 $ 1,916,055
1,000 Tuscon, AZ Indl Dev Auth Rev Clarion
Santa Rita Hotel Ser Rfdg............. 6.375 12/01/16 991,220
--------------
21,990,073
--------------
CALIFORNIA 6.0%
2,000 Abag Fin Auth For Nonprofit Corps CA
Ctfs Partn............................ 6.375 11/15/28 1,981,400
23,380 Alameda Corridor Tran Auth CA Rev Ser
A Cap Apprec Bonds (MBIA Insd)........ * 10/01/32 4,088,928
1,310 California Edl Fac Auth Rev Univ of La
Verne................................. 6.375 04/01/13 1,394,849
5,905 California St......................... 4.500 12/01/17 5,607,447
1,000 Capistrano, CA Uni Sch Dist Cmnty Fac
Dist Spl Tax (Prerefunded @
09/01/07)............................. 7.100 09/01/21 1,218,750
1,500 Colton, CA Pub Fin Auth Rev Elec Sys
Impts (Prerefunded @ 10/01/03)........ 7.500 10/01/20 1,751,775
5,000 Contra Costa, CA Home Mtg Fin Auth
Home Mtg Rev (MBIA Insd).............. * 09/01/17 1,995,600
2,500 Corona, CA Ctfs Partn Vista Hosp Sys
Inc Ser C............................. 8.375 07/01/11 2,674,900
2,000 Culver City, CA Redev Fin Auth Rev Tax
Alloc Rfdg (AMBAC Insd) (b)........... 5.500 11/01/14 2,178,760
3,465 Escondido, CA Jt Pwrs Fin Auth Lease
Rev CA Cent for the Arts (AMBAC
Insd)................................. * 09/01/15 1,348,613
3,480 Escondido, CA Jt Pwrs Fin Auth Lease
Rev CA Cent for the Arts (AMBAC
Insd)................................. * 09/01/18 1,097,383
2,705 Healdsburg, CA Ctfs Partn Nuestro
Hospital Inc.......................... 6.375 11/01/28 2,646,734
990 Indio, CA Pub Fin Auth Rev Tax
Increment............................. 6.500 08/15/27 1,024,719
1,450 Irwindale, CA Pub Fin Auth Spl Cmnty
Facs Dist No 1 Rfdg................... 6.000 11/01/20 1,467,415
2,000 Lake Elsinore, CA Pub Fin Auth Loc Agy
Rev................................... 7.100 09/01/20 2,154,400
1,500 Millbrae, CA Residential Fac Rev
Magnolia of Millbrae Proj Ser A....... 7.375 09/01/27 1,612,035
6,350 Riverside Cnty, CA Air Force Vlg West
Inc Ser A Rfdg (b).................... 8.125 06/15/20 6,928,929
</TABLE>
See Notes to Financial Statements
11
<PAGE> 62
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 5,500 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev (MBIA Insd)............. * 06/01/22 $ 1,673,320
8,255 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev (MBIA Insd)............. * 06/01/26 2,016,036
2,000 San Diego Cnty, CA Ctfs Partn (AMBAC
Insd) (b)............................. 5.500% 08/15/10 2,178,720
1,900 San Diego Cnty, CA Ctfs Partn (AMBAC
Insd)................................. 5.500 08/15/11 2,059,714
7,625 San Francisco, CA City & Cnty Redev
Agy Lease Rev Gains (Crossover Rfdg @
07/01/04) (h)......................... 0/8.500 07/01/14 7,061,055
3,300 San Francisco, CA City & Cnty Redev
Fin Auth Tax Alloc Rev................ 5.250 08/01/21 3,320,064
1,000 San Luis Obispo, CA Ctfs Partn Vista
Hosp Sys Inc.......................... 8.375 07/01/29 1,055,030
3,000 Santa Ana, CA Cmnty Redev Agy Tax
Alloc Ser B Rfdg...................... 7.500 09/01/16 3,088,560
1,500 Simi Valley, CA Cmnty Dev Agy Coml
Rfdg Sycamore Plaza II................ 6.000 09/01/12 1,607,415
2,000 Ventura, CA Port Dist Ctfs Partn...... 6.375 08/01/28 2,009,380
3,000 Westminster, CA Redev Agy Tax Alloc
Rev Coml Redev Proj No 1 (Prerefunded
@ 08/01/02) (b)....................... 6.200 08/01/23 3,307,530
--------------
70,549,461
--------------
COLORADO 5.0%
11,920 Arapahoe Cnty, CO Cap Impt Trust Fund
Hwy (Prerefunded @ 08/31/05).......... * 08/31/10 6,514,876
19,000 Arapahoe Cnty, CO Cap Impt Trust Fund
Hwy Rev E-470 Proj Ser C (Prerefunded
@ 08/31/05)........................... * 08/31/26 3,032,210
66 Arapahoe Cnty, CO Centennial Downs
Metro Dist Cash Payment Deficiency
Bond (g).............................. 8.090 12/01/34 66,488
378 Arapahoe Cnty, CO Centennial Downs
Metro Dist Int Ctf (e) (g)............ 5.700 12/01/34 320,314
650 Arapahoe Cnty, CO Centennial Downs
Metro Dist Ltd Tax Bond Ser 1993 Rfdg
(g)................................... 8.090 12/01/34 652,528
986 Bowles Metro Dist CO (Prerefunded @
12/01/05)............................. 7.750 12/01/15 1,186,020
2,000 Colorado Hlth Fac Auth Rev Baptist
Home Assn Ser A....................... 6.375 08/15/24 2,081,400
</TABLE>
See Notes to Financial Statements
12
<PAGE> 63
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO (CONTINUED)
$ 1,590 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj.................... 6.850% 01/01/15 $ 1,698,438
1,060 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj.................... 7.050 01/01/19 1,141,917
6,200 Colorado Hlth Fac Auth Rev Christian
Living Campus Proj (b)................ 9.000 01/01/25 7,245,010
2,205 Denver, CO City & Cnty Arpt Rev Ser A
(b)................................... 8.875 11/15/12 2,475,178
795 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01).............. 8.875 11/15/12 912,191
2,500 Denver, CO City & Cnty Arpt Rev Ser D
(b)................................... 7.750 11/15/13 3,147,000
681 East River Regl Santn Dist CO Var Rfdg
(Var Rate Cpn) (g).................... 4.000 12/01/08 680,500
5,715 Greeley, CO Multi-Family Rev Hsg Mtg
Creek Stone (FHA Guaranteed).......... 6.050 07/01/37 5,997,607
4,163 Himalaya Wtr & Santn Dist Adams Cnty,
CO Genl Oblig Ltd Tax Rfdg Bond Ser
1995 (d) (g).......................... 9.500 02/15/07 2,997,241
2,130 Lafayette, CO Indl Dev Rev Rocky Mtn
Instr Proj A.......................... 7.000 10/01/18 2,078,326
870 Lafayette, CO Indl Dev Rev Rocky Mtn
Instr Proj Ser A (a).................. 6.750 10/01/14 890,367
1,960 Northern Metro Dist CO Adams Cnty
Rfdg.................................. 6.500 12/01/16 2,097,592
4,572 Skyland Metro Dist CO Gunnison Cnty
Rfdg (Var Rate Cpn) (g)............... 4.000 12/01/08 3,271,437
13,868 Tower Metro Dist Adams Cnty, CO Gen
Oblig Ltd Tax Rfdg Bond Ser 1995 (d)
(g)................................... 9.500 02/15/07 9,985,000
--------------
58,471,640
--------------
CONNECTICUT 2.4%
3,740 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Pgm AHF/Windsor Proj
(Prerefunded @ 11/01/04) (b).......... 7.125 11/01/24 4,384,589
2,980 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A, 144A (Prerefunded @
09/01/07) (f)......................... 6.400 09/01/11 3,474,352
12,000 Mashantucket Western Pequot Tribe CT
Spl Rev Ser B, 144 A (f).............. 5.750 09/01/27 12,335,520
</TABLE>
See Notes to Financial Statements
13
<PAGE> 64
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONNECTICUT (CONTINUED)
$ 3,020 Mashantucket Western Pequot Tribe CT
Spl Rev Ser B, 144A (f)............... 6.400% 09/01/11 $ 3,321,034
5,000 Stamford, CT Hsg Auth Multi-Family Rev
Fairfield Apts Proj Rfdg.............. * 12/01/28 4,995,850
--------------
28,511,345
--------------
DELAWARE 0.2%
2,225 Wilmington, DE Multi-Family Rent Rev
Hsg Electra Arms Sr Assoc Proj........ 6.250 06/01/28 2,183,793
--------------
DISTRICT OF COLUMBIA 0.4%
1,000 District of Columbia Rev Methodist
Home Issue............................ 6.000 01/01/29 988,940
1,615 District of Columbia A-1 Rfdg (MBIA
Insd) (b)............................. 6.500 06/01/10 1,878,197
85 District of Columbia Prerefunded A-1
Rfdg (MBIA Insd)...................... 6.500 06/01/10 100,155
2,000 District of Columbia Ser E (FSA Insd)
(b)................................... 6.000 06/01/11 2,180,260
--------------
5,147,552
--------------
FLORIDA 9.3%
2,700 Brevard Cnty, FL Sch Brd Ctfs Ser A
(AMBAC Insd) (b)...................... 5.100 07/01/07 2,847,555
28,000 Dade Cnty, FL Gtd Entitlement Rev Cap
Apprec Ser A Rfdg (MBIA Insd) (b)..... * 02/01/18 9,991,800
4,780 Escambia Cnty, FL Rev ICF/MR Pensacola
Care Dev Cent (b) (g)................. 10.250 07/01/11 4,541,000
2,010 Escambia Cnty, FL Rev ICF/MR Pensacola
Care Dev Cent Ser A (g)............... 10.250 07/01/11 2,011,206
1,135 Fishhawk Cmnty, FL Dev Dist Spl Assmt
Rev................................... 7.625 05/01/18 1,221,044
3,000 Florida Hsg Fin Corp Rev Hsg Beacon
Hill Apts Ser C....................... 6.610 07/01/38 3,035,190
4,000 Florida Hsg Fin Corp Rev Hsg Cypress
Trace Apts Ser G...................... 6.600 07/01/38 4,046,960
3,000 Florida Hsg Fin Corp Rev Hsg Westbrook
Apts Ser U 1.......................... 6.450 01/01/39 2,969,910
4,000 Florida Hsg Fin Corp Rev Hsg Westchase
Apts Ser B............................ 6.610 07/01/38 4,046,920
1,000 Heritage Harbor Cmnty Dev Dist Spl
Assmt Ser A........................... 6.700 05/01/19 1,015,200
</TABLE>
See Notes to Financial Statements
14
<PAGE> 65
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,300 Heritage Harbor Cmnty Dev Dist FL Rev
Rectl................................. 7.750% 05/01/19 $ 1,314,612
4,845 Hillsborough Cnty, FL Edl Fac Univ
Tampa Proj Rfdg....................... 5.750 04/01/18 5,022,569
980 Lake Saint Charles, FL Cmnty Dev Dist
Spl Assmt Rev......................... 7.875 05/01/17 1,048,531
3,000 Leon Cnty, FL Edl Facs Auth Rev
Southgate Residence Hall Ser A Rfdg... 6.750 09/01/28 3,068,370
1,000 Martin Cnty, FL Indl Dev Auth Indl Dev
Rev Indiantown Cogeneration Proj Ser A
Rfdg.................................. 7.875 12/15/25 1,041,800
2,000 Miami Dade Cnty, FL Sch Brd Ctfs Partn
Ser C Rfdg (FSA Insd)................. 5.250 08/01/13 2,091,180
5,500 Miramar, FL Wastewtr Impt Assmt Rev
(FGIC Insd) (b)....................... 6.750 10/01/25 6,324,010
3,650 Monroe Cnty, FL Indl Dev Auth First
Mtg Med Fac Rev Kennedy Dr Invt Ltd
Proj Rfdg (g)......................... 11.000 11/01/12 3,649,161
1,250 North Springs, FL Impt Dist Spl Assmt
Rev................................... 6.250 05/01/05 1,276,613
2,425 Northern Palm Beach Cnty Impt Dist FL
Wtr Ctl & Impt Unit Dev 5A Rfdg....... 6.000 08/01/10 2,477,792
1,500 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr........ 8.750 07/01/26 1,733,325
1,300 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr Rfdg... 8.625 07/01/20 1,510,041
2,395 Pinellas Cnty, FL Edl Fac Auth Rev
College Harbor Proj Ser A............. 8.250 12/01/21 2,609,999
6,000 Sarasota Cnty, FL Hlth Fac Auth Hlth
Fac Sunnyside Prty (b)................ 6.700 07/01/25 6,268,140
5,175 Seminole Cnty, FL Sch Brd Ctfs Partn
Ser A (MBIA Insd)..................... 4.875 07/01/15 5,191,198
16,065 Sun N Lake of Sebring, FL Impt Dist
Spl Assmt Ser A (d) (g)............... 10.000 12/15/11 6,426,000
16,000 Sunrise, FL Util Sys Rev Rfdg (AMBAC
Insd) (b)............................. 5.000 10/01/28 15,938,880
860 Tampa Palms, FL Open Space & Transn
Cmnty Dev Dist Rev Cap Impt Area 7
Proj.................................. 8.500 05/01/17 945,209
</TABLE>
See Notes to Financial Statements
15
<PAGE> 66
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 1,755 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg........................ 7.500% 11/01/16 $ 2,043,241
2,000 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg........................ 7.625 11/01/26 2,457,520
--------------
108,164,976
--------------
GEORGIA 5.0%
1,000 Atlanta, GA Urban Residential Fin Auth
Multi-Family Rev Proj Ser A........... 6.750 07/01/30 1,015,610
19,000 Class A Ctfs relating to Atlanta, GA
Urban Residential Fin Auth
Multi-Family Hsg Renaissance on
Peachtree Apts Proj Ser 85 (g)........ 8.500 04/01/26 21,291,400
1,500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj............. 6.250 10/01/18 1,476,780
1,500 Forsyth Cnty, GA Hosp Auth Rev GA
Baptist Hlthcare Sys Proj............. 6.375 10/01/28 1,477,455
4,000 Fulton Cnty, GA Hsg Auth Multi-Family
Hsg Rev............................... 6.500 02/01/28 4,049,160
30,050 Georgia Loc Govt Ctfs Partn Grantor
Trust Ser A (MBIA Insd) (b)........... 4.750 06/01/28 28,644,562
--------------
57,954,967
--------------
IDAHO 1.2%
8,000 Idaho Hlth Fac Auth Rev IHC Hosp Inc
Rfdg (Inverse Fltg) (b)............... 8.450 02/15/21 9,710,560
4,300 Owyhee Cnty, ID Indl Dev Corp Indl Dev
Rev Envirosafe Services of ID Inc..... 8.250 11/01/02 4,500,079
--------------
14,210,639
--------------
ILLINOIS 8.9%
2,500 Berwyn, IL Corp Purp.................. 4.250 12/01/18 2,233,650
1,850 Bridgeview, IL Tax Increment Rev
Rfdg.................................. 9.000 01/01/11 2,124,651
7,560 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev (b)............................... 6.450 05/01/18 8,041,572
3,000 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev American Airls Inc Proj Ser A
(b)................................... 7.875 11/01/25 3,218,640
22,930 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc Proj Ser 84A
(b)................................... 8.850 05/01/18 25,191,357
2,565 Chicago, IL O'Hare Intl Arpt Spl Fac
Rev United Airls Inc Ser B (b)........ 8.950 05/01/18 2,817,678
</TABLE>
See Notes to Financial Statements
16
<PAGE> 67
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,650 Chicago, IL Rev Chatham Ridge Tax
Increment............................. 10.250% 01/01/07 $ 3,766,508
1,000 Chicago, IL Tax Increment............. 7.250 01/01/14 1,081,120
300 Crestwood, IL Tax Increment Rev Bank
Qualified Rfdg........................ 6.000 12/01/99 304,245
1,285 Du Page Cnty, IL Cmnty High Sch Dist
No 099 Downers Grove (FSA Insd)....... * 12/01/11 691,703
1,015 Du Page Cnty, IL Sch Dist Cap Apprec
(FGIC Insd)........................... * 02/01/14 484,378
1,000 Du Page Cnty, IL Sch Dist Cap Apprec
(FGIC Insd)........................... * 02/01/18 377,510
1,500 Godfrey, IL Rev United Methodist Vlg
Ser A................................. 5.875 11/15/29 1,439,310
2,000 Huntley, IL Increment Alloc Rev
Huntley Redev Proj Ser A.............. 8.500 12/01/15 2,319,840
1,000 Huntley, IL Spl Svc Area No 7 Spl
Tax................................... 6.300 03/01/28 999,270
3,000 Illinois Dev Fin Auth Pollutn Ctl Rev
IL Pwr Co Proj Ser A Rfdg (MBIA
Insd)................................. 5.400 03/01/28 3,038,460
1,405 Illinois Dev Fin Auth Rev Cmnty Fac
Clinic Altgeld Proj................... 8.000 11/15/16 1,548,493
7,100 Illinois Dev Fin Auth Rev Mercy Hsg
Corp Proj Rfdg (Prerefunded @
08/01/04) (b)......................... 7.000 08/01/24 8,120,909
1,000 Illinois Edl Fac Auth Rev Peace Mem
Ministries Proj....................... 7.500 08/15/26 1,090,200
3,730 Illinois Edl Fac Auth Rev Trinity Med
Cent (FSA Insd) (b)................... 6.000 07/01/28 4,013,219
3,000 Illinois Hlth Fac Auth Rev Fairview
Oblig Group Ser A Rfdg................ 7.400 08/15/23 3,306,570
4,355 Illinois Hlth Fac Auth Rev Glenoaks
Med Cent Ser D (b).................... 9.500 11/15/15 4,875,684
1,000 Illinois Hlth Fac Auth Rev Lifelink
Corp Oblig Group Ser B (Prerefunded @
02/15/05)............................. 8.000 02/15/25 1,203,080
4,800 Illinois Hlth Fac Auth Rev Midwest
Physician Group Ltd Proj (Prerefunded
@ 11/15/04) (b)....................... 8.100 11/15/14 5,835,264
</TABLE>
See Notes to Financial Statements
17
<PAGE> 68
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 895 Mill Creek Wtr Reclamation Dist IL
Sewage Rev............................ 8.000% 03/01/10 $ 1,020,658
540 Mill Creek Wtr Reclamation Dist IL
Wtrwks Rev............................ 8.000 03/01/10 615,816
1,500 Palatine, IL Tax Increment Rev
Rand/Dundee Cent Proj (Prerefunded @
01/01/07)............................. 7.750 01/01/17 1,808,985
1,800 Peoria, IL Spl Tax Weaver Ridge Spl
Svc Area.............................. 8.050 02/01/17 1,987,794
2,095 Regional Tran Auth IL Ser B (AMBAC
Insd) (b)............................. 8.000 06/01/17 2,850,017
11,000 Robbins, IL Res Recovery Rev.......... 8.375 10/15/16 5,940,000
1,705 St Charles, IL Spl Svc Area No. 21.... 6.625 03/01/28 1,703,789
--------------
104,050,370
--------------
INDIANA 1.3%
825 Crawfordsville, IN Redev Comm Redev
Dist Tax Increment Rev................ 7.000 02/01/12 851,804
2,000 East Chicago, IN Exempt Fac Inland
Steel Co Proj No. 14.................. 6.700 11/01/12 2,014,580
3,000 Indiana Hlth Fac Fin Auth Rev Metro
Hlth & IN Inc Proj.................... 6.400 12/01/33 2,922,300
1,000 Indiana Hlth Fac Fin Auth Rev Metro
Hlth & IN Inc Proj.................... 6.300 12/01/23 976,670
4,000 Indiana St Dev Fin Auth Pollutn Ctl
Rev Inland Steel Co Proj No 13 Rfdg
(b)................................... 7.250 11/01/11 4,184,760
3,190 Kokomo, IN Sch Bldg Corp First Mtg
(AMBAC Insd).......................... 4.125 07/15/17 2,857,794
1,000 Marion Cnty, IN Convention & Recnl
Facs Auth Excise Tax Rev (MBIA
Insd)................................. 5.000 06/01/27 966,940
--------------
14,774,848
--------------
IOWA 0.1%
1,500 Cedar Rapids, IA Rev First Mtg Cottage
Grove................................. 5.875 07/01/28 1,449,285
--------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 69
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KANSAS 0.2%
$ 665 Kansas City, KS Crawford Cnty
Leavenworth Single Family Mtg Rev
(AMBAC Insd) (b)...................... * 04/01/16 $ 106,413
1,000 Lawrence, KS Coml Dev Rev Holiday Inn
Sr Ser A.............................. 8.000% 07/01/16 1,100,300
1,000 Manhattan, KS Coml Dev Rev Holiday Inn
Sr Ser A Rfdg......................... 8.000 07/01/16 1,100,300
--------------
2,307,013
--------------
KENTUCKY 0.3%
800 Jefferson Cnty, KY Hosp Rev
(Prerefunded @ 10/01/02) (Inverse
Fltg) (MBIA Insd)..................... * 10/01/08 955,000
1,900 Jefferson Cnty, KY Hosp Rev (Inverse
Fltg) (MBIA Insd)..................... * 10/01/08 2,239,625
--------------
3,194,625
--------------
LOUISIANA 1.0%
4,000 Louisiana Hsg Fin Agy Rev Multi-Family
Hsg Plantation Ser A.................. 7.125 01/01/28 4,036,720
1,000 Louisiana Pub Facs Auth Rev
Progressive Hlthcare.................. 6.375 10/01/20 966,560
1,000 Louisiana Pub Facs Auth Rev
Progressive Hlthcare.................. 6.375 10/01/28 952,280
4,086 Louisiana St Univ Agric & Mech College
Univ Rev.............................. 5.750 10/30/18 4,048,052
1,435 Webster Parish, LA Pollutn Ctl Rev
Intl Paper Co Proj Ser B Rfdg......... 5.200 03/01/13 1,472,898
--------------
11,476,510
--------------
MAINE 0.1%
25 Maine Hlth & Higher Edl Facs Auth Rev
Ser B (FSA Insd)...................... 7.000 07/01/24 28,559
1,225 Maine Hlth & Higher Edl Facs Auth Rev
Ser B (Prerefunded @ 07/01/04) (FSA
Insd)................................. 7.000 07/01/24 1,423,940
--------------
1,452,499
--------------
MARYLAND 1.3%
2,000 Baltimore Cnty, MD Pollutn Ctl Rev
Bethlehem Steel Corp Proj Ser B
Rfdg.................................. 7.500 06/01/15 2,177,680
1,500 Frederick Cnty, MD Spl Oblig Urbana
Cmnty Dev Auth........................ 6.625 07/01/25 1,527,150
</TABLE>
See Notes to Financial Statements
19
<PAGE> 70
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARYLAND (CONTINUED)
$ 5,000 Maryland St Hlth & Higher Edl Facs
Auth Rev Medlantic/Helix Issue Ser B
(AMBAC Insd).......................... 5.250% 08/15/38 $ 5,170,800
3,000 Montgomery Cnty, MD Econ Dev Editorial
Projs In Edl Ser A.................... 6.400 09/01/28 2,914,020
3,000 Prince Georges Cnty, MD Spl Oblig Spl
Assmt Woodview Ser A.................. 8.000 07/01/26 3,419,010
--------------
15,208,660
--------------
MASSACHUSETTS 3.6%
4,000 Massachusetts St Dev Fin Agy New
England Center For Children (b)....... 6.000 11/01/19 3,990,400
7,000 Massachusetts St Hlth & Edl Fac Auth
Rev New England Med Cent Hosp Ser G
(Embedded Swap) (MBIA Insd) (b) (h)... 3.1/5.0 07/01/13 6,971,930
1,670 Massachusetts St Hlth & Edl Fac Auth
Rev Saint Anne's Hosp Ser A
(Prerefunded @ 04/05/99) (b).......... 9.375 07/01/14 1,671,119
2,099 Massachusetts St Hsg Fin Agy Hsg Rev
Insd Rental Ser A Rfdg (AMBAC Insd)... 6.650 07/01/19 2,263,833
780 Massachusetts St Indl Fin Agy First
Mtg Pilgrim Inc Proj.................. 6.500 10/01/15 773,004
2,000 Massachusetts St Indl Fin Agy Trustees
Deerfield............................. 6.750 10/01/28 1,977,300
1,360 Massachusetts St Indl Fin Agy Rev
Greater Lynn Mental Hlth.............. 6.200 06/01/08 1,355,254
2,965 Massachusetts St Indl Fin Agy Rev
Greater Lynn Mental Hlth.............. 6.375 06/01/18 2,948,455
1,650 Massachusetts St Indl Fin Agy Rev
Wentworth Inst Technology............. 5.750 10/01/28 1,688,346
4,000 Massachusetts St Indl Fin Agy Rev Cent
For Autism............................ 9.500 11/01/17 4,416,400
575 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............... 8.000 12/01/06 644,776
1,085 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............... 8.375 12/01/13 1,259,815
675 Massachusetts St Indl Fin Agy Rev
Dimmock Cmnty Hlth Cent............... 8.500 12/01/20 787,023
</TABLE>
See Notes to Financial Statements
20
<PAGE> 71
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 6,400 Massachusetts St Indl Fin Agy Rev Swr
Fac Res Ctl Composting (g)............ 9.250% 06/01/10 $ 6,555,520
5,000 Massachusetts St Wtr Res Auth Genl Ser
A (FSA Insd).......................... 4.750 08/01/27 4,692,650
--------------
41,995,825
--------------
MICHIGAN 3.5%
2,000 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @
05/01/04)............................. 7.600 05/01/16 2,353,240
1,000 Detroit, MI Local Dev Fin Auth Ser
C..................................... 6.850 05/01/21 1,035,160
2,390 Meridian, MI Econ Dev Corp Ltd Oblig
Rev First Mtg Burcham Hills Ser A..... 7.500 07/01/13 2,582,849
3,430 Meridian, MI Econ Dev Corp Ltd Oblig
Rev First Mtg Burcham Hills Ser A..... 7.750 07/01/19 3,745,526
2,250 Michigan St Hosp Fin Auth Rev Hosp
Genesys Regl Med Rfdg (ACA Insd)...... 5.500 10/01/18 2,263,365
9,000 Michigan St Hosp Fin Auth Rev Hosp
Genesys Regl Med Rfdg (ACA Insd)...... 5.500 10/01/27 9,024,930
6,000 Michigan St Strategic Fd Ltd Oblig Rev
Detroit Edison Co Ser A Rfdg (MBIA
Insd) (a)............................. 5.550 09/01/29 6,139,680
7,682 Michigan St Strategic Fd Ltd Oblig Rev
Great Lakes Pulp & Fiber Proj (e)..... 8.000 12/01/27 5,540,546
1,000 Michigan St Strategic Fd Res Recovery
Ltd oblig Rev Central Wayne Energy Rec
Ser A................................. 7.000 07/01/27 1,033,040
4,250 Michigan St Hosp Fin Auth Rev Detroit
Med Cent Oblig Ser A.................. 5.250 08/15/28 3,866,352
3,000 Michigan St Hosp Fin Auth Rev Detroit
Med Cent Oblig Ser A.................. 5.250 08/15/23 2,749,380
590 Saint Clair Cnty, MI Econ Dev Corp
Kmart Proj............................ 9.500 02/01/06 596,378
--------------
40,930,446
--------------
MINNESOTA 1.4%
1,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser A............. 6.000 10/01/28 994,520
2,000 Cambridge, MN Hsg & Hlthcare Fac Rev
Grandview West Proj Ser B............. 6.000 10/01/33 1,960,060
</TABLE>
See Notes to Financial Statements
21
<PAGE> 72
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINNESOTA (CONTINUED)
$ 1,425 Columbia Heights, MN Multi-Family
Crest View Corp Proj.................. 6.000% 03/01/33 $ 1,443,554
500 Dakota Cnty, MN Hsg & Redev........... 6.000 11/01/09 499,980
2,000 Dakota Cnty, MN Hsg & Redev........... 6.250 05/01/29 1,999,920
5,490 Eden Prairie, MN Multi-Family Hsg Rev
Sterling Ponds Proj Ser A (b) (g)..... 10.000 01/15/20 5,749,073
495 Eden Prairie, MN Multi-Family Hsg Rev
Sterling Ponds Proj Ser B Cap
Apprec (g)............................ * 01/15/20 1,212,750
840 Little Canada, MN Fac Rev Hsg Alt Dev
Co Proj Ser A......................... 6.100 12/01/17 851,760
1,450 Little Canada, MN Fac Rev Hsg Alt Dev
Co Proj Ser A......................... 6.250 12/01/27 1,470,169
--------------
16,181,786
--------------
MISSOURI 1.2%
615 Ferguson, MO Tax Increment Rev
Crossings At Halls Ferry Proj......... 7.250 04/01/07 623,475
3,095 Ferguson, MO Tax Increment Rev
Crossings At Halls Ferry Proj......... 7.625 04/01/17 3,160,026
675 Ferguson, MO Tax Increment Rev
Crossings At Halls Ferry Proj......... 7.625 04/01/18 689,182
930 Jefferson Cnty, MO Indl Dev Auth Indl
Rev Cedars Hlthcare Cent Proj Ser A
Rfdg.................................. 8.250 12/01/15 1,031,063
5,000 Saline Cnty, MO Indl Dev Auth Hlth
Facs Rev.............................. 6.500 12/01/28 4,909,150
1,000 Sikeston, MO Elec Rev Rfdg (MBIA
Insd) (b)............................. 6.000 06/01/15 1,135,620
2,000 Valley Park, MO Indl Dev Auth Sr Hsg
Rev Cape Albeon Proj.................. 6.150 12/01/33 1,982,780
--------------
13,531,296
--------------
NEBRASKA 0.3%
1,700 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized) (b)................... 9.862 10/17/23 1,882,750
1,600 Nebraska Invt Fin Auth Single Family
Mtg Rev (Inverse Fltg) (GNMA
Collateralized) (b)................... 11.287 09/10/30 1,754,000
--------------
3,636,750
--------------
</TABLE>
See Notes to Financial Statements
22
<PAGE> 73
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEVADA 0.2%
$ 1,945 Reno, NV Redev Agy Tax Alloc Downtown
Redev Proj Ser E Rfdg (Prerefunded @
09/01/03)............................. 5.600% 09/01/09 $ 2,090,350
--------------
NEW HAMPSHIRE 1.8%
10,000 Manchester, NH Arpt Rev Genl Ser A
(MBIA Insd)........................... 4.500 01/01/28 9,036,600
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage Heights... 7.350 01/01/18 2,185,140
2,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Havenwood-Heritage Heights... 7.450 01/01/25 2,178,600
4,000 New Hampshire Higher Edl & Hlth Fac
Auth Rev Hosp Catholic Med Cent
Rfdg (b).............................. 8.250 07/01/13 4,107,120
3,340 New Hampshire Higher Edl & Hlth Fac
Auth Rev Vly Regl Hosp................ 7.350 04/01/23 3,345,110
--------------
20,852,570
--------------
NEW JERSEY 2.2%
2,240 Camden Cnty, NJ Impt Auth Lease Rev
Dockside Refrig....................... 8.400 04/01/24 2,493,187
1,000 New Jersey Econ Dev Auth Econ Dev
Rev................................... 6.375 04/01/18 1,035,180
4,000 New Jersey Econ Dev Auth Econ Dev
Rev................................... 6.375 04/01/31 4,121,160
1,875 New Jersey Econ Dev Auth Rev Kullman
Assoc Proj Ser A...................... 6.125 06/01/18 1,854,394
2,000 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Ser A Rfdg................. 6.000 05/15/28 1,956,760
6,255 New Jersey Econ Dev Auth Rev First Mtg
Gross Rev Oakridge Manor Proj Rfdg.... 9.500 11/01/14 6,396,863
1,000 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.............. 8.500 11/01/16 1,148,670
1,500 New Jersey Econ Dev Auth Rev First Mtg
Winchester Gardens Ser A.............. 8.625 11/01/25 1,729,275
3,000 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A (Prerefunded @
05/15/06)............................. 8.750 05/15/26 3,874,140
1,275 New Jersey St Edl Fac Auth Rev
Felician College of Lodi Ser D........ 7.375 11/01/22 1,394,098
--------------
26,003,727
--------------
</TABLE>
See Notes to Financial Statements
23
<PAGE> 74
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW MEXICO 1.1%
$ 2,230 Albuquerque, NM Retirement Fac Rev La
Vida Liena Proj Ser A Rfdg
(Prerefunded @ 02/01/03).............. 8.850% 02/01/23 $ 2,631,601
4,000 Albuquerque, NM Retirement Facs Rev
Louisiana Vida Llena Proj Ser B
Rfdg.................................. 6.600 12/15/28 3,978,840
2,185 Bernalillo Cnty, NM Multi-Family Hsg
Brentwood Gardens Apt B 1............. 6.600 10/15/28 2,208,226
3,600 Farmington, NM Pollutn Ctl Rev Pub Svc
Co San Juan Proj D Rfdg (b)........... 6.375 04/01/22 3,842,676
--------------
12,661,343
--------------
NEW YORK 5.7%
2,400 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev................... 6.375 12/01/37 2,401,896
1,070 Clifton Springs, NY Hosp & Clinic Ser
B Rfdg & Impt......................... 7.000 01/01/05 1,110,050
1,500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev
NY Institute of Technology Rfdg....... 7.500 03/01/26 1,645,410
5,000 Long Island Pwr Auth NY Electric
Genl.................................. 4.250 04/01/09 4,933,900
1,000 Monroe Cnty, NY Indl Dev Agy Rev Indl
Dev Empire Sports Proj Ser A.......... 6.250 03/01/28 997,150
2,000 New York City Indl Dev Agy Field Hotel
Assoc Lp JFK Rfdg..................... 6.000 11/01/28 2,008,320
3,000 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd) (b)............................. 6.250 11/15/06 3,371,760
1,500 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd) (b)............................. 6.375 11/15/07 1,699,275
2,000 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Cent Proj (FSA
Insd) (b)............................. 6.500 11/15/09 2,278,160
1,500 New York City Indl Dev Agy Rev Visy
Paper Inc Proj........................ 7.950 01/01/28 1,657,125
5,000 New York City Ser A (b)............... 7.000 08/01/07 5,842,550
3,000 New York City Ser D Rfdg (b).......... 8.000 02/01/05 3,571,320
4,000 New York City Ser F (AMBAC Insd)...... 5.250 08/01/14 4,148,680
10,330 New York City Subser A1 (Embedded
Swap)................................. 5.540 08/01/12 10,863,338
</TABLE>
See Notes to Financial Statements
24
<PAGE> 75
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 4,250 New York City Tran Auth Tran Fac
Livingston Plaza Proj Rfdg (FSA
Insd) (b)............................. 5.400% 01/01/18 $ 4,468,238
1,000 New York St Dorm Auth Rev Mental Hlth
Svcs Facs Ser C....................... 4.750 08/15/19 961,430
5,000 New York St Dorm Auth Rev City Univ
Ser F (b)............................. 5.500 07/01/12 5,185,300
3,000 New York St Energy Resh & Dev Auth Gas
Fac Rev (Inverse Fltg) (MBIA Insd).... 7.000 07/08/26 3,172,500
2,500 New York St Energy Resh & Dev Auth Gas
Fac Rev (Inverse Fltg)................ 8.406 04/01/20 3,196,875
225 New York St Energy Resh & Dev Auth St
Svc Contract Rev Western NY Nuclear
Svc Cent Ser B........................ 5.500 04/01/00 229,842
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 1,033,130
750 New York St Energy Resh & Dev Auth St
Svc Contract Rev Western NY Nuclear
Svc Cent Ser B........................ 5.250 04/01/02 776,790
1,500 New York St Thruway Auth Hwy & Brdg Tr
Fund Ser A (Prerefunded @ 04/01/04)
(b)................................... 6.000 04/01/14 1,662,600
--------------
67,215,639
--------------
NORTH CAROLINA 1.1%
7,510 Eastern Band Cherokee Indians NC Spl
Oblig Rev Carolina Mirror Co
Proj (g).............................. 10.250 09/01/09 7,510,000
5,500 North Carolina Muni Pwr Agy No 1
Catawba Electric Rev (MBIA Insd)...... 5.125 01/01/17 5,540,260
--------------
13,050,260
--------------
NORTH DAKOTA 0.2%
1,000 Grand Forks, ND Sr Hsg Rev 4000 Vly
Square Proj........................... 6.250 12/01/34 1,002,540
1,000 Grand Forks, ND Sr Hsg Rev Spl Term
4000 Vly Square Proj.................. 6.375 12/01/34 1,026,990
--------------
2,029,530
--------------
</TABLE>
See Notes to Financial Statements
25
<PAGE> 76
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO 3.7%
$ 2,000 Akron Bath Copley, OH St Twp Hosp Dist
Rev Summa Hosp Ser A.................. 5.375% 11/15/24 $ 1,905,080
3,750 Akron Bath Copley, OH St Twp Hosp Dist
Rev Summa Hosp Ser A.................. 5.375 11/15/18 3,598,350
4,400 Cleveland, OH Arpt Spl Rev Continental
Airls Inc Proj........................ 5.375 09/15/27 4,290,352
6,000 Cleveland, OH Arpt Spl Rev Continental
Airls Inc Rfdg (a).................... 5.700 12/01/19 5,924,340
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) (b)....................... 8.125 10/01/11 2,251,320
2,000 Hamilton Cnty, OH Sales Tax Hamilton
Cnty Football Proj Ser A (MBIA
Insd)................................. 4.750 12/01/27 1,884,960
2,000 Madison Cnty, OH Hosp Impt Rev Madison
Cnty Hosp Proj Rfdg................... 6.400 08/01/28 1,986,680
1,000 Ohio Hsg Fin Agy Retirement Rent Hsg
Rev Encore Retirement Partners Rfdg... 6.750 03/01/19 1,002,070
5,600 Ohio Hsg Fin Agy Single Family Mtg Rev
Ser B (Inverse Fltg) (GNMA
Collateralized) (b)................... 9.770 03/31/31 6,202,000
2,500 Ohio St Solid Waste Rev CSC Ltd
Proj.................................. 8.500 08/01/22 2,605,050
3,700 Ohio St Solid Waste Rev Republic
Engineered Steels Proj................ 8.250 10/01/14 3,794,276
1,000 Ohio St Solid Waste Rev Republic
Engineered Steels Proj................ 9.000 06/01/21 1,070,900
4,490 Reynoldsburg, OH Hlth Care Fac Rev
Wesley Ridge Proj (GNMA
Collateralized)....................... 6.150 10/20/38 4,870,572
--------------
42,930,950
--------------
OKLAHOMA 0.1%
1,000 Oklahoma Cnty, OK Fin Auth Epworth
Villa Proj Ser A Rfdg................. 7.000 04/01/25 1,035,230
--------------
</TABLE>
See Notes to Financial Statements
26
<PAGE> 77
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OREGON 0.6%
$ 1,245 Clatsop Care Cent Hlth Dist OR Rev
Senior Hsg............................ 6.000% 08/01/14 $ 1,236,385
2,145 Clatsop Care Cent Hlth Dist OR Rev
Senior Hsg............................ 6.875 08/01/28 2,126,274
4,000 Oregon St Hlth Hsg Edl & Cultural Facs
Auth.................................. 7.250 06/01/28 4,072,960
--------------
7,435,619
--------------
PENNSYLVANIA 7.4%
5,255 Allegheny Cnty, PA Indl Dev Auth Rev
Environmental Impt Usx Proj Rfdg
(b)................................... 6.100 01/15/18 5,500,829
6,000 Beaver Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Collateral Toledo Edison Co
Proj Ser A Rfdg (b)................... 7.750 05/01/20 6,871,020
1,000 Berks Cnty, PA Muni Auth Rev Phoebe
Berks Vlg Inc Proj Rfdg (Prerefunded @
05/15/06)............................. 7.700 05/15/22 1,220,940
4,000 Cambria Cnty, PA Indl Dev Auth Pollutn
Ctl Rev Bethlehem Steel Corp Proj
Rfdg.................................. 7.500 09/01/15 4,332,760
1,670 Clarion Cnty, PA Hosp Auth Hosp Rev
Clarion Hosp Proj (Prerefunded @
07/01/01)............................. 8.500 07/01/13 1,857,608
1,500 Cliff House Ctf Trust Var Sts Variable
Ctfs Partn Ser A...................... * 06/01/27 1,500,000
2,000 Cumberland Cnty, PA Auth Rev First Mtg
Carlisle Hosp & Hlth Rfdg (b)......... 6.800 11/15/14 2,162,180
2,000 Cumberland Cnty, PA Indl Dev Auth Rev
First Mtg Woods Cedar Run Ser A
Rfdg.................................. 6.500 11/01/28 1,938,660
3,000 Dauphin Cnty, PA Genl Auth Rev Office
& Pkg Riverfront Office............... 6.000 01/01/25 3,004,950
5,000 Dauphin Cnty, PA Genl Auth Rev Hotel &
Conf Cent Hyatt Regency............... 6.200 01/01/29 4,959,150
1,500 Delaware Cnty, PA Auth First Mtg Rev
Riddle Vlg Proj....................... 7.000 06/01/21 1,567,530
2,890 Erie, PA Sch Dist Cap Apprec Rfdg (FSA
Insd)................................. * 09/01/21 909,396
1,000 Grove City, PA Area Hosp Auth Hlth
Facs Rev.............................. 6.625 08/15/29 996,650
2,405 Harrisburg, PA Cap Apprec Rfdg Notes
Ser F (AMBAC Insd).................... * 03/15/16 1,015,511
3,500 Harrisburg, PA Auth Wtr Rev (Inverse
Fltg) (FGIC Insd)..................... 7.520 06/18/05 3,981,250
2,000 Lehigh Cnty, PA Genl Purp Auth Rev
Kidspeace Oblig Group................. 6.000 11/01/23 1,997,580
</TABLE>
See Notes to Financial Statements
27
<PAGE> 78
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,000 Lehigh Cnty, PA Indl Dev Auth Hlth Fac
Rev Lifepath Inc Proj................. 6.300% 06/01/28 $ 951,980
2,000 McKean Cnty, PA Hosp Auth Hosp Rev
Bradford Hosp Proj (Crossover Rfdg @
10/01/00)............................. 8.875 10/01/20 2,190,160
7,100 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Proj Ser
A (Prerefunded @ 12/01/00)............ 10.000 12/01/19 7,973,939
500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Rfdg..... 7.000 12/01/10 531,965
2,500 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Rfdg..... 7.250 12/01/15 2,683,075
6,000 Montgomery Cnty, PA Indl Dev Auth Rev
First Mtg The Meadowood Corp Rfdg..... 7.400 12/01/20 6,443,580
1,000 Montgomery Cnty, PA Indl Dev Auth Rev
Wordsworth Academy.................... 7.750 09/01/24 1,100,900
3,000 Pennsylvania Econ Dev Fin Auth Res
Recovery Rev Colver Proj Ser D (b).... 7.050 12/01/10 3,292,980
3,000 Pennsylvania St Higher Edl Assistance
Agy Student Ln Rev Rfdg (Inverse Fltg)
(AMBAC Insd).......................... * 09/01/26 3,727,500
5,000 Philadelphia, PA Auth For Indl Dev Rev
Long-Term Care Maplewood.............. 8.000 01/01/24 5,489,600
5,000 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)................................. 4.500 04/01/23 4,590,650
1,500 Scranton Lackawanna, PA Hlth & Welfare
Auth Rev Rfdg......................... 7.250 01/15/17 1,618,455
2,000 Scranton Lackawanna, PA Hlth & Welfare
Auth Rev Rfdg......................... 7.350 01/15/22 2,170,160
--------------
86,580,958
--------------
RHODE ISLAND 0.2%
1,975 Providence, RI Redev Agy Ctfs Partn
Ser A................................. 8.000 09/01/24 2,150,301
--------------
SOUTH CAROLINA 1.0%
115 Charleston Cnty, SC Ctfs Partn Ser B
(MBIA Insd) (b)....................... 7.000 06/01/19 130,597
2,385 Charleston Cnty, SC Ctfs Partn Ser B
(Prerefunded @ 06/01/04) (MBIA
Insd)................................. 7.000 06/01/19 2,768,675
</TABLE>
See Notes to Financial Statements
28
<PAGE> 79
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 3,500 Charleston Cnty, SC Indl Rev Zeigler
Coal Hldgs Rfdg (a)................... 6.950% 08/10/28 $ 3,509,625
1,000 Oconee Cnty, SC Indl Rev Bond Johnson
Ctl Inc Ser 84 (Var Rate Cpn)......... 6.335 06/15/04 1,000,000
4,000 South Carolina St Hsg Fin & Dev Auth
Multi-Family Rev...................... 6.750 05/01/28 4,081,000
--------------
11,489,897
--------------
SOUTH DAKOTA 0.2%
805 Keystone, SD Econ Dev Rev Wtr Quality
Mgmt Corp Ser A....................... 5.500 12/15/08 806,425
1,810 Keystone, SD Econ Dev Rev Wtr Quality
Mgmt Corp Ser A....................... 6.000 12/15/18 1,804,624
--------------
2,611,049
--------------
TENNESSEE 2.5%
2,750 Chattanooga, TN Hlth Edl & Hsg Fac Brd
Rev................................... 5.000 12/01/18 2,710,867
3,000 SCA Tax Exempt Trust Multi-Family Mtg
Memphis Hlth Edl Rev Bond Receipt Ser
A6 (FSA Insd) (b)..................... 7.350 01/01/30 3,336,150
4,485 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd
Rev ICF/ MR Open Arms Dev Cent Ser A
(Prerefunded @ 08/01/99).............. 9.750 08/01/19 4,713,600
4,545 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd
Rev ICF/ MR Open Arms Dev Cent Ser C
(Prerefunded @ 08/01/99).............. 9.750 08/01/19 4,776,659
2,000 Springfield, TN Hlth & Edl Fac Brd
Hosp Rev Jesse Holman Jones Hosp Proj
(Prerefunded @ 04/01/06).............. 8.250 04/01/12 2,450,560
6,180 Sullivan Cnty, TN Hlth Edl & Hsg Facs
Brd Rev............................... 8.410 11/01/19 7,042,234
1,160 Trenton, TN Hlth & Edl Facs Brd Rev
Rha/Trenton Mr Inc Proj Ser B (d)..... 10.000 11/01/20 150,800
3,195 Trenton, TN Hlth & Edl Facs Brd Rev
Rha/Trenton Mr Inc Proj Ser A......... 10.000 11/01/19 3,699,650
--------------
28,880,520
--------------
</TABLE>
See Notes to Financial Statements
29
<PAGE> 80
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS 9.5%
$ 2,000 Abia Dev Corp TX Arpt Facs Rev Austin
Belly Port Dev Proj Ser A............. 6.500% 10/01/23 $ 1,984,500
1,000 Abia Dev Corp TX Arpt Facs Rev Austin
Belly Port Dev Proj Ser A............. 6.250 10/01/08 994,490
1,500 Abilene, TX Hlth Facs Dev Sears
Methodist Retirement Ser A............ 5.875 11/15/18 1,460,730
2,000 Amarillo, TX Hlth Fac Corp Hosp Rev
High Plains Baptist Hosp (Inverse
Fltg) (FSA Insd) (b).................. 8.987 01/01/22 2,342,500
1,000 Austin Bergstorm Landhost Entmt Sr Ser
A..................................... 6.750 04/01/27 1,010,010
2,000 Bell Cnty, TX Indl Dev Corp Solid
Waste Disposal Rev.................... 7.600 12/01/17 2,000,840
1,000 Bexar Cnty, TX Hlth Fac Dev Corp Rev
Rfdg Baptist Hlth Sys Ser A (MBIA
Insd)................................. 6.000 11/15/12 1,125,870
2,370 Bexar Cnty, TX Hlth Fac Dev Corp Rev
Rfdg Baptist Hlth Sys Ser A (MBIA
Insd)................................. 6.000 11/15/13 2,664,899
5,000 Brazos River Auth TX Rev Houston Inds
Inc Proj Ser D Rfdg (MBIA Insd) (b)... 4.900 10/01/15 5,042,350
665 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg.................................. * 08/01/00 602,198
1,165 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg.................................. * 08/01/01 978,239
335 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg.................................. * 08/01/02 261,002
1,825 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg.................................. * 08/01/11 692,770
775 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg.................................. 8.750 08/01/11 785,571
2,670 Dallas Cnty, TX Flood Ctl Dist No 1
Rfdg.................................. 8.750 08/01/12 2,707,033
1,635 Garland, TX Indpt Sch Dist............ 4.000 02/15/15 1,473,053
2,500 Garland, TX Indl Dev Auth Rev Bond
Ashland Oil Proj Ser 84 Rfdg (Var Rate
Cpn).................................. 5.360 04/01/04 2,503,450
2,500 Houston, TX Arpt Sys Rev Spl Fac
Continental Airls Term Impt Ser
B (b)................................. 6.125 07/15/27 2,565,825
101,015 Houston, TX Wtr & Swr Sys Rev Cap
Apprec Jr Lien Rfdg (FSA Insd)........ * 12/01/27 22,701,101
29,000 Houston, TX Wtr & Swr Sys Rev Cap
Apprec Jr Lien Ser A (FSA Insd)....... * 12/01/24 7,667,020
1,880 Laredo, TX Ctfs Oblig Ser B (MBIA
Insd)................................. 4.500 02/15/17 1,760,169
2,655 Leander, TX Indpt Sch Dist Cap Apprec
Rfdg.................................. * 08/15/18 939,790
</TABLE>
See Notes to Financial Statements
30
<PAGE> 81
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 4,820 Leander, TX Indpt Sch Dist Cap Apprec
Rfdg.................................. * 08/15/21 $ 1,444,506
3,990 Leander, TX Indpt Sch Dist Rfdg....... 4.750% 08/15/12 3,995,267
5,000 Lower Neches Vly Auth TX Indl Dev Corp
Rev (b)............................... 5.550 03/01/33 5,154,650
3,500 Matagorda Cnty, TX Navigation Dist 1
Houston Lighting Pwr Co............... 5.125 11/01/28 3,463,005
1,070 Mc Allen, TX Dev Corp Inc Sales Tax
Rev (FSA Insd)........................ 5.250 02/15/18 1,073,092
3,355 Meadow Parc Dev Inc TX Multi-Family
Rev Hsg Meadow Parc Apts Proj......... 6.500 12/01/30 3,368,923
1,000 Nacogdoches, TX Indl Dev Auth Inc
Pollutn Ctl Rev....................... 5.300 12/01/11 1,036,810
1,180 Pottsboro, TX Indpt Sch Dist Cap
Apprec Rfdg........................... * 08/15/17 444,305
1,175 Pottsboro, TX Indpt Sch Dist Cap
Apprec Rfdg........................... * 08/15/20 372,076
1,175 Pottsboro, TX Indpt Sch Dist Cap
Apprec Rfdg........................... * 08/15/23 312,820
6,000 Rockwall, TX Indpt Sch Dist Cap Apprec
Rfdg.................................. * 08/15/18 2,135,820
2,483 Texas Genl Svcs Comm Partn Int Lease
Purch Ctfs............................ 7.250 08/15/11 2,532,147
8,000 Texas St Dept Hsg & Cmnty Affairs Home
Mtg Rev (Inverse Fltg) (GNMA
Collateralized)....................... 6.900 07/02/24 8,840,000
2,985 Texas St Higher Edl Coordinating Brd
College Student Ln.................... * 10/01/25 3,073,983
2,000 Texas St Tpk Auth Dallas North Thruway
Rev Addison Arpt Toll Tunnel Proj
(FGIC Insd) (Prerefunded @
01/01/05)............................. 6.750 01/01/15 2,313,400
2,000 Texas St Tpk Auth Dallas North Thruway
Rev Addison Arpt Toll Tunnel Proj
(FGIC Insd) (Prerefunded @ 01/01/05)
(b)................................... 6.600 01/01/23 2,298,120
5,000 West Side Calhoun Cnty, TX Navig Dist
Solid Waste Disp Union Carbide Chem &
Plastics (b).......................... 8.200 03/15/21 5,400,800
--------------
111,523,134
--------------
UTAH 1.3%
1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.............................. 7.800 09/01/15 981,880
1,165 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.............................. 8.000 09/01/20 1,144,414
</TABLE>
See Notes to Financial Statements
31
<PAGE> 82
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH (CONTINUED)
$ 1,000 Hildale, UT Elec Rev Gas Turbine Elec
Fac Proj.............................. 7.800% 09/01/25 $ 980,300
4,000 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd) (a) (b).... 5.750 07/01/19 4,279,400
250 Saint George, UT Indl Dev Rev Kmart
Corp Ser 1984A........................ 10.750 10/15/08 255,818
3,270 Salt Lake Cnty, UT Hsg Auth
Multi-Family Hsg Rev (FHA Gtd)........ 6.375 11/01/33 3,490,790
2,500 Tooele Cnty, UT Pollutn Ctl Rev Rfdg
Laidlaw Environmental Ser A........... 7.550 07/01/27 2,740,850
1,310 Utah St Hsg Fin Agy Single Family Mtg
Mezz A1 (AMBAC Insd) (b).............. 6.100 07/01/13 1,390,971
--------------
15,264,423
--------------
VIRGINIA 2.0%
5,000 Alexandria, VA Redev & Hsg Auth 3001
Park Cent Apts Ser A Rfdg............. 6.375 04/01/34 5,014,650
5,000 Chesapeake Bay Brdg & Tunl VA Dist Rev
Gen Resolution Rfdg (MBIA Insd)....... 5.500 07/01/25 5,374,300
1,000 Dulles Town Cent Cmnty Dev Auth Dulles
Town Cent Proj........................ 6.250 03/01/26 1,020,950
2,650 Fairfax Cnty, VA Park Auth Park Fac
Rev................................... 6.625 07/15/20 2,840,535
1,000 Greensville Cnty, VA Indl Dev Wheeling
Steel Proj Ser A (a).................. 7.000 04/01/14 1,001,510
6,000 Peninsula Ports Auth VA Rev Port Fac
Zeigler Coal Rfdg (a)................. 6.900 05/02/22 6,013,320
1,500 Pittsylvania Cnty, VA Indl Dev Auth
Rev Exempt Fac Ser A.................. 7.450 01/01/09 1,638,570
--------------
22,903,835
--------------
WASHINGTON 1.6%
11,460 Central Puget Sound, WA Regl Tran Auth
Sales Tax & Motor Vehicle Excise Tax
Rev (FGIC Insd)....................... 4.750 02/01/28 10,709,370
3,500 Spokane Cnty, WA Indl Dev Corp Solid
Waste Disp Rev........................ 7.600 03/01/27 3,826,690
2,000 Tacoma, WA Hsg Auth Rev Hsg Wedgewood
Homes Proj............................ 6.000 04/01/28 1,979,940
</TABLE>
See Notes to Financial Statements
32
<PAGE> 83
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 5,500 Washington St Pub Pwr Supply Comp
Interest Ser C Rfdg (MBIA Insd)....... * 07/01/17 $ 2,159,025
--------------
18,675,025
--------------
WISCONSIN 2.7%
800 Baldwin, WI Hosp Rev Mtg Ser A........ 6.125% 12/01/18 801,512
2,590 Baldwin, WI Hosp Rev Mtg Ser A........ 6.375 12/01/28 2,594,843
3,250 Nekoosa, WI Pollutn Ctl Rev Nekoosa
Papers Inc Proj Ser A................. 5.350 07/01/15 3,253,218
1,000 Oconto Falls, WI Cmnty Dev Oconto
Falls Tissue Inc Proj................. 7.750 12/01/22 1,063,840
4,455 Southeast WI Prof Baseball Park Ser A
Rfdg.................................. 5.500 12/15/21 4,758,118
3,970 Wisconsin St Hlth & Edl Fac Auth Rev
Chippewa Vly Hosp Ser F Rfdg (b)...... 9.500 11/15/12 4,444,018
2,070 Wisconsin St Hlth & Edl Fac Auth Rev
Eau Claire Manor...................... 9.625 06/01/13 2,069,027
1,115 Wisconsin St Hlth & Edl Fac Auth Rev
Middleton Glen Inc Proj............... 5.750 10/01/18 1,084,460
2,485 Wisconsin St Hlth & Edl Fac Auth Rev
Spl Term Middleton Glen Inc Proj...... 5.750 10/01/28 2,386,321
1,500 Wisconsin St Hlth & Edl Facs Auth Rev
Franciscan Sisters Christian Ser A.... 5.500 02/15/28 1,475,385
1,200 Wisconsin St Hlth & Edl Facs Auth Rev
Middleton Glen Inc Proj............... 5.900 10/01/28 1,176,996
3,500 Wisconsin St Hlth & Edl Facs Auth Rev
Marquette Univ (MBIA Insd)............ 4.750 06/01/28 3,267,145
3,000 Wisconsin St Hlth & Edl Milwaukee
Catholic Home Proj.................... 7.500 07/01/26 3,272,160
--------------
31,647,043
--------------
PUERTO RICO 0.9%
1,521 Centro de Recaudaciones de Ingresos
Muni Ctfs Partn PR.................... 6.850 10/17/03 1,588,201
10,000 Puerto Rico Comwlth Hwy & Tran Auth
Tran Rev Ser A........................ 4.750 07/01/38 9,563,000
--------------
11,151,201
--------------
</TABLE>
See Notes to Financial Statements
33
<PAGE> 84
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ----------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 102.0%
(Cost $1,146,816,409)................................................ $1,191,532,024
SHORT-TERM INVESTMENTS 0.2%
(Cost $3,178,571)...................................................... 2,062,500
--------------
TOTAL INVESTMENTS 102.2%
(Cost $1,149,994,980).................................................. 1,193,594,524
LIABILITIES IN EXCESS OF OTHER ASSETS (2.2%).......................... (25,453,966)
--------------
NET ASSETS 100.0%..................................................... $1,168,140,558
==============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option and open futures transactions.
(c) Interest is accruing at less than the stated coupon.
(d) Non-Income producing security.
(e) Currently is a payment-in-kind security which will convert to a cash paying
security with a higher coupon at a predetermined date.
(f) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. 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.
ACA-- American Capital Access
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
34
<PAGE> 85
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,149,994,980)..................... $1,193,594,524
Receivables:
Interest.................................................. 22,365,720
Investments Sold.......................................... 3,768,545
Fund Shares Sold.......................................... 3,588,852
Variation Margin on Futures............................... 55,469
Other....................................................... 13,665
--------------
Total Assets.......................................... 1,223,386,775
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 29,400,771
Bank Borrowings........................................... 19,460,522
Income Distributions...................................... 2,787,366
Fund Shares Repurchased................................... 1,600,305
Distributor and Affiliates................................ 749,873
Investment Advisory Fee................................... 465,960
Accrued Expenses............................................ 485,334
Options at Market Value (Net premiums received of
$147,570)................................................. 126,562
Trustees' Deferred Compensation and Retirement Plans........ 169,524
--------------
Total Liabilities..................................... 55,246,217
--------------
NET ASSETS.................................................. $1,168,140,558
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,228,987,877
Net Unrealized Appreciation................................. 43,449,357
Accumulated Distributions in Excess of Net Investment
Income.................................................... (10,289,239)
Accumulated Net Realized Loss............................... (94,007,437)
--------------
NET ASSETS.................................................. $1,168,140,558
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $794,643,187 and 53,859,373 shares of
beneficial interest issued and outstanding)........... $ 14.75
Maximum sales charge (4.75%* of offering price)......... .74
--------------
Maximum offering price to public........................ $ 15.49
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $300,729,048 and 20,392,654 shares of
beneficial interest issued and outstanding)........... $ 14.75
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $72,768,323 and 4,934,472 shares of
beneficial interest issued and outstanding)........... $ 14.75
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
35
<PAGE> 86
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $35,310,068
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $925,599, $1,449,319 and $337,237,
respectively)............................................. 2,712,155
Investment Advisory Fee..................................... 2,683,074
Shareholder Services........................................ 339,508
Legal....................................................... 172,725
Custody..................................................... 58,892
Trustees' Fees and Expenses................................. 18,507
Other....................................................... 559,514
-----------
Total Operating Expenses................................ 6,544,375
Interest Expense........................................ 115,514
-----------
NET INVESTMENT INCOME....................................... $28,650,179
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments (Including reorganization and restructuring
costs of $15,465)....................................... $ 3,351,450
Options................................................... 426,063
Futures................................................... (2,186,589)
-----------
Net Realized Gain........................................... 1,590,924
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 68,326,173
-----------
End of the Period:
Investments............................................. 43,599,544
Options................................................. 21,008
Futures................................................. (171,195)
-----------
43,449,357
-----------
Net Unrealized Depreciation During the Period............... (24,876,816)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(23,285,892)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 5,364,287
===========
</TABLE>
See Notes to Financial Statements
36
<PAGE> 87
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, the Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................. $ 28,650,179 $ 42,155,106 $ 53,336,303
Net Realized Gain/Loss................ 1,590,924 (861,253) 391,354
Net Unrealized
Appreciation/Depreciation During the
Period.............................. (24,876,816) 17,628,426 24,022,309
-------------- -------------- -------------
Change in Net Assets from
Operations.......................... 5,364,287 58,922,279 77,749,966
-------------- -------------- -------------
Distributions from Net Investment
Income.............................. (28,650,179) (42,128,701) (53,336,303)
Distributions in Excess of Net
Investment Income................... (1,269,402) -0- (664,960)
-------------- -------------- -------------
Total Distributions from and in Excess
of Net Investment Income*........... (29,919,581) (42,128,701) (54,001,263)
-------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............... (24,555,294) 16,793,578 23,748,703
-------------- -------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............. 134,651,914 205,313,493 198,765,477
Net Asset Value of Shares Issued
Through Dividend Reinvestment....... 13,317,742 18,455,824 23,168,036
Cost of Shares Repurchased............ (69,480,735) (100,827,970) (135,758,091)
-------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS........................ 78,488,921 122,941,347 86,175,422
-------------- -------------- -------------
TOTAL INCREASE IN NET ASSETS.......... 53,933,627 139,734,925 109,924,125
NET ASSETS:
Beginning of the Period............... 1,114,206,931 974,472,006 864,547,881
-------------- -------------- -------------
End of the Period (Including
accumulated distributions in excess
of net investment income of
$10,289,239, $9,019,837 and
$9,046,242, respectively)........... $1,168,140,558 $1,114,206,931 $ 974,472,006
============== ============== =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
*Distributions by Class March 31, 1999 September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $(21,444,278) $(30,895,725) $(41,926,549)
Class B Shares...................... (6,878,801) (9,369,462) (10,667,625)
Class C Shares...................... (1,596,502) (1,863,514) (1,407,089)
------------ ------------ ------------
$(29,919,581) $(42,128,701) $(54,001,263)
============ ============ ============
</TABLE>
See Notes to Financial Statements
37
<PAGE> 88
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Nine Months Year Ended December 31,
Ended Ended -------------------------------------
Class A Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $15.076 $14.845 $14.474 $14.984 $13.848 $15.629
------- ------- ------- ------- ------- -------
Net Investment
Income............. .401 .643 .895 .963 1.024 .956
Net Realized and
Unrealized
Gain/Loss.......... (.315) .217 .376 (.513) 1.072 (1.717)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... .086 .860 1.271 .450 2.096 (.761)
Less Distributions from
and in Excess of Net
Investment Income.... .408 .629 .900 .960 .960 1.020
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $14.754 $15.076 $14.845 $14.474 $14.984 $13.848
======= ======= ======= ======= ======= =======
Total Return (a)....... .53%* 6.00%* 9.05% 3.21% 15.52% (4.93%)
Net Assets at End of
the Period (In
millions)............ $ 794.6 $ 771.4 $ 706.3 $ 671.9 $ 665.8 $ 603.0
Ratio of Expenses to
Average Net Assets
(b).................. .93% .92% .94% .99% .95% .87%
Ratio of Net Investment
Income to Average Net
Assets (b)........... 5.28% 5.66% 6.09% 6.60% 7.05% 6.48%
Portfolio Turnover..... 28%* 66%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
38
<PAGE> 89
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 Nine Months Year Ended December 31,
Ended Ended -------------------------------------
Class B Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............. $15.071 $14.844 $14.474 $14.983 $13.850 $15.621
------- ------- ------- ------- ------- -------
Net Investment
Income........... .335 .545 .774 .843 .908 .841
Net Realized and
Unrealized
Gain/Loss........ (.306) .229 .384 (.506) 1.071 (1.718)
------- ------- ------- ------- ------- -------
Total from Investment
Operations......... .029 .774 1.158 .337 1.979 (.877)
Less Distributions
from and in Excess
of Net Investment
Income............. .353 .547 .788 .846 .846 .894
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $14.747 $15.071 $14.844 $14.474 $14.983 $13.850
======= ======= ======= ======= ======= =======
Total Return (a)..... .22%* 5.35%* 8.23% 2.40% 14.62% (5.69%)
Net Assets at End of
the Period (In
millions).......... $ 300.7 $ 279.6 $ 229.6 $ 173.8 $ 137.9 $ 112.4
Ratio of Expenses to
Average Net Assets
(b)................ 1.70% 1.68% 1.71% 1.75% 1.70% 1.64%
Ratio of Net
Investment Income
to Average Net
Assets (b)......... 4.51% 4.90% 5.30% 5.84% 6.25% 5.70%
Portfolio Turnover... 28%* 66%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
39
<PAGE> 90
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 Nine Months Year Ended December 31,
Ended Ended -------------------------------------
Class C Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............. $15.069 $14.842 $14.474 $14.987 $13.846 $15.610
------- ------- ------- ------- ------- -------
Net Investment
Income........... .337 .549 .778 .851 .910 .824
Net Realized and
Unrealized
Gain/Loss........ (.306) .225 .378 (.518) 1.077 (1.694)
------- ------- ------- ------- ------- -------
Total from Investment
Operations......... .031 .774 1.156 .333 1.987 (.870)
Less Distributions
from and in Excess
of Net Investment
Income............. .353 .547 .788 .846 .846 .894
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $14.747 $15.069 $14.842 $14.474 $14.987 $13.846
======= ======= ======= ======= ======= =======
Total Return (a)..... .22%* 5.35%* 8.23% 2.33% 14.70% (5.62%)
Net Assets at End of
the Period (In
millions).......... $ 72.8 $ 63.2 $ 38.6 $ 18.8 $ 9.5 $ 7.6
Ratio of Expenses to
Average Net
Assets (b)......... 1.69% 1.68% 1.71% 1.75% 1.69% 1.64%
Ratio of Net
Investment Income
to Average Net
Assets (b)......... 4.50% 4.90% 5.24% 5.84% 6.19% 5.71%
Portfolio Turnover... 28%* 66%* 63% 59% 59% 101%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1995 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
40
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Tax Free High Income Fund (the "Fund") is organized as a series of
the Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide investors
with a high level of current income exempt from federal income taxes primarily
through investment in a diversified portfolio of medium and lower grade
municipal securities. The Fund commenced investment operations on June 28, 1985.
The distribution of the Fund's Class B and Class C shares commenced on May 1,
1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
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
41
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $93,730,196 which expires between September 30,
1999 and September 30, 2006. Of this amount, $1,295,852 will expire on September
30, 1999. Net realized gains or losses may differ for financial reporting and
tax purposes primarily as a result of the capitalization of reorganization and
restructuring costs for tax purposes.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $1,152,363,040, the aggregate gross unrealized
appreciation is $69,056,544 and the aggregate gross unrealized depreciation is
$27,825,060, resulting in net unrealized appreciation on long- and short-term
investments of $41,231,484.
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.
42
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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................................... .50 of 1%
Over $500 million.................................... .45 of 1%
</TABLE>
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $35,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $118,500 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
March 31, 1999, the Fund recognized expenses of approximately $237,600. Transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
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.
43
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At March 31, 1999, capital aggregated $854,825,061, $301,172,344 and
$72,990,472 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................. 5,409,992 $ 80,490,369
Class B............................. 2,661,232 39,592,041
Class C............................. 977,857 14,569,504
---------- -------------
Total Sales........................... 9,049,081 $ 134,651,914
========== =============
Dividend Reinvestment:
Class A............................. 649,593 $ 9,657,868
Class B............................. 186,585 2,772,394
Class C............................. 59,733 887,480
---------- -------------
Total Dividend Reinvestment........... 895,911 $ 13,317,742
========== =============
Repurchases:
Class A............................. (3,364,694) $ (50,039,278)
Class B............................. (1,009,886) (15,013,672)
Class C............................. (297,821) (4,427,785)
---------- -------------
Total Repurchases..................... (4,672,401) $ (69,480,735)
========== =============
</TABLE>
44
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $814,716,102, $273,821,581 and
$61,961,273 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................. 7,418,156 $ 110,301,687
Class B............................. 4,566,294 67,862,636
Class C............................. 1,827,970 27,149,170
---------- -------------
Total Sales........................... 13,812,420 $ 205,313,493
========== =============
Dividend Reinvestment:
Class A............................. 923,639 $ 13,739,535
Class B............................. 245,550 3,652,560
Class C............................. 71,508 1,063,729
---------- -------------
Total Dividend Reinvestment........... 1,240,697 $ 18,455,824
========== =============
Repurchases:
Class A............................. (4,753,839) $ (70,664,021)
Class B............................. (1,723,537) (25,610,245)
Class C............................. (306,853) (4,553,704)
---------- -------------
Total Repurchases..................... (6,784,229) $(100,827,970)
========== =============
</TABLE>
45
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 eight 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>
46
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999 Van Kampen, as distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $169,700 and CDSC on redeemed shares of approximately $228,400.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $421,486,916 and
$325,109,986, 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.
47
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended March 31, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1998............... 750 $ 9,550
Options Written and Purchased (Net)............. 2,800 420,289
Options Terminated in Closing Transactions
(Net)......................................... (1,750) (28,794)
Options Expired (Net)........................... (1,500) (253,475)
------ ---------
Outstanding at March 31, 1999................... 300 $ 147,570
====== =========
</TABLE>
The description and market value of the option contract outstanding as of
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
EXP. MARKET
MONTH/ VALUE
DESCRIPTION CONTRACTS STRIKE PRICE OF OPTION
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BOND FUTURES
June 1999 - Written Call............ 300 Jun/128 $(126,562)
=== ======= =========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract could be in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts for the six months ended March 31, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at September 31, 1998........................... 600
Futures Opened.............................................. 6,181
Futures Closed.............................................. (5,756)
-------
Outstanding at March 31, 1999............................... 1,025
=======
</TABLE>
48
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The futures contracts outstanding as of March 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS (DEPRECIATION)
- ---------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- U.S. Treasury Bond
Futures-June 1999 (Current notional value
$120,563 per contract)...................... 425 $(525,709)
Short Contracts -- Municipal Bond Futures-June
1999 (Current notional value $123,594 per
contract)................................... 600 354,514
----- ---------
1,025 $(171,195)
===== =========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended March 31, 1999 are payments retained by Van Kampen
of approximately $1,331,700.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the
49
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
fund complex, has entered into a $100 million revolving credit agreement which
expires September 27, 1999. The maximum amount available to any single fund is
$75 million. Interest is charged under the agreement at a rate of .45% above the
federal funds rate. The interest rate in effect at March 31, 1999, was 5.575%.
An annual facility fee of .06% is charged on the unused portion of the credit
facility.
The average daily balance of bank borrowings for the six months ended March
31, 1999 was approximately $4,289,900 with an average interest rate of 5.40%. At
March 31, 1999, borrowings under this agreement represented 1.6% of the Fund's
total assets.
50
<PAGE> 101
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
51
<PAGE> 102
VAN KAMPEN TAX FREE HIGH INCOME FUND
OFFICERS AND TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP G. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After August 30, 1999, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
52
<PAGE> 103
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 104
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.............. 18
Statement of Operations.......................... 19
Statement of Changes in Net Assets............... 20
Financial Highlights............................. 21
Notes to Financial Statements.................... 24
</TABLE>
CAI SAR 5/99
<PAGE> 105
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 106
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 107
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 0.71% 0.30% 0.35%
Six-month total return(2)................ (2.56%) (2.65%) (0.63%)
One-year total return(2)................. 2.60% 2.22% 4.22%
Five-year average annual total
return(2)................................ 6.57% 6.46% 6.48%
Ten-year average annual total
return(2)................................ 7.54% N/A N/A
Life-of-Fund average annual total
return(2)................................ 7.75% 5.23% 4.79%
Commencement date........................ 12/13/85 05/01/93 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.62% 4.07% 4.07%
Taxable equivalent distribution
rate(4).................................. 7.97% 7.02% 7.02%
SEC Yield(5)............................. 3.69% 3.03% 3.02%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) Taxable equivalent calculations reflect a combined federal and state income
tax rate of 42%, which takes into consideration the deductibility of individual
state taxes paid.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending March 31, 1999.
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.
Income may subject certain individuals to the federal alternative minimum tax.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 108
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 109
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 110
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
We recently spoke with the management team of the Van Kampen California Insured
Tax Free Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes Joseph A. Piraro, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
Nationally, the proportion of higher-yielding municipal bonds also increased
during the period as the number of insured bonds declined. Because bond insurers
tightened their underwriting criteria, more issuers came to market without
insurance and offered higher yields to compensate bondholders for the increased
credit risk. This benefited the Fund because it allowed our experienced research
staff to seek out those higher-yielding bonds that we felt had strong underlying
quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 111
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
The California economy continued to show potency during the reporting
period. Bond issuance in the state remained high in the fourth quarter of 1998
but tailed off considerably in the first quarter of 1999--reflecting a
nationwide trend. Meanwhile, demand for California municipal bonds was strong.
Q HOW DID YOU MANAGE THE FUND'S PORTFOLIO DURING THE PAST SIX MONTHS?
A Although California bond issuance decreased slightly, there continued to
be ample opportunity to identify attractive new bonds to add to the
portfolio, as the state remained the nation's largest issuer of municipal
debt. And, because a significant percentage of California bonds come to market
insured--56 percent of the state's municipal debt in 1998--there was a
sufficient supply of bonds from which we could choose. This supply of insured
bonds enabled us to keep the portfolio well diversified throughout the reporting
period.
We did not make major changes to the portfolio's sector allocation. As of
March 31, 1999, the Fund's top five allocations by sector were tax district
(24.8 percent); public education (16.4 percent); public building (13.4 percent);
general purpose (11.6 percent); and water & sewer (10.4 percent). For additional
Fund portfolio highlights please refer to page 9.
Q HOW WERE YOU ABLE TO ADD VALUE TO THE PORTFOLIO?
A We were able to find the best relative value in bonds with maturities in
the 20-year range, so whenever possible we sought to add these bonds to
the portfolio. During the reporting period, we believed that municipals
with shorter maturities were somewhat expensive when compared to Treasuries, so
we avoided that area. In addition, we would have received little additional
yield for assuming the increased interest rate risk associated with purchasing
longer-maturity bonds.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund's total return during the six-month reporting period was 0.71
percent(1) (Class A shares at net asset value), while its distribution
rate was 4.62 percent(3) as of March 31, 1999. By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 1.49 percent for the
same period. This index is a broad-based index of municipal bonds and does not
reflect any commissions that would be paid by an investor purchasing the
securities it represents. The Fund's distribution rate translates into a
taxable-equivalent rate of 7.97 percent(4) for an investor in the 42 percent
combined federal and state income tax bracket. The Fund's dividend remained
unchanged at $0.0735 per Class A share during the period. Income may subject
certain individuals to the federal alternative minimum tax. Past performance
does not guarantee future results. Please refer to the chart and footnotes on
page 3 for additional Fund performance results.
7
<PAGE> 112
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
Although California's economic strength is expected to continue, the Asian
economic crisis still looms and seems to be having a moderating effect on the
state's growth. This is the case even in Silicon Valley, traditionally one of
California's economic engines but which is particularly dependent on Asian
demand. For the first time we are beginning to see signs of weakness in that
region, although it is still enjoying remarkable growth. If the state begins to
encounter economic difficulties, bond issuers--particularly small
municipalities--might be forced to increase the number of insured bonds they
offer in response to a heightened demand for quality. In the meantime, we remain
optimistic but are on the lookout for signs of change.
[SIG]
Joseph A. Piraro
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 113
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
TOP TEN HOLDINGS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
San Joaquin Hills, CA Transportation Corridor Agency
Toll Road Revenue ................................... 3.9%
South Orange County, CA Public Finance Authority
Special Tax Revenue Senior Lien ..................... 3.9%
Bakersfield, CA Certificates of Participation
Convention Center Expansion Project ................. 3.4%
San Jose, CA Finance Authority Revenue Convention
Project ............................................. 2.9%
Corona, CA Redevelopment Agency Tax Allocation
Redevelopment Project Area A ........................ 2.7%
Grossmont, CA Union High School District Certificates
of Participation .................................... 2.2%
California Housing Finance Agency Revenue Home
Mortgage ............................................ 2.2%
California State ...................................... 2.1%
Chino, CA Unified School District Certificates
Participation Master Lease Program .................. 2.0%
Hayward, CA Certificates of Participation Civic Center
Project ............................................. 1.9%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<S> <C>
AAA....................... 100.0%
</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 MARCH 31, 1999 AS OF SEPTEMBER 30, 1998
<S> <C> <C> <C>
Tax District .............. 24.8% Tax District .............. 16.1%
Public Education .......... 16.4% Public Education .......... 11.9%
Public Building ........... 13.4% Public Building ........... 11.5%
General Purpose ........... 11.6% General Purpose ........... 9.6%
Water & Sewer ............. 10.4% Water & Sewer ............. 8.0%
</TABLE>
9
<PAGE> 114
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS 97.7%
$ 2,000 Anaheim, CA Pub Fin Auth Tax Alloc
Rev (Inverse Fltg) (MBIA Insd)....... 9.320% 12/28/18 $ 2,582,500
1,000 Antioch Area Pub Fac Fin Agy CA Spl
Tax Cmnty Fac Dist (FGIC Insd)....... 5.000 08/01/18 1,001,550
3,675 Bakersfield, CA Ctfs Partn Convention
Cent Expansion Proj (MBIA Insd)...... 5.800 04/01/17 3,937,432
3,000 Bakersfield, CA Ctfs Partn Convention
Cent Expansion Proj (MBIA Insd)...... 5.875 04/01/22 3,246,180
1,000 Banning, CA Ctfs Partn Administration
Bldg Proj Ser A Rfdg (MBIA Insd)..... 5.500 11/01/20 1,047,780
3,000 Bay Area Govt Assn CA Rev Tax Alloc
CA Redev Agy Pool Ser A2 (FSA Insd)
(b).................................. 6.400 12/15/14 3,389,490
1,000 Brea & Olinda, CA Uni Sch Dist Ctfs
Partn Sr High Sch Pgm Ser A Rfdg (FSA
Insd)................................ 6.000 08/01/09 1,082,210
1,125 California Cmnty College Fin Auth
Lease Rev Ser A (MBIA Insd).......... 4.625 10/01/19 1,074,758
1,000 California Edl Fac Auth Rev Loyola
Marymount Univ Rfdg (MBIA Insd)...... 5.000 10/01/17 1,007,720
2,000 California Hlth Fac Fin Auth Rev
Adventist Hlth Ser A Rfdg (MBIA Insd)
(b).................................. 6.500 03/01/14 2,136,020
1,625 California Hlth Fac Fin Auth Rev Insd
Sutter Hlth Ser A Rfdg (FSA Insd).... 5.250 08/15/27 1,654,169
2,000 California Hlth Fac Fin Auth Rev
Kaiser Permanente Ser A (FSA Insd)... 5.550 08/15/25 2,054,700
4,000 California Hsg Fin Agy Rev Home Mtg
Ser A (MBIA Insd).................... 5.850 08/01/16 4,254,880
1,000 California Hsg Fin Agy Rev Home Mtg
Ser A (MBIA Insd) (a)................ * 02/01/16 420,140
15 California Hsg Fin Agy Rev Hsg Ser B
(MBIA Insd).......................... 8.625 08/01/15 15,567
1,110 California Pub Cap Impt Fin Auth Rev
Pooled Proj Ser B (BIGI Insd)........ 8.100 03/01/18 1,131,134
1,050 California Spl Dist Assn Fin Corp
Ctfs Partn Spl Dists Fin Pgm Ser DD
(FSA Insd)........................... 5.625 01/01/27 1,111,289
1,250 California St (FGIC Insd)............ 6.250 09/01/12 1,465,025
</TABLE>
See Notes to Financial Statements
10
<PAGE> 115
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 240 California St (MBIA Insd)............ 6.000% 10/01/14 $ 260,657
3,000 California St (FGIC Insd)............ 4.500 12/01/21 2,788,140
1,000 California St Univ Fresno Assn Inc
Rev Auxiliary Residence Student Proj
(MBIA Insd).......................... 6.250 02/01/17 1,105,490
1,000 California Statewide Cmntys Dev Auth
Ctfs Partn San Diego St Univ Fndtn
Rfdg (AMBAC Insd).................... 5.250 03/01/22 1,017,360
1,570 California Statewide Cmntys Dev Auth
Rev Ctfs Partn Insd Children's Hosps
Rfdg (MBIA Insd)..................... 6.000 06/01/10 1,782,955
2,000 Capistrano, CA Uni Sch Dist Cmnty Fac
Dist Spl Tax (MBIA Insd) (a)......... 5.000 09/01/18 2,009,420
2,000 Castaic Lake Wtr Agy CA Ctfs Partn
Wtr Sys Impt Proj Ser A Rfdg (MBIA
Insd)................................ 7.000 08/01/12 2,466,360
1,205 Channel Islands Beach CA Cmnty Svcs
Dist Ctfs Partn (FSA Insd)........... 5.700 09/01/21 1,289,663
1,105 Chino, CA Ctfs Partn Redev Agy (MBIA
Insd)................................ 6.200 09/01/18 1,216,539
2,350 Chino, CA Uni Sch Dist Ctfs Partn
Master Lease Pgm (FSA Insd).......... 6.250 03/01/09 2,635,948
1,500 Chino, CA Uni Sch Dist Ctfs Partn
Master Lease Pgm (FSA Insd).......... 6.000 03/01/14 1,644,975
1,000 Clovis, CA Pub Fin Auth Refuse Disp
Rev Ldfill Improv Proj Rfdg (AMBAC
Insd)................................ 5.000 09/01/18 1,004,550
290 Colton, CA Jt Uni Sch Dist Cmnty Fac
Dist Spl Tax Southridge Vlg Rfdg (FSA
Insd)................................ 5.900 09/01/14 290,664
2,000 Colton, CA Pub Fin Auth Rev Tax Alloc
Ser A (MBIA Insd).................... 5.000 08/01/18 2,009,320
20 Concord, CA Redev Agy Tax Alloc Cent
Concord Redev Proj Ser 3 (BIGI
Insd)................................ 8.000 07/01/18 20,430
1,550 Contra Costa, CA Wtr Auth Wtr
Treatment Rev Ser A Rfdg (FGIC
Insd)................................ 5.750 10/01/14 1,668,203
1,500 Corona, CA Pub Fin Auth Wtr Rev (FGIC
Insd)................................ 4.750 09/01/18 1,465,530
5,165 Corona, CA Redev Agy Tax Alloc Redev
Proj Area A Ser A Rfdg (FGIC Insd)... 6.250 09/01/13 5,772,817
3,000 East Bay, CA Muni Util Dist Wtr Sys
Rev (MBIA Insd)...................... 4.750 06/01/28 2,856,600
</TABLE>
See Notes to Financial Statements
11
<PAGE> 116
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,150 El Centro, CA Redev Agy Tax El Centro
Redev Proj Rfdg (MBIA Insd).......... 5.500% 11/01/26 $ 1,208,949
1,000 El Monte, CA Ctfs Partn Dept Pub
Social Svcs Fac (AMBAC Insd)......... 5.000 06/01/19 994,280
1,000 El Monte, CA Ctfs Partn Dept Pub
Social Svcs Fac (AMBAC Insd)......... 4.750 06/01/30 950,070
2,000 Fairfield Suisun, CA Swr Dist Swr Rev
Ser A Rfdg (MBIA Insd) (b)........... 6.250 05/01/16 2,134,120
1,000 Folsom, CA Pub Fin Auth Rev Rfdg
(AMBAC Insd)......................... 6.000 10/01/12 1,082,640
1,400 Folsom, CA Pub Fin Auth Rev Rfdg
(AMBAC Insd)......................... 6.000 10/01/19 1,515,696
2,000 Folsom, CA Spl Tax Cmnty Fac Dist No
2 Rfdg (Connie Lee Insd)............. 5.250 12/01/19 2,048,280
1,250 Fresno, CA Jt Pwrs Fin Auth Lease Rev
(AMBAC Insd)......................... 4.750 09/01/18 1,221,275
1,745 Gilroy, CA Uni Sch Dist Ctfs Partn
Measure J Cap Projs Rfdg (FSA
Insd)................................ 5.875 09/01>/06 1,935,990
1,810 Gilroy, CA Uni Sch Dist Ctfs Partn
Measure J Cap Projs Rfdg (FSA
Insd)................................ 6.250 09/01/12 2,018,331
725 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.750 02/01/18 797,812
815 Golden West Schs Fin Auth CA Rev Ser
A Rfdg (MBIA Insd) (a)............... 5.800 02/01/20 902,661
20,000 Grossmont, CA Union High Sch Dist
Ctfs Partn (MBIA Insd)............... * 11/15/21 4,691,600
4,000 Hayward, CA Ctfs Partn Civic Cent
Proj (MBIA Insd)..................... 5.250 08/01/26 4,072,080
1,250 Hemet, CA Uni Sch Dist Ctfs Partn
Nutrition Cent Proj (FSA Insd)....... 5.875 04/01/27 1,361,175
1,545 Imperial, CA Irrig Dist Elec Rev Sys
Rfdg (MBIA Insd)..................... 5.000 11/01/18 1,551,875
1,000 Inglewood, CA Redev Agy Tax Alloc
Merged Redev Proj Ser A Rfdg (AMBAC
Insd)................................ 5.250 05/01/23 1,036,870
</TABLE>
See Notes to Financial Statements
12
<PAGE> 117
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,000 Kern, CA Cmnty College Dist Ctfs Part
Rfdg (MBIA Insd)..................... 5.000% 01/01/18 $ 1,004,140
1,000 Lancaster, CA Redev Agy Lease Rev Pub
Cap Impt Proj Rfdg (AMBAC Insd)...... 5.000 12/01/28 985,480
2,600 Lancaster, CA Redev Agy Tax Alloc
Amargosa Redev Proj Rfdg (AMBAC
Insd)................................ 5.000 02/01/19 2,598,206
1,225 Lincoln, CA Uni Sch Dist (MBIA
Insd)................................ 5.600 09/01/26 1,292,314
1,835 Local Govt Fin Auth CA Rev Cap Apprec
San Francisco Redev (Prerefunded @
08/01/04) (MBIA Insd)................ * 08/01/08 1,177,006
850 Loma Linda, CA Hosp Rev Loma Linda
Univ Med Cent Proj B Rfdg (AMBAC
Insd)................................ 7.000 12/01/15 886,984
1,535 Long Beach, CA Redev Agy Tax Alloc
Sub Redev Proj Rfdg (AMBAC Insd)..... 5.125 04/01/20 1,533,035
1,000 Los Angeles Cnty, CA Ctfs Partn
Disney Parking Proj Rfdg (AMBAC
Insd)................................ 4.750 03/01/23 956,570
1,000 Los Angeles Cnty, CA Metro Tran Auth
Sales Tax Rev First Tier Prop A Ser A
Rfdg (FSA Insd) (a).................. 5.000 07/01/19 1,001,290
626 Los Angeles Cnty, CA Tran Comm Lease
Rev Dia RR Lease Ltd (FSA Insd)...... 7.375 12/15/06 679,154
2,380 Los Angeles, CA Mtg Rev FHA Security
8 Asstd Proj Ser A Rfdg (MBIA
Insd)................................ 6.100 07/01/25 2,476,104
500 M-S-R Pub Pwr Agy CA San Juan Proj
Rev Ser E (MBIA Insd)................ 6.000 07/01/22 522,430
2,000 Madera Cnty, CA Ctfs Partn Vly
Childrens Hosp Proj (MBIA Insd)...... 5.000 03/15/23 1,976,560
1,250 North City West, CA Sch Fac Fin Auth
Spl Tax Ser B Rfdg (FSA Insd)........ 5.750 09/01/15 1,358,488
1,640 North City West, CA Sch Fac Fin Auth
Spl Tax Ser B Rfdg (FSA Insd)........ 6.000 09/01/19 1,788,354
500 Northern CA Pwr Agy Pub Pwr Rev
Combustion Turbine Proj 1 Ser A Rfdg
(Prerefunded @ 08/15/99) (MBIA
Insd)................................ 6.000 08/15/10 505,655
400 Northern CA Pwr Agy Pub Pwr Rev Hydro
Elec Proj 1 Ser A Rfdg (Prerefunded @
07/01/21) (AMBAC Insd)............... 7.500 07/01/23 525,820
</TABLE>
See Notes to Financial Statements
13
<PAGE> 118
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 2,760 Oakland, CA Uni Sch Dist Alameda Cnty
Cap Apprec Ser A (Prerefunded @
08/01/06) (FGIC Insd)................ * 08/01/13 $ 1,349,336
3,475 Oakland, CA Uni Sch Dist Alameda Cnty
Cap Apprec Ser A (Prerefunded @
08/01/06) (FGIC Insd)................ * 08/01/14 1,590,542
1,220 Oceanside, CA Cmnty Dev Mtg FHA North
River Club Ser A Rfdg (MBIA Insd).... 5.850% 07/01/16 1,279,804
1,000 Pajaro Vly, CA Unified Sch Dist Ctfs
Partn Sch Fac Brdg Fdg Pgm (FSA
Insd)................................ 5.850 09/01/32 1,090,110
3,000 Palm Desert, CA Fin Auth Tax Alloc
Rev (Inverse Fltg) (MBIA Insd)....... 9.105 04/01/22 3,536,250
1,000 Palmdale, CA Wtr Dist Rev Ctfs Partn
Rfdg (FGIC Insd)..................... 5.000 10/01/18 1,003,040
4,000 Pasadena, CA Elec Rev Ser 1998 Rfdg
(MBIA Insd).......................... 4.750 08/01/24 3,837,560
1,000 Perris, CA Sch Dist Ctfs Partn Rfdg
(FSA Insd)........................... 6.100 03/01/16 1,095,280
1,000 Pinole, CA Redev Agy Tax Alloc Pinole
Vista Redev Proj A Rfdg (MBIA
Insd)................................ 5.000 08/01/17 1,005,950
1,000 Pittsburg, CA Uni Sch Dist Ctfs Partn
(Prerefunded @ 09/01/03) (AMBAC
Insd)................................ 6.300 09/01/15 1,126,040
1,250 Placer Cnty, CA Ctfs Partn Juvenile
Detention Fac Rfdg (MBIA Insd)....... 5.000 07/01/25 1,236,388
1,360 Port Hueneme, CA Ctfs Partn Cap Impt
Pgm Rfdg (MBIA Insd)................. 6.000 04/01/19 1,540,921
1,000 Rancho Cucamonga, CA Redev Agy Tax
Alloc Rancho Redev Proj (MBIA
Insd)................................ 7.125 09/01/19 1,035,420
1,235 Rancho Cucamonga, CA Redev Agy Tax
Alloc Rancho Redev Proj (MBIA
Insd)................................ 6.750 09/01/20 1,276,842
1,680 Rancho, CA Wtr Dist Spl Tax Cmnty Fac
Dist 883 Ser A Rfdg (AMBAC Insd)..... 6.000 09/01/17 1,829,033
1,000 Redding, CA Elec Sys Rev Ctfs Partn
(Inverse Fltg) (MBIA Insd)........... 9.319 07/08/22 1,303,750
2,000 Redlands, CA Redev Agy Tax Alloc
Redev Proj Ser A Rfdg (MBIA Insd).... 4.750 08/01/21 1,923,940
</TABLE>
See Notes to Financial Statements
14
<PAGE> 119
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 2,000 Rialto, CA Spl Tax Cmnty Fac Dist
87-1 Rfdg (FSA Insd)................. 5.625% 09/01/18 $ 2,126,080
1,000 Richgrove Elem Sch Dist CA Ctfs Partn
Construction Refin Proj (FSA Insd)... 5.300 12/01/28 1,031,150
3,000 Riverside Cnty, CA Ctfs Partn
Historic Courthouse Proj (MBIA
Insd)................................ 5.875 11/01/27 3,278,940
1,070 Riverside, CA Elec Rev Rfdg (AMBAC
Insd)................................ 5.000 10/01/18 1,075,115
2,870 Riverside, CA Redev Agy Tax Alloc
Casa Blanca Redev Ser A (AMBAC Insd)
(a).................................. 5.000 08/01/25 2,830,509
1,755 Rohnert Pk CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd)....... * 08/01/31 324,921
1,755 Rohnert Pk CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd)....... * 08/01/33 291,172
1,755 Rohnert Pk CA Cmnty Dev Agy Tax Alloc
Rohnert Redev Proj (MBIA Insd)....... * 08/01/35 260,389
1,000 Roseville, CA Fin Auth Loc Agy Rev
Northeast Cmnty Fac Dist Bond Ser A
Rfdg (FSA Insd)...................... 5.000 09/01/21 994,750
1,000 Sacramento Cnty, CA Arpt Sys Rev Pfc
Sub Ser B Rfdg (FGIC Insd)........... 5.000 07/01/18 1,002,910
2,000 Sacramento, CA Muni Util Dist Elec
Rev Ser A Rfdg (MBIA Insd)........... 5.750 08/15/13 2,114,140
1,000 Salinas, CA San Swr Sys Rev (FGIC
Insd)................................ 5.000 08/01/20 996,680
2,500 San Bernardino Cnty, CA Ctfs Partn
Ser B (Embedded Swap) (MBIA Insd).... 7.700 07/01/16 2,687,950
2,000 San Diego Cnty, CA Wtr Rev Ctfs Ser A
(FGIC Insd).......................... 4.750 05/01/18 1,954,520
1,000 San Diego, CA Indl Dev Rev San Diego
Gas & Elec Ser A (MBIA Insd)......... 6.400 09/01/18 1,093,870
3,000 San Diego, CA Pub Fac Fin Auth Swr
Rev Ser A (FGIC Insd)................ 5.000 05/15/29 2,965,290
1,000 San Dimas, CA Redev Agy Tax Alloc
Creative Growth Ser A (FSA Insd)..... 5.000 09/01/16 1,013,430
1,110 San Francisco, CA St Bldg Auth Lease
Rev (AMBAC Insd)..................... 5.250 12/01/16 1,149,494
</TABLE>
See Notes to Financial Statements
15
<PAGE> 120
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 1,000 San Gabriel, CA Uni Sch Dist Ctfs
Partn (FSA Insd)..................... 6.000% 09/01/15 $ 1,087,550
7,050 San Joaquin Hills, CA Tran Corridor
Agy Toll Rd Rev Ser A Rfdg (MBIA
Insd)................................ 5.375 01/15/29 7,299,076
5,000 San Joaquin Hills, CA Trns Corridor
Agy Toll Rd Rev Cap Apprec Ser A Rfdg
(MBIA Insd).......................... * 01/15/30 1,011,250
5,750 San Jose, CA Fin Auth Rev Convention
Proj Ser C (FSA Insd)................ 6.375 09/01/13 6,204,997
1,750 San Jose, CA Redev Agy Tax Alloc
Merged Area Redev Proj (AMBAC
Insd)................................ 5.000 08/01/31 1,729,140
2,000 Santa Ana, CA Uni Sch Dist Ctfs Part
Fin Proj Ser A (FSA Insd)............ 5.000 04/01/18 2,009,240
2,000 Santa Clara Cnty, CA Fin Auth Lease
Rev Ser A Rfdg (AMBAC Insd).......... 5.750 11/15/13 2,237,080
1,000 Santa Clara Cnty, CA Fin Auth Lease
Rev VMC Fac Replacement Proj Ser A
(Prerefunded @ 11/15/04) (AMBAC Insd)
(b).................................. 6.875 11/15/14 1,174,660
1,000 Santa Clara, CA Redev Agy Tax Alloc
Bayshore North Proj Rfdg (AMBAC
Insd)................................ 7.000 07/01/10 1,205,520
1,000 Santa Fe Springs, CA Cmnty Dev Commn
Tax Alloc Cons Redev Proj Ser A Rfdg
(MBIA Insd).......................... 5.000 09/01/17 1,006,010
1,000 Shasta Lake, CA Ctfs Partn (FSA
Insd)................................ 6.000 04/01/16 1,092,040
1,990 South Cnty, CA Regl Wastewtr Auth Rev
Regl Wastewtr Fac Proj Ser A (FGIC
Insd)................................ 6.000 08/01/14 2,155,289
3,735 South Orange Cnty, CA Pub Fin Auth
Spl Tax Rev Sr Lien Ser A Rfdg (MBIA
Insd)................................ 7.000 09/01/08 4,542,918
3,000 South Orange Cnty, CA Pub Fin Auth
Spl Tax Rev Sr Lien Ser A Rfdg (MBIA
Insd)................................ 7.000 09/01/09 3,684,150
1,050 Stockton, CA Rev Ctfs Partn Wastewtr
Treatment Plant Expansion Ser A
(Prerefunded @ 09/01/04) (FGIC
Insd)................................ 6.400 09/01/07 1,206,020
1,015 Stockton, CA Rev Ctfs Partn Wastewtr
Treatment Plant Expansion Ser A
(Prerefunded @ 09/01/04) (FGIC
Insd)................................ 6.500 09/01/08 1,170,762
570 Temecula Vly, CA Uni Sch Dist Ctfs
Partn Rfdg (FSA Insd)................ 6.000 09/01/18 621,562
</TABLE>
See Notes to Financial Statements
16
<PAGE> 121
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA MUNICIPAL BONDS
(CONTINUED)
$ 2,000 Torrance, CA Hosp Rev Torrance Mem
Hosp Rfdg (MBIA Insd)................ 6.750% 01/01/12 $ 2,035,000
------------
TOTAL LONG-TERM INVESTMENTS 97.7%
(Cost $197,065,294)................................................ 212,433,239
SHORT-TERM INVESTMENTS 4.7%
(Cost $10,200,000)................................................. 10,200,000
------------
TOTAL INVESTMENTS 102.4%
(Cost $207,265,294)................................................ 222,633,239
LIABILITIES IN EXCESS OF OTHER ASSETS (2.4%)........................ (5,177,871)
------------
NET ASSETS 100.0%................................................... $217,455,368
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
17
<PAGE> 122
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $207,265,294)....................... $222,633,239
Cash........................................................ 86,828
Receivables:
Interest.................................................. 2,192,944
Fund Shares Sold.......................................... 272,416
Other....................................................... 16,964
------------
Total Assets.......................................... 225,202,391
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,931,596
Fund Shares Repurchased................................... 1,056,382
Income Distributions...................................... 323,472
Distributor and Affiliates................................ 152,109
Investment Advisory Fee................................... 85,910
Trustees' Deferred Compensation and Retirement Plans........ 158,215
Accrued Expenses............................................ 39,339
------------
Total Liabilities..................................... 7,747,023
------------
NET ASSETS.................................................. $217,455,368
============
NET ASSETS CONSIST OF:
Capital..................................................... $203,750,456
Net Unrealized Appreciation................................. 15,367,945
Accumulated Distributions in Excess of Net Investment
Income.................................................... (40,713)
Accumulated Net Realized Loss............................... (1,622,320)
------------
NET ASSETS.................................................. $217,455,368
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $163,439,804 and 8,854,508 shares of
beneficial interest issued and outstanding)............. $ 18.46
Maximum sales charge (3.25%* of offering price)......... .62
------------
Maximum offering price to public........................ $ 19.08
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $46,420,050 and 2,516,943 shares of
beneficial interest issued and outstanding)............. $ 18.44
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $7,595,514 and 411,946 shares of
beneficial interest issued and outstanding)............. $ 18.44
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
18
<PAGE> 123
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.................................................... $ 5,507,247
----------------
EXPENSES:
Investment Advisory Fee..................................... 484,867
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $187,499, $218,027 and $30,304,
respectively)............................................. 435,830
Shareholder Services........................................ 69,119
Trustees' Fees and Expenses................................. 11,244
Legal....................................................... 10,692
Custody..................................................... 2,586
Insurance................................................... 1,885
Other....................................................... 93,793
----------------
Total Expenses.......................................... 1,110,016
----------------
NET INVESTMENT INCOME....................................... $ 4,397,231
================
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 485,442
Futures................................................... 80,325
----------------
Net Realized Gain........................................... 565,767
----------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 19,038,988
End of the Period:
Investments............................................. 15,367,945
----------------
Net Unrealized Depreciation During the Period............... (3,671,043)
----------------
NET REALIZED AND UNREALIZED LOSS............................ $ (3,105,276)
================
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,291,955
================
See Notes to Financial Statements
19
<PAGE> 124
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, the Nine Months Ended
September 30, 1999 and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................ $ 4,397,231 $ 6,106,945 $ 8,171,627
Net Realized Gain.................... 565,767 1,695,395 1,186,738
Net Unrealized
Appreciation/Depreciation During
the Period......................... (3,671,043) 3,409,163 4,996,359
------------ ------------ ------------
Change in Net Assets from
Operations......................... 1,291,955 11,211,503 14,354,724
------------ ------------ ------------
Distributions from Net Investment
Income............................. (4,649,766) (6,340,558) (7,894,819)
Distributions in Excess of Net
Investment Income.................. (40,713) -0- -0-
------------ ------------ ------------
Total Distributions from and in
Excess of Net Investment Income*... (4,690,479) (6,340,558) (7,894,819)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.............. (3,398,524) 4,870,945 6,459,905
------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............ 56,602,823 29,485,437 21,168,004
Net Asset Value of Shares Issued
Through Dividend Reinvestment...... 2,804,940 3,827,238 4,809,591
Cost of Shares Repurchased........... (34,448,004) (17,753,835) (30,260,768)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS....................... 24,959,759 15,558,840 (4,283,173)
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS......... 21,561,235 20,429,785 2,176,732
NET ASSETS:
Beginning of the Period.............. 195,894,133 175,464,348 173,287,616
------------ ------------ ------------
End of the Period (Including
accumulated undistributed net
investment income of $(40,713),
$252,535 and $486,148,
respectively)...................... $217,455,368 $195,894,133 $175,464,348
============ ============ ============
* DISTRIBUTIONS BY CLASS
Distributions from and in Excess of
Net Investment Income:
Class A Shares....................... $ (3,685,610) $ (5,158,867) $ (6,593,552)
Class B Shares....................... (882,120) (1,050,450) (1,190,355)
Class C Shares....................... (122,749) (131,241) (110,912)
------------ ------------ ------------
$ (4,690,479) $ (6,340,558) $ (7,894,819)
============ ============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 125
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 Nine Months Ended -------------------------------------
Class A Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $18.768 $18.294 $17.605 $17.736 $15.802 $18.286
------- ------- ------- ------- ------- -------
Net Investment Income... .415 .638 .880 .857 .884 .912
Net Realized and
Unrealized
Gain/Loss............. (.284) .498 .658 (.145) 1.938 (2.484)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ .131 1.136 1.538 .712 2.822 (1.572)
Less Distributions from
and in Excess of Net
Investment Income..... .441 .662 .849 .843 .888 .912
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $18.458 $18.768 $18.294 $17.605 $17.736 $15.802
======= ======= ======= ======= ======= =======
Total Return* (a)....... .71%** 6.38%** 8.93% 4.20% 18.28% (8.75%)
Net Assets at End of the
Period (In
millions)............. $ 163.4 $ 151.0 $ 140.7 $ 142.5 $ 147.6 $ 130.3
Ratio of Expenses to
Average Net Assets*... .90% .88% .96% 1.02% .89% .78%
Ratio of Net Investment
Income to Average Net
Assets*............... 4.49% 4.66% 4.96% 4.94% 5.23% 5.46%
Portfolio Turnover...... 18%** 21%** 46% 35% 42% 56%
* If certain expenses had
not been reimbursed by
Van Kampen, total return
would have been lower and
the ratios would have been
as follows:
Ratio of Expenses to
Average Net Assets.... N/A N/A N/A 1.03% 1.05% 1.08%
Ratio of Net Investment
Income to Average Net
Assets................ N/A N/A N/A 4.94% 5.07% 5.16%
</TABLE>
** Non-Annualized.
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
21
<PAGE> 126
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 Nine Months Ended -------------------------------------
Class B Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $18.758 $18.289 $17.603 $17.736 $15.805 $18.266
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .343 .526 .741 .720 .766 .785
Net Realized and
Unrealized
Gain/Loss........... (.283) .506 .662 (.142) 1.926 (2.482)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.......... .060 1.032 1.403 .578 2.692 (1.697)
Less Distributions
from and in Excess
of Net Investment
Income.............. .375 .563 .717 .711 .761 .764
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period....... $18.443 $18.758 $18.289 $17.603 $17.736 $15.805
======= ======= ======= ======= ======= =======
Total Return* (a)..... .30%** 5.76%** 8.19% 3.35% 17.33% (9.39%)
Net Assets at End of
the Period (In
millions)........... $ 46.4 $ 40.1 $ 31.0 $ 28.6 $ 24.6 $ 17.1
Ratio of Expenses to
Average Net
Assets*............. 1.66% 1.64% 1.72% 1.79% 1.61% 1.52%
Ratio of Net
Investment Income to
Average Net
Assets*............. 3.72% 3.89% 4.18% 4.17% 4.51% 4.71%
Portfolio Turnover.... 18%** 21%** 46% 35% 42% 56%
* If certain expenses had
not been reimbursed by
Van Kampen, total return
would have been lower and
the ratios would have been
as follows:
Ratio of Expenses to
Average Net
Assets.............. N/A N/A......... N/A 1.79% 1.77% 1.82%
Ratio of Net
Investment Income to
Average Net
Assets.............. N/A N/A......... N/A 4.16% 4.35% 4.41%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
22
<PAGE> 127
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 Nine Months Ended -------------------------------------
Class C Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $18.754 $18.286 $17.602 $17.736 $15.798 $18.257
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .352 .529 .727 .722 .758 .773
Net Realized and
Unrealized
Gain/Loss........... (.293) .502 .674 (.145) 1.941 (2.468)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.......... .059 1.031 1.401 .577 2.699 (1.695)
Less Distributions
from and in Excess
of Net Investment
Income.............. .375 .563 .717 .711 .761 .764
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period....... $18.438 $18.754 $18.286 $17.602 $17.736 $15.798
======= ======= ======= ======= ======= =======
Total Return* (a)..... .35%** 5.70** 8.19% 3.35% 17.40% (9.40%)
Net Assets at End of
the Period (In
millions)........... $ 7.6 $ 4.8 $ 3.8 $ 2.2 $ 1.8 $ 2.8
Ratio of Expenses to
Average Net
Assets*............. 1.65% 1.63% 1.71% 1.79% 1.60% 1.51%
Ratio of Net
Investment Income to
Average Net
Assets*............. 3.69% 3.87% 4.15% 4.16% 4.50% 4.71%
Portfolio Turnover.... 18%** 21%** 46% 35% 42% 56%
*If certain expenses had
not been reimbursed by
Van Kampen, total return
would have been lower and
the ratios would have been
as follows:
Ratio of Expenses to
Average Net
Assets.............. N/A N/A N/A 1.80% 1.75% 1.82%
Ratio of Net
Investment Income to
Average Net
Assets.............. N/A N/A N/A 4.16% 4.34% 4.39%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
23
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen California Insured Tax Free Fund (the "Fund") is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide California investors with a high level of current income exempt from
federal and California income taxes, with liquidity and safety of principal,
primarily through investment in a diversified portfolio of insured California
municipal securities. The Fund commenced investment operations on December 13,
1985. The distribution of the Fund's Class B shares and Class C shares commenced
on May 1, 1993 and August 13, 1993, respectively. In July, 1998, the Fund's
Board of Trustees approved a change in the Fund's fiscal year end from December
31 to September 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
24
<PAGE> 129
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the Federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $2,188,087, which will expire between September
30, 2002 and September 30, 2003.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $207,265,294; the aggregate gross unrealized
appreciation is $15,616,202 and the aggregate gross unrealized depreciation is
$248,257, resulting in net unrealized appreciation on long- and short-term
investments of $15,367,945.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
F. INSURANCE EXPENSE--The Fund typically invests in insured bonds. Any portfolio
securities not specifically covered by a primary insurance policy are insured
secondarily through the Fund's portfolio insurance policy. Insurance premiums
are based on the daily balances of uninsured bonds in the portfolio of
investments and are charged to expense on an accrual basis. The insurance policy
guarantees the timely payment of principal and interest on the securities in the
Fund's portfolio.
25
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 $100 million.................................... .500 of 1%
Next $150 million..................................... .450 of 1%
Next $250 million..................................... .425 of 1%
Over $500 million..................................... .400 of 1%
</TABLE>
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $5,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $45,500 representing Van Kampen Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
March 31, 1999, the Fund recognized expenses of approximately $49,100. 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.
26
<PAGE> 131
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 March 31, 1999, capital aggregated $150,618,131, $45,273,695 and
$7,858,630 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 2,401,190 $ 44,517,630
Class B..................................... 484,610 9,002,979
Class C..................................... 166,156 3,082,214
---------- ------------
Total Sales................................... 3,051,956 $ 56,602,823
========== ============
Dividend Reinvestment:
Class A..................................... 116,239 $ 2,158,370
Class B..................................... 30,682 569,233
Class C..................................... 4,170 77,337
---------- ------------
Total Dividend Reinvestment................... 151,091 $ 2,804,940
========== ============
Repurchases:
Class A..................................... (1,706,181) $(31,624,664)
Class B..................................... (138,955) (2,575,570)
Class C..................................... (13,352) (247,770)
---------- ------------
Total Repurchases............................. (1,858,488) $(34,448,004)
========== ============
</TABLE>
27
<PAGE> 132
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $135,566,795, $38,277,053 and
$4,946,849 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 896,618 $ 16,459,740
Class B..................................... 595,781 10,920,471
Class C..................................... 114,887 2,105,226
--------- ------------
Total Sales................................... 1,607,286 $ 29,485,437
========= ============
Dividend Reinvestment:
Class A..................................... 167,488 $ 3,075,115
Class B..................................... 37,047 680,216
Class C..................................... 3,916 71,907
--------- ------------
Total Dividend Reinvestment................... 208,451 $ 3,827,238
========= ============
Repurchases:
Class A..................................... (709,317) $(13,003,362)
Class B..................................... (188,629) (3,456,135)
Class C..................................... (70,739) (1,294,338)
--------- ------------
Total Repurchases............................. (968,685) $(17,753,835)
========= ============
</TABLE>
28
<PAGE> 133
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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>
29
<PAGE> 134
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $16,600 and CDSC on redeemed shares of approximately $14,600.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $60,023,220 and
$35,942,206, 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).
30
<PAGE> 135
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended March 31, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... -0-
Futures Opened............................................ 250
Futures Closed............................................ (250)
----
Outstanding at March 31, 1999............................. -0-
====
</TABLE>
B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended March 31, 1999, are payments retained by Van Kampen of
approximately $183,700.
31
<PAGE> 136
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After August 31, 1999, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
32
<PAGE> 137
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 138
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.............. 40
Statement of Operations.......................... 41
Statement of Changes in Net Assets............... 42
Financial Highlights............................. 43
Notes to Financial Statements.................... 46
</TABLE>
MIF SAR 5/99
<PAGE> 139
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 140
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG.]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory
Corp.
[SIG.]
Dennis J. McDonnell 2
President
Van Kampen Investment Advisory
Corp.
<PAGE> 141
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
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)... (0.23%) (0.59%) (0.59%)
Six-month total return(2)................ (4.98%) (4.48%) (1.56%)
One-year total return(2)................. (0.69%) (0.46%) 2.44%
Five-year average annual total
return(2)................................ 5.79% 5.82% 5.99%
Life-of-Fund average annual total
return(2)................................ 6.85% 5.39% 4.51%
Commencement date........................ 08/01/90 08/24/92 08/13/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 5.19% 4.71% 4.72%
Taxable-equivalent distribution
rate(4).................................. 8.11% 7.36% 7.38%
SEC Yield(5)............................. 4.32% 3.74% 3.75%
</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 March 31, 1999.
Income may subject certain individuals to the federal alternative minimum tax.
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> 142
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 143
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 144
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN MUNICIPAL INCOME FUND
We recently spoke with the management team of the Van Kampen Municipal Income
Fund about the key events and economic forces that shaped the markets during the
reporting period. The team includes David C. Johnson, portfolio manager, and
Peter W. Hegel, chief investment officer for fixed-income investments. The
following interview discusses the Fund's performance during the six months ended
March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 145
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A Our acquisitions focused on bonds with AAA and BBB credit ratings, which
represent the highest and lowest ends of the investment-grade credit
quality spectrum. As a result, we sold some of our holdings with credit
ratings in the middle of the investment-grade range (AA and A bonds). We chose
lower-rated bonds whose credit quality appeared strong because they offered
competitive yields, and we balanced them with top-quality AAA bonds to help
moderate the Fund's credit risk. In addition, most of our purchases were bonds
with 15 to 20 year maturities because we felt they offered the most value
compared to other maturity ranges. We would have received little incremental
yield for assuming the additional interest rate risk associated with purchasing
longer-maturity bonds. For additional portfolio highlights, please refer to page
9.
Q WHERE DID YOU FIND VALUE IN THE MUNICIPAL MARKET?
A We found value in sectors that are undergoing rapid transitions--areas
like health care and electric utilities. This changing environment allowed
us to take advantage of our research capabilities to seek out those
issuers we felt have the potential to perform well as their industries are
transformed. Health care remained the Fund's largest sector, representing 16.5
percent of the portfolio at the end of the reporting period.
In addition, we looked for areas of the municipal marketplace where a
large number of issues had temporarily reduced bond prices. For example, smaller
states often don't have enough demand to immediately absorb a large volume of
new bonds. We took advantage of those situations to purchase bonds at
below-market prices, and then sold them once the issues had been absorbed and
prices had risen.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A During the past six months, the Fund generated a total return of -0.23
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 1.49 percent over
the same period. This index is a broad-based statistical composite of municipal
bonds and does not reflect any commissions or sales charges that would be paid
by an investor purchasing the securities or investments it represents. The
Fund's tax-exempt distribution rate of 5.19 percent(3) translates into a
taxable-equivalent yield of 8.11 percent(4) for an investor in the 36 percent
federal income tax bracket. The Fund's monthly dividend of $.0705 per Class A
share was unchanged during the reporting period. Past performance does not
guarantee future results. Please refer to the chart and footnotes on page 3 for
additional Fund performance results.
7
<PAGE> 146
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
[SIG.]
David C. Johnson
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 147
PORTFOLIO HIGHLIGHTS
VAN KAMPEN MUNICIPAL INCOME FUND
TOP TEN STATES AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
New York ...................... 9.4%
Illinois ...................... 8.5%
Texas ......................... 8.3%
Florida ....................... 8.3%
California .................... 6.5%
Pennsylvania .................. 5.0%
Colorado ...................... 4.8%
Virginia ...................... 3.4%
New Jersey .................... 3.2%
Georgia ....................... 3.0%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF SEPTEMBER 30, 1998
<S> <C> <C> <C>
AAA............... 47.9% AAA............... 44.4%
AA................ 6.1% AA................ 5.4%
A................. 9.2% [PIE CHART] A................. 13.0% [PIE CHART]
BBB............... 12.1% BBB............... 14.4%
BB................ 1.0% BB................ 0.7%
Non-Rated......... 23.7% Non-Rated......... 22.1%
</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 MARCH 31, 1999 AS OF SEPTEMBER 30, 1998
<S> <C> <S> <C>
Health Care ............... 16.5% Health Care ............... 15.7%
Industrial Revenue ........ 12.3% Industrial Revenue ........ 11.6%
General Purpose ........... 11.3% Public Building ........... 11.2%
Public Building ........... 8.1% General Purpose ........... 9.4%
Transportation ............ 6.6% Transportation ............ 7.8%
</TABLE>
9
<PAGE> 148
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 101.9%
ALABAMA 2.0%
$ 2,100 Alabama St Indl Dev Auth Rev
UNR-ROHN Inc Expansion Proj...... 7.500% 09/15/11 $ 2,315,775
2,930 Alabama Wtr Pollutn Ctl Auth
Revolving Fund Ln Ser A (AMBAC
Insd) (b)........................ 6.750 08/15/17 3,294,111
525 Bessemer, AL Indl Dev Brd ROHN
Inc Proj......................... 9.000 09/15/01 553,497
1,750 Bessemer, AL Indl Dev Brd ROHN
Inc Proj......................... 9.500 09/15/11 2,152,185
2,000 Mobile, AL Indl Dev Brd Pollutn
Ctl Rev International Paper Co
Proj Rfdg (b).................... 4.750 04/01/10 1,971,880
250 Mobile, AL Indl Dev Brd Solid
Waste Disp Rev Mobile Energy Svcs
Co Proj Rfdg..................... 6.950 01/01/20 87,500
1,000 Montgomery, AL Med Clinic Brd
Jackson Hosp & Clinic (AMBAC
Insd)............................ 5.875 03/01/16 1,070,820
2,000 West Jefferson Cnty, AL Amusement
& Pub Pk Auth First Mtg
Visionland Proj.................. 6.375 02/01/29 2,011,580
5,150 West Jefferson Cnty, AL Amusement
& Pub Pk Auth First Mtg
Visionland Proj (Prerefunded @
12/01/06)........................ 8.000 12/01/26 6,521,651
------------
19,978,999
------------
ALASKA 1.5%
2,500 Alaska Energy Auth Pwr Rev
Bradley Lake Proj Ser 1 (BIGI
Insd) (b)........................ 6.250 07/01/21 2,519,650
1,250 Alaska Indl Dev & Expt Auth Pwr
Rev Snettisham Hydroelec First
Ser (AMBAC Insd)................. 5.500 01/01/16 1,299,850
1,260 Alaska Indl Dev & Expt Auth Pwr
Rev Snettisham Hydroelec First
Ser (AMBAC Insd)................. 5.500 01/01/17 1,304,591
1,000 Alaska Indl Dev & Expt Auth Pwr
Rev Upper Lynn Canal Regl Pwr.... 5.700 01/01/12 986,640
1,800 Alaska Indl Dev & Expt Auth Pwr
Rev Upper Lynn Canal Regl Pwr.... 5.875 01/01/32 1,772,784
6,500 North Slope Borough, AK Cap
Apprec Ser A (MBIA Insd)......... * 06/30/09 4,053,725
</TABLE>
See Notes to Financial Statements
10
<PAGE> 149
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ALASKA (CONTINUED)
$ 3,265 North Slope Borough, AK Cap
Apprec Ser A (MBIA Insd)......... * 06/30/10 $ 1,925,403
1,000 Valdez, AK Marine Term Rev Sohio
Pipeline Rfdg.................... 7.125% 12/01/25 1,103,470
------------
14,966,113
------------
ARIZONA 2.7%
1,000 Maricopa Cnty, AZ Indl Dev Auth
Multi-Family Hsg Rev Rfdg........ 6.500 07/01/09 1,072,800
3,720 Mesa, AZ Indl Dev Auth Rev
Lutheran Hlth Sys Ser A Rfdg
(MBIA Insd)...................... 5.250 01/01/11 3,882,862
2,545 Mesa, AZ Indl Dev Auth Rev
Lutheran Hlth Sys Ser A Rfdg
(MBIA Insd)...................... 5.250 01/01/12 2,641,201
590 Pima Cnty, AZ Indl Dev Auth
Single Family Mtg Rev (GNMA
Collateralized).................. 6.625 11/01/14 627,200
5,220 Pinal Cnty, AZ Sch Dist No 8
Mammoth Ser A.................... 9.500 07/01/10 5,697,891
500 Scottsdale, AZ Indl Dev Auth Rev
First Mtg Westminster Vlg Ser A
Rfd.............................. 8.250 06/01/15 562,780
1,875 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)..................... 6.000 09/01/12 2,060,531
1,750 Scottsdale, AZ Indl Dev Hosp
Scottsdale Mem Hosp Ser A Rfdg
(AMBAC Insd)..................... 6.125 09/01/17 1,921,517
1,000 Sedona, AZ Wastewtr Muni Ppty
Corp Excise Tax Rev Rfdg (MBIA
Insd)............................ * 07/01/23 296,260
7,000 Tucson, AZ Arpt Auth Inc Spl Fac
Rev Lockheed Aermod Cent Inc..... 8.700 09/01/19 7,554,190
------------
26,317,232
------------
ARKANSAS 0.9%
5,090 Dogwood Addition PRD Muni Ppty
Owners Multi-Purp Impt Dist No 8
AR Impt
Ser A (d)........................ 7.500 01/31/06 4,886,400
5,470 Dogwood Addition PRD Muni Ppty
Owners Multi-Purp Impt Dist No 8
AR Impt
Ser B (d)........................ 7.500 01/31/06 1,641,000
</TABLE>
See Notes to Financial Statements
11
<PAGE> 150
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ARKANSAS (CONTINUED)
$ 1,925 Jackson Cnty, AR Hlthcare Fac Brd
First Mtg Hosp Rev Newport Hosp &
Clinic Inc....................... 7.375% 11/01/11 $ 1,994,666
------------
8,522,066
------------
CALIFORNIA 6.6%
7,750 Alameda Corridor Tran Auth CA Rev
Ser 1999 A (MBIA Insd)........... * 10/01/31 1,431,502
8,945 Anaheim, CA Pub Fin Auth Lease
Rev Cap Apprec Sub Pub Impts Proj
C (FSA Insd)..................... * 09/01/21 2,830,735
5,105 California Edl Fac Auth Rev
College of Osteopathic Med
Pacific (Prerefunded @ 06/01/03)
(b).............................. 7.500 06/01/18 5,831,901
2,880 California Edl Fac Auth Rev Univ
of La Verne...................... 6.300 04/01/09 3,077,194
4,225 Delano, CA Ctfs Partn Ser A
(Prerefunded @ 01/01/03)......... 9.250 01/01/22 5,159,147
2,660 Escondido, CA Jt Pwrs Fin Auth
Lease Rev (AMBAC Insd)........... * 09/01/10 1,479,519
5,875 Escondido, CA Jt Pwrs Fin Auth
Lease Rev (AMBAC Insd)........... * 09/01/11 3,042,545
3,890 Escondido, CA Jt Pwrs Fin Auth
Lease Rev (AMBAC Insd)........... * 09/01/13 1,745,949
5,430 Escondido, CA Jt Pwrs Fin Auth
Lease Rev (AMBAC Insd)........... * 09/01/14 2,263,713
895 Fairfield, CA Hsg Auth Mtg Rev
Creekside Estates Proj Rfdg
(Prerefunded @ 08/01/02)......... 7.875 02/01/15 1,031,684
2,825 Midpeninsula Regl Dist CA Fin
Auth Rev (AMBAC Insd)............ * 09/01/15 1,264,866
1,155 Midpeninsula Regl Open Space Dist
CA Fin Auth Rev Cap Apprec (AMBAC
Insd)............................ * 09/01/19 409,401
1,265 Midpeninsula Regl Open Space Dist
CA Fin Auth Rev Cap Apprec (AMBAC
Insd)............................ * 09/01/22 379,778
1,380 Midpeninsula Regl Open Space Dist
CA Fin Auth Rev Cap Apprec (AMBAC
Insd)............................ * 09/01/25 353,473
3,500 Midpeninsula Regl Open Space Dist
CA Fin Auth Rev Cap Apprec (AMBAC
Insd)............................ * 09/01/25 873,250
</TABLE>
See Notes to Financial Statements
12
<PAGE> 151
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 900 Monterey, CA Regl Wastewtr Fin
Auth Wastewtr Contract Rev (FSA
Insd)............................ * 06/01/10 $ 533,925
800 Monterey, CA Regl Wastewtr Fin
Auth Wastewtr Contract Rev (FSA
Insd)............................ * 06/01/11 445,328
700 Monterey, CA Regl Wastewtr Fin
Auth Wastewtr Contract Rev (FSA
Insd)............................ * 06/01/12 366,338
700 Monterey, CA Regl Wastewtr Fin
Auth Wastewtr Contract Rev (FSA
Insd)............................ * 06/01/13 343,252
700 Monterey, CA Regl Wastewtr Fin
Auth Wastewtr Contract Rev (FSA
Insd)............................ * 06/01/14 322,868
4,000 Riverside Cnty, CA Air Force Vlg
West Inc
Ser A Rfdg....................... 8.125% 06/15/20 4,364,680
15,920 San Joaquin Hills, CA Tran
Corridor Agy Toll Rd Rev Cap
Apprec Ser A Rfdg (MBIA Insd).... * 01/15/25 4,237,426
10,425 San Mateo Cnty, CA Tran Dist Ser
A (MBIA Insd).................... 4.500 06/01/17 9,932,523
10,895 San Mateo Cnty, CA Tran Dist Ser
A (MBIA Insd).................... 4.500 06/01/18 10,311,246
2,000 Santa Ana, CA Cmnty Redev Agy Tax
Alloc Ser B Rfdg................. 7.500 09/01/16 2,059,040
------------
64,091,283
------------
COLORADO 4.9%
2,840 Adams Cnty, CO Single Family Mtg
Rev Ser A........................ 8.875 08/01/10 3,911,873
3,985 Adams Cnty, CO Single Family Mtg
Rev Ser A........................ 8.875 08/01/12 5,599,443
10,500 Arapahoe Cnty, CO Cap Impt Trust
Fund Hwy Rev E-470 Proj Ser C
(Prerefunded @ 08/31/05)......... * 08/31/26 1,675,695
300 Berry Creek Metro Dist CO Rfdg &
Impt............................. 8.250 12/01/11 324,354
200 Berry Creek Metro Dist CO Rfdg &
Impt (Prerefunded @ 12/01/01).... 8.250 12/01/11 225,444
987 Bowles Metro Dist CO (Prerefunded
@ 12/01/05)...................... 7.750 12/01/15 1,187,223
2,000 Denver, CO City & Cnty Arpt Rev
Ser A (b)........................ 7.000 11/15/99 2,042,580
</TABLE>
See Notes to Financial Statements
13
<PAGE> 152
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 7,810 Denver, CO City & Cnty Arpt Rev
Ser A (b)........................ 8.500% 11/15/23 $ 8,436,206
4,570 Denver, CO City & Cnty Arpt Rev
Ser A (b)........................ 8.000 11/15/25 4,901,096
2,200 Denver, CO City & Cnty Spl Fac
Arpt Rev United Airls Proj Ser
A................................ 6.875 10/01/32 2,350,018
1,000 Edgewater, CO Redev Auth Tax
Increment Rev.................... 6.750 12/01/08 1,081,410
1,320 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd)...... * 12/15/14 572,735
1,420 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd)...... * 12/15/15 578,479
1,420 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd)...... * 12/15/16 540,594
1,330 El Paso Cnty, CO Sch Dist No 003
Widefield Ser A (MBIA Insd)...... * 12/15/18 442,877
3,690 Jefferson Cnty, CO Residential
Mtg Rev.......................... 11.500 09/01/12 6,142,706
5,000 Meridian Metro Dist CO Peninsular
& Oriental Steam Navig Co Rfdg
(b).............................. 7.500 12/01/11 5,434,050
1,960 Northern Metro Dist CO Adams Cnty
Rfdg............................. 6.500 12/01/16 2,097,592
------------
47,544,375
------------
CONNECTICUT 1.8%
5,005 Connecticut St Hlth & Edl Fac
Auth Rev Nursing Home Pgm
AHF/Hartford (Prerefunded @
11/01/04) (b).................... 7.125 11/01/14 5,867,612
495 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144A -- Private
Placement (a).................... 6.500 09/01/06 571,492
2,530 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144A -- Private
Placement (a).................... 6.400 09/01/11 2,782,191
</TABLE>
See Notes to Financial Statements
14
<PAGE> 153
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <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 $ 2,879,748
4,000 Mashantucket Western Pequot Tribe
CT Spl Rev Ser B, 144A -- Private
Placement (a).................... 5.750 09/01/18 4,124,680
1,500 Mashantucket Western Pequot Tribe
CT Spl Rev Ser B, 144A -- Private
Placement (a).................... 5.750 09/01/27 1,541,940
------------
17,767,663
------------
DISTRICT OF COLUMBIA 0.3%
2,500 District of Columbia Rev Natl Pub
Radio
Ser A (b)........................ 7.700 01/01/23 2,702,175
------------
FLORIDA 8.4%
430 Atlantic Beach, FL Rev Fleet
Landing Proj Ser A Rfdg & Impt... 7.500 10/01/02 447,415
500 Atlantic Beach, FL Rev Fleet
Landing Proj Ser A Rfdg & Impt... 7.875 10/01/08 560,125
1,490 Broward Cnty, FL Res Recovery Rev
Waste Energy North Proj.......... 7.950 12/01/08 1,570,862
1,950 Broward Cnty, FL Res Recovery Rev
Waste Energy South Proj.......... 7.950 12/01/08 2,055,826
2,500 Cocoa, FL Wtr & Swr Rev Rfdg
(FGIC Insd)...................... 4.500 10/01/22 2,300,775
9,000 Dade Cnty, FL Gtd Entitlement Rev
Cap Apprec Ser A Rfdg (MBIA
Insd)............................ * 02/01/18 3,211,650
1,800 Florida Hsg Fin Corp Rev Hsg
Beacon Hill Apts Ser C........... 6.610 07/01/38 1,821,114
3,000 Florida Hsg Fin Corp Rev Hsg
Cypress Trace Apts Ser G......... 6.600 07/01/38 3,035,220
2,000 Florida Hsg Fin Corp Rev Hsg
Westchase Apts Ser B............. 6.610 07/01/38 2,023,460
560 Florida St Brd Edl Cap Outlay Pub
Edl Ser A Rfdg................... 7.250 06/01/23 593,359
590 Florida St Brd Edl Cap Outlay Pub
Edl Ser A Rfdg (Prerefunded @
06/01/00)........................ 7.250 06/01/23 628,492
4,500 Florida St Brd Edl Cap Outlay Pub
Edl Ser A Rfdg (FGIC Insd)....... 4.500 06/01/23 4,135,860
</TABLE>
See Notes to Financial Statements
15
<PAGE> 154
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 4,845 Hillsborough Cnty, FL Edl Fac
Univ Tampa
Proj Rfdg........................ 5.750% 04/01/18 $ 5,022,569
7,000 Jacksonville, FL Elec Auth Rev
Wtr & Swr Sys Ser A.............. 5.625 10/01/37 7,246,960
2,875 Martin Cnty, FL Indl Dev Auth
Indl Dev Rev Indiantown
Cogeneration Proj Ser A Rfdg
(b).............................. 7.875 12/15/25 2,995,175
50,500 Miami Dade Cnty, FL Spl Oblig Sub
Ser B (MBIA Insd)................ * 10/01/30 9,233,420
1,840 Northern Palm Beach Cnty Impt
Dist FL Wtr Ctl & Impt Unit Dev
5A Rfdg.......................... 6.000 08/01/10 1,880,057
1,500 Orange Cnty, FL Hlth Fac Auth Rev
First Mtg Orlando Lutheran Twr
Rfdg............................. 8.750 07/01/26 1,733,325
595 Orange Cnty, FL Tourist Dev Tax
Rev (AMBAC Insd)................. 6.000 10/01/16 614,213
405 Orange Cnty, FL Tourist Dev Tax
Rev (Prerefunded @ 10/01/00)
(AMBAC Insd)..................... 6.000 10/01/16 421,269
4,140 Sarasota Cnty, FL Hlth Fac Auth
Rev Hlthcare Kobernick/Meadow Pk
(Prerefunded @ 07/01/02) (b)..... 10.000 07/01/22 4,967,172
5,000 Sarasota Cnty, FL Pub Hosp Brd
Miles Sarasota Mem Hosp Proj Ser
A (Embedded Cap) (MBIA Insd)..... * 10/01/21 4,700,450
17,045 Sunrise, FL Util Sys Rev Rfdg
(AMBAC Insd) (b)................. 5.000 10/01/28 16,979,888
2,200 Tallahassee, FL Energy Sys Rev
Ser A Rfdg (FSA Insd)............ 4.750 10/01/26 2,085,270
1,000 Tampa Palms, FL Open Space &
Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj................. 7.500 05/01/18 1,063,000
860 Tampa Palms, FL Open Space &
Transn Cmnty Dev Dist Rev Cap
Impt Area 7 Proj................. 8.500 05/01/17 945,209
------------
82,272,135
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 155
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GEORGIA 3.1%
$ 3,000 Atlanta, GA Arpt Fac Rev (b)..... 6.250% 01/01/21 $ 3,137,220
2,000 Atlanta, GA Urban Residential Fin
Auth Multi-Family Rev Proj Ser
A................................ 6.750 07/01/30 2,031,220
2,000 Fulton Cnty, GA Hsg Auth
Multi-Family Hsg Rev............. 6.500 02/01/28 2,024,580
2,000 George L Smith II GA Wrld
Congress Cent Auth Rev Domed
Stadium Proj Rfdg (MBIA Insd)
(c).............................. 5.500 07/01/20 2,010,260
20,000 Georgia Loc Govt Ctfs Partn
Grantor Trust Ser A (MBIA Insd)
(b).............................. 4.750 06/01/28 19,064,600
1,500 Georgia Muni Elec Auth Pwr Rev
Ser X (MBIA Insd)................ 6.500 01/01/20 1,778,610
------------
30,046,490
------------
HAWAII 2.7%
4,055 Hawaii St Arpts Sys Rev Ser 1993
(MBIA Insd)...................... 6.350 07/01/07 4,488,926
14,100 Hawaii St Dept Budget & Fin Spl
Purp Rev Hawaiian Elec Co (MBIA
Insd) (b)........................ 6.550 12/01/22 15,438,654
2,350 Hawaii St Dept Tran Spl Fac Rev
Continental Airls Inc............ 9.700 06/01/20 2,526,955
1,475 Hawaii St Harbor Cap Impt Rev
(FGIC Insd)...................... 6.350 07/01/07 1,632,840
1,560 Hawaii St Harbor Cap Impt Rev
(FGIC Insd)...................... 6.400 07/01/08 1,729,946
500 Hawaii St Harbor Cap Impt Rev
(MBIA Insd)...................... 7.000 07/01/17 529,190
------------
26,346,511
------------
ILLINOIS 8.7%
4,180 Bedford Park, IL Tax Increment
Rev Sr Lien Bedford City Sq
Proj............................. 9.250 02/01/12 4,711,947
1,350 Bridgeview, IL Tax Increment Rev
Rfdg............................. 9.000 01/01/11 1,550,421
6,590 Broadview, IL Tax Increment Rev
Sr Lien.......................... 8.250 07/01/13 7,432,136
1,000 Chicago, IL Gas Supply Rev Ser
A................................ 8.100 05/01/20 1,064,910
1,000 Chicago, IL Metro Wtr Reclamation
Dist Gtr Chicago................. 7.000 01/01/11 1,219,450
</TABLE>
See Notes to Financial Statements
17
<PAGE> 156
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 4,000 Chicago, IL O'Hare Intl Arpt Spl
Fac Rev United Airls Inc......... 8.500% 05/01/18 $ 4,252,360
4,660 Chicago, IL O'Hare Intl Arpt Spl
Fac Rev United Airls Inc Ser B... 8.950 05/01/18 5,119,057
1,945 Chicago, IL Single Family Mtg Rev
Ser A (GNMA Collateralized)...... 7.000 09/01/27 2,171,768
450 Chicago, IL Tax Increment Alloc
Santn Drain & Ship Canal Ser A... 7.375 01/01/05 476,100
1,000 Chicago, IL Tax Increment Alloc
Santn Drain & Ship Canal Ser A... 7.750 01/01/14 1,095,210
1,000 Cook Cnty, IL Cmnty College Dist
No 508 Chicago Ctfs Partn (FGIC
Insd)............................ 8.750 01/01/07 1,284,450
2,265 Cook Cnty, IL Cons High Sch Dist
No 200 Oak Park (FSA Insd)....... * 12/01/07 1,542,782
2,265 Cook Cnty, IL Cons High Sch Dist
No 200 Oak Park (FSA Insd)....... * 12/01/08 1,463,416
2,265 Cook Cnty, IL Cons High Sch Dist
No 200 Oak Park (FSA Insd)....... * 12/01/09 1,385,704
2,265 Cook Cnty, IL Cons High Sch Dist
No 200 Oak Park (FSA Insd)....... * 12/01/10 1,309,827
2,265 Cook Cnty, IL Cons High Sch Dist
No 200 Oak Park (FSA Insd)....... * 12/01/11 1,235,920
1,000 Crestwood, IL Tax Increment Rev
Rfdg............................. 7.250 12/01/08 1,070,530
1,100 Hodgkins, IL Tax Increment....... 9.500 12/01/09 1,259,830
1,500 Hodgkins, IL Tax Increment Ser A
Rfdg............................. 7.625 12/01/13 1,659,180
1,500 Huntley, IL Increment Alloc Rev
Huntley Redev Proj Ser A......... 8.500 12/01/15 1,739,880
1,000 Illinois Dev Fin Auth Elderly Hsg
Rev Libertyville Towers Ser A.... 6.500 09/01/09 1,058,370
555 Illinois Dev Fin Auth Rev Cmnty
Fac Clinic
Altgeld Proj..................... 8.000 11/15/06 613,725
2,000 Illinois Dev Fin Auth Solid Waste
Disposal Rev..................... 5.050 01/01/10 2,000,000
</TABLE>
See Notes to Financial Statements
18
<PAGE> 157
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,000 Illinois Edl Fac Auth Rev Lake
Forest College (Prerefunded @
10/01/01) (FSA Insd)............. 6.750% 10/01/21 $ 1,094,100
1,000 Illinois Edl Fac Auth Rev
Northwestern Univ Ser 1985
(Prerefunded @ 12/01/01)......... 6.900 12/01/21 1,102,340
1,000 Illinois Edl Fac Auth Rev Peace
Mem
Ministries Proj.................. 7.500 08/15/26 1,090,200
4,100 Illinois Hlth Fac Auth Rev
Fairview Oblig Group Proj A
(Prerefunded @ 10/01/02)......... 9.500 10/01/22 4,912,292
2,000 Illinois Hlth Fac Auth Rev
Fairview Oblig Group Proj B
(Prerefunded @ 10/01/02)......... 9.000 10/01/22 2,364,560
1,500 Illinois Hlth Fac Auth Rev
Fairview Oblig Group Ser A
Rfdg............................. 7.400 08/15/23 1,653,285
485 Illinois Hlth Fac Auth Rev
Glenoaks Med Cent Ser D.......... 9.500 11/15/15 542,987
1,000 Illinois Hlth Fac Auth Rev Mem
Hosp (Prerefunded @ 05/01/02).... 7.250 05/01/22 1,113,990
1,000 Illinois Hlth Fac Auth Rev
Northwestern Mem Hosp............ 6.750 08/15/11 1,081,460
2,600 Illinois Hlth Fac Auth Rev Utd
Med Cent (Prerefunded @
07/01/03)........................ 8.375 07/01/12 3,040,388
1,800 Illinois Hsg Dev Auth Residential
Mtg Rev (Inverse Fltg)........... 10.079 02/13/18 2,011,500
1,450 Mc Lean & Woodford Cntys, IL Cmty
Unit Sch Dist No 005 Normal...... 4.500 01/01/16 1,362,811
895 Mill Creek Wtr Reclamation Dist
IL Sewage Rev.................... 8.000 03/01/10 1,020,658
540 Mill Creek Wtr Reclamation Dist
IL Wtrwrks Rev................... 8.000 03/01/10 615,816
1,000 Palatine, IL Tax Increment Rev
Rand/Dundee Cent Proj
(Prerefunded @ 01/01/07)......... 7.750 01/01/17 1,205,990
2,800 Regional Tran Auth IL Ser A
(AMBAC Insd) (b)................. 8.000 06/01/17 3,809,092
7,500 Robbins, IL Res Recovery Rev..... 8.375 10/15/16 4,050,000
</TABLE>
See Notes to Financial Statements
19
<PAGE> 158
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,000 Robbins, IL Res Recovery Rev
Recreation Robbins Res Partn Ser
B................................ 8.375% 10/15/16 $ 1,620,000
745 Round Lake Beach, IL Tax
Increment
Rev Rfdg......................... 7.200 12/01/04 811,685
500 Round Lake Beach, IL Tax
Increment
Rev Rfdg......................... 7.500 12/01/13 543,310
1,525 Saint Charles, IL Indl Dev Rev
Tri-City Cent Proj............... 7.500 11/01/13 1,600,106
1,240 Southern IL Univ Rev Hsg & Aux
Fac Sys Ser A (MBIA Insd)........ 5.800 04/01/10 1,337,166
------------
84,700,709
------------
INDIANA 2.7%
1,000 East Chicago, IN Exempt Fac
Inland Steel Co Proj No 14....... 6.700 11/01/12 1,007,290
2,750 Elkhart Cnty, IN Hosp Auth Rev
Elkhart Genl Hosp Inc
(Prerefunded @ 07/01/02)......... 7.000 07/01/12 3,063,775
1,650 Indiana Bond Bank Spl Pgm
Hendricks Redev Ser B............ 6.125 02/01/17 1,793,055
3,125 Indiana Bond Bank Spl Pgm
Hendricks Redev Ser B............ 6.200 02/01/23 3,398,219
1,000 Indiana Hlth Fac Fin Auth Rev
Ancilla Sys
Inc Oblig Grp (MBIA Insd)........ 5.250 07/01/17 1,012,970
1,000 Indiana Hlth Fac Fin Auth Rev
Metro Hlth/IN
Inc Proj......................... 6.300 12/01/23 976,670
2,000 Indiana Hlth Fac Fin Auth Rev
Metro Hlth/IN Inc Proj........... 6.400 12/01/33 1,948,200
7,920 Indiana St Dev Fin Auth
Environmental USX Corp Proj Rfdg
& Impt (b)....................... 6.250 07/15/30 8,422,761
1,500 Indiana Univ Rev Student Fee Ser
L................................ 5.000 08/01/17 1,486,575
550 Indianapolis, IN Loc Pub Impt
Bond Bank Ser D.................. 6.750 02/01/14 655,880
1,000 Marion Cnty, IN Hosp Auth Hosp
Fac Rev.......................... 6.500 09/01/13 1,036,200
140 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/11 55,649
</TABLE>
See Notes to Financial Statements
20
<PAGE> 159
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA (CONTINUED)
$ 140 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/12 $ 51,548
135 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/13 46,085
130 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/14 41,109
130 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/15 38,145
135 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/16 36,694
225 Saint Joseph Cnty, IN Redev Dist
Tax Increment Rev Ser B.......... * 06/30/17 56,603
1,500 Wells Cnty, IN Hosp Auth Rev
Caylor-Nickel Med Cent Inc
Rfdg............................. 8.500% 04/15/03 1,658,895
------------
26,786,323
------------
IOWA 0.7%
2,045 Iowa Fin Auth Hosp Fac Rev
Trinity Regl Hosp Proj (FSA
Insd)............................ 6.000 07/01/07 2,271,402
2,500 Iowa Fin Auth Hosp Fac Rev
Trinity Regl Hosp Proj (FSA
Insd)............................ 5.750 07/01/17 2,662,150
2,000 Iowa Fin Auth Multi-Family Rev
Hsg Hamlet Apts Proj A Rfdg (GNMA
Collateralized).................. 6.150 05/01/32 2,115,340
------------
7,048,892
------------
KANSAS 0.1%
1,000 Newton, KS Hosp Rev Newton
Hlthcare Corp Ser A (Prerefunded
@ 11/15/04)...................... 7.750 11/15/24 1,193,290
------------
KENTUCKY 1.4%
1,000 Bowling Green, KY Indl Dev Rev
Coltec Inds
Inc Rfdg......................... 6.550 03/01/09 1,050,830
10,950 Jefferson Cnty, KY Cap Projs Corp
Rev Muni Multi-Lease Ser A....... * 08/15/14 3,849,472
2,800 Jefferson Cnty, KY Hosp Rev
(Inverse Fltg) (MBIA Insd)....... 8.952 10/01/08 3,300,500
1,200 Jefferson Cnty, KY Hosp Rev
(Inverse Fltg) (Prerefunded @
10/29/02) (MBIA Insd)............ 8.952 10/01/08 1,432,500
</TABLE>
See Notes to Financial Statements
21
<PAGE> 160
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KENTUCKY (CONTINUED)
$ 1,250 Kentucky Econ Dev Fin Auth Med
Cent Rev Ashland Hosp Corp Ser A
Rfdg & Impt (FSA Insd)........... 6.125% 02/01/12 $ 1,358,637
1,145 Kentucky Hsg Corp Hsg Rev Ser D
(FHA/ VA Gtd).................... 7.450 01/01/23 1,210,025
1,000 Kentucky St Tpk Auth Toll Rd Rev
Ser A............................ 5.500 07/01/07 1,003,510
------------
13,205,474
------------
LOUISIANA 0.8%
500 Hodge, LA Util Rev Stone
Container Corp Ser 1990.......... 9.000 03/01/10 523,815
1,990 Lafayette, LA Econ Dev Auth Indl
Dev Rev Advanced Polymer Proj Ser
1985............................. 10.000 11/15/04 2,486,366
1,000 Lake Charles, LA Harbor &
Terminal Dist Port Fac Rev
Trunkline Rfdg................... 7.750 08/15/22 1,131,450
405 Louisiana Pub Fac Auth Rev Indl
Dev Beverly Enterprises Inc
Rfdg............................. 8.250 09/01/08 443,305
1,000 New Orleans, LA Rfdg (FGIC
Insd)............................ 5.500 12/01/21 1,067,980
800 Port New Orleans, LA Indl Dev Rev
Avondale Inds Inc Proj Rfdg...... 8.250 06/01/04 869,984
1,400 West Feliciana Parish, LA Pollutn
Ctl Rev Gulf States Util Co Proj
Ser A............................ 7.500 05/01/15 1,534,428
------------
8,057,328
------------
MARYLAND 0.5%
1,500 Baltimore Cnty, MD Pollutn Ctl
Rev Bethlehem Steel Corp Proj Ser
A Rfdg........................... 7.550 06/01/17 1,625,655
3,500 Maryland St Hlth & Higher Edl
Facs Auth Rev Medlantic/Helix
Issue Ser B (AMBAC Insd)......... 5.250 08/15/38 3,619,560
------------
5,245,215
------------
MASSACHUSETTS 2.1%
1,000 Boston, MA Rev Boston City Hosp
Ser A (FHA Gtd) (Prerefunded @
08/15/00)........................ 7.625 02/15/21 1,075,300
1,350 Massachusetts Edl Ln Auth Rev Edl
Ln Rev Muni Forwards Issue E Ser
A
(AMBAC Insd)..................... 7.000 01/01/10 1,443,798
</TABLE>
See Notes to Financial Statements
22
<PAGE> 161
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 6,200 Massachusetts St Hlth & Edl Fac
Auth Rev New England Med Cent
Hosp Ser G (Embedded Swap) (MBIA
Insd) (b)(f)..................... 3.100/5.000% 07/01/13 $ 6,175,138
1,500 Massachusetts St Indl Fin Agy
Hillcrest Edl Cent Inc Proj...... 8.450 07/01/18 1,709,700
5,000 Massachusetts St Indl Fin Agy Rev
First Mtg Reeds Landing Proj..... 8.625 10/01/23 5,605,850
970 Massachusetts St Indl Fin Agy Rev
Gtr Lynn Mental Hlth Assoc Proj
(Prerefunded @ 06/01/04)......... 8.800 06/01/14 1,258,187
1,000 Massachusetts St Indl Fin Agy Rev
Wtr Treatment American Hingham... 6.600 12/01/15 1,077,560
2,000 Plymouth Cnty, MA Ctfs Partn Ser
A (Prerefunded @ 10/01/02)....... 7.000 04/01/22 2,248,940
------------
20,594,473
------------
MICHIGAN 2.8%
3,500 Detroit, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @
07/01/08)........................ 6.200 07/01/17 3,986,325
1,000 Detroit, MI Loc Dev Fin Auth Ser
C................................ 6.850 05/01/21 1,035,160
650 Grand Traverse Cnty, MI Hosp Fin
Auth Hosp Rev Ser A Rfdg (AMBAC
Insd)............................ 6.250 07/01/12 702,735
1,350 Grand Traverse Cnty, MI Hosp Fin
Auth Hosp Rev Ser A Rfdg
(Prerefunded @ 07/01/02) (AMBAC
Insd)............................ 6.250 07/01/12 1,476,846
1,500 Grand Valley MI St Univ Rev Gen
(FGIC Insd)...................... 5.500 02/01/18 1,604,970
1,400 Hillsdale, MI Hosp Fin Auth Hosp
Rev Hillsdale Cmty Hlth Cent..... 5.250 05/15/26 1,306,144
1,400 Michigan St Hosp Fin Auth Rev
Rfdg Hosp Detroit Med Group A
(AMBAC Insd)..................... 5.250 08/15/27 1,394,792
1,000 Michigan St Hosp Fin Auth Rev
Hosp Genesys Regl Med Rfdg (ACA
Insd)............................ 5.500 10/01/18 1,005,940
2,000 Michigan St Hosp Fin Auth Rev
Hosp Genesys Regl Med Rfdg (ACA
Insd)............................ 5.500 10/01/27 2,005,540
3,615 Michigan St House of
Representatives Ctfs Part (AMBAC
Insd)............................ * 08/15/24 973,303
</TABLE>
See Notes to Financial Statements
23
<PAGE> 162
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 2,000 Michigan St Strategic Fd Ltd
Oblig Rev Detroit Edison Co Ser A
Rfdg (MBIA Insd) (c)............. 5.550% 09/01/29 $ 2,046,560
7,056 Michigan St Strategic Fd Ltd
Oblig Rev Great Lakes Pulp &
Fiber Proj (e)................... 8.000 12/01/27 4,869,017
4,500 Michigan St Strategic Fd Solid
Waste Disp Rev Genesee Pwr
Station Proj..................... 7.500 01/01/21 4,835,790
------------
27,243,122
------------
MINNESOTA 0.4%
1,000 North Saint Paul, MN Multi-Family
Rev Hsg Cottages North Saint Paul
Rfdg............................. 9.250 02/01/22 1,070,810
2,000 Southern MN Muni Pwr Agy Pwr
Supply Sys Rev Ser A Rfdg........ 5.000 01/01/16 1,999,900
1,250 Southern MN Muni Pwr Agy Pwr
Supply Sys Rev Ser C............. 5.000 01/01/17 1,236,137
------------
4,306,847
------------
MISSISSIPPI 0.7%
5,000 Lowndes Cnty, MS Solid Waste Disp
& Pollutn Ctl Rev Weyerhaeuser Co
Rfdg (Inverse Fltg).............. 8.950 04/01/22 6,060,650
1,140 Ridgeland, MS Urban Renewal Rev
the Orchard Ltd Proj Ser A
Rfdg............................. 7.750 12/01/15 1,232,602
------------
7,293,252
------------
MISSOURI 1.7%
1,000 Kansas City, MO Multi-Family Hsg
Rev Vlg Green Apts Proj.......... 6.250 04/01/30 1,011,890
2,835 Kansas City, MO Port Auth Fac
Riverfront Park Proj Ser A (b)... 5.750 10/01/06 3,065,967
2,000 Lees Summit, MO Indl Dev Auth
Hlth Fac Rev John Knox Vlg Proj
Rfdg & Impt...................... 7.125 08/15/12 2,123,360
1,330 Missouri St Econ Dev Export &
Infrastructure Brd Med Office Fac
Rev (MBIA Insd) (b).............. 7.250 06/01/04 1,447,333
3,920 Missouri St Econ Dev Export &
Infrastructure Brd Med Office Fac
Rev (Prerefunded @
06/01/04) (MBIA Insd) (b)........ 7.250 06/01/14 4,590,046
</TABLE>
See Notes to Financial Statements
24
<PAGE> 163
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI (CONTINUED)
$ 1,000 Missouri St Hlth & Edl Fac Auth
Rfdg & Impt...................... 8.125% 10/01/10 $ 1,048,040
2,165 Saint Louis Cnty, MO Indl Dev
Auth Nursing Home Rev Mary Queen
& Mother Proj Rfdg (GNMA
Collateralized).................. 7.125 03/20/23 2,323,305
845 Saint Louis, MO Tax Increment Rev
Scullin Redev Area Ser A......... 10.000 08/01/10 1,064,370
------------
16,674,311
------------
NEBRASKA 0.6%
650 Nebraska Invt Fin Auth Single
Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)............ 9.413 09/15/24 724,750
900 Nebraska Invt Fin Auth Single
Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)............ 11.814 09/10/30 986,625
3,400 Nebraska Invt Fin Auth Single
Family Mtg Rev (Inverse Fltg)
(GNMA Collateralized)............ 10.521 10/17/23 3,765,500
------------
5,476,875
------------
NEVADA 0.7%
4,000 Clark Cnty, NV Indl Dev Rev NV
Pwr Co Proj Ser A (FGIC Insd).... 6.700 06/01/22 4,346,640
1,980 Henderson, NV Loc Impt Dist No
T-4
Ser A............................ 8.500 11/01/12 2,098,107
------------
6,444,747
------------
NEW HAMPSHIRE 2.3%
16,635 Manchester, NH Arpt Rev Genl Ser
A (MBIA Insd).................... 4.500 01/01/28 15,032,384
1,555 New Hampshire Higher Edl & Hlth
Fac Auth Rev..................... 8.800 06/01/09 1,857,634
2,000 New Hampshire Higher Edl & Hlth
Fac Auth Rev Daniel Webster
College Issue Rfdg............... 7.625 07/01/16 2,182,560
1,000 New Hampshire Higher Edl & Hlth
Fac Auth Rev New London Hosp Assn
Proj............................. 7.500 06/01/05 1,118,240
980 New Hampshire St Business Fin
Auth Elec Fac Rev Plymouth
Cogeneration..................... 7.750 06/01/14 1,044,318
</TABLE>
See Notes to Financial Statements
25
<PAGE> 164
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE (CONTINUED)
$ 1,000 New Hampshire St Tpk Sys Rev Ser
A Rfdg (FGIC Insd)............... 6.750% 11/01/11 $ 1,163,410
------------
22,398,546
------------
NEW JERSEY 3.3%
400 Atlantic City, NJ Brd Edl Sch
(Prerefunded @ 12/01/02) (AMBAC
Insd)............................ 6.125 12/01/11 440,452
250 Camden Cnty, NJ Impt Auth Lease
Rev Cnty Gtd (Prerefunded @
10/01/04)
(MBIA Insd)...................... 6.150 10/01/14 281,980
2,000 Camden Cnty, NJ Impt Auth Lease
Rev
Dockside Refrig.................. 8.400 04/01/24 2,226,060
500 Essex Cnty, NJ Impt Auth Lease
Cnty Jail Proj A (MBIA Insd)..... 5.600 12/01/16 532,405
250 Essex Cnty, NJ Impt Auth Lease
Jail & Youth House Proj
(Prerefunded @ 12/01/04) (AMBAC
Insd)............................ 6.600 12/01/07 288,367
370 Essex Cnty, NJ Ser A1 Rfdg (AMBAC
Insd)............................ 5.375 09/01/10 394,061
250 Hudson Cnty, NJ Ctfs Partn
Correctional Fac Rfdg (MBIA
Insd)............................ 6.600 12/01/21 271,393
250 Lacey Muni Util Auth NJ Wtr Rev
(Prerefunded @ 12/01/04) (MBIA
Insd)............................ 6.250 12/01/24 283,955
250 Mercer Cnty, NJ Impt Auth Rev Cap
Apprec........................... * 04/01/11 142,160
6,130 Middlesex Cnty, NJ Util Auth Swr
Rev Ser A Rfdg (MBIA Insd) (b)... 6.250 08/15/10 7,052,749
500 Millburn Twp, NJ Brd Ed.......... 5.350 07/15/12 539,785
1,000 New Jersey Bldg Auth St Bldg
Rev.............................. 5.000 06/15/18 999,310
500 New Jersey Econ Dev Auth Dist
Heating & Cooling Rev Trigen
Trenton Ser A.................... 6.200 12/01/10 525,955
2,000 New Jersey Econ Dev Auth Holt
Hauling & Warehsg Rev Ser G
Rfdg............................. 8.400 12/15/15 2,163,120
300 New Jersey Econ Dev Auth Mkt
Transition Fac Rev Sr Lien Ser A
(MBIA Insd)...................... 5.800 07/01/09 328,848
210 New Jersey Econ Dev Auth Pollutn
Ctl Rev Pub Svcs Elec & Gas Co
Proj (MBIA Insd)................. 6.400 05/01/32 232,861
</TABLE>
See Notes to Financial Statements
26
<PAGE> 165
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,900 New Jersey Econ Dev Auth Rev
First Mtg Winchester Gardens Ser
A................................ 8.500% 11/01/16 $ 2,182,473
350 New Jersey Econ Dev Auth Rev RWJ
Hlthcare Corp (FSA Insd)......... 6.250 07/01/14 386,732
1,000 New Jersey Econ Dev Auth Rev
United
Methodist Homes.................. 7.500 07/01/20 1,196,610
1,000 New Jersey Econ Dev Auth Rev
United Methodist Homes Oblig Ser
A (Prerefunded @ 07/01/05)....... 7.500 07/01/25 1,196,610
300 New Jersey Econ Dev Auth Wtr Fac
Rev Hackensack Wtr Co Proj B Rfdg
(MBIA Insd)...................... 5.900 03/01/24 318,564
490 New Jersey Hlthcare Fac Fin Auth
Rev Atlantic City Med Cent Ser C
Rfdg............................. 6.800 07/01/11 534,105
700 New Jersey Hlthcare Fac Fin Auth
Rev Christ Hosp Group Issue
(Connie Lee Insd)................ 7.000 07/01/04 796,194
400 New Jersey Hlthcare Fac Fin Auth
Rev Christ Hosp Group Issue
(Connie Lee Insd)................ 7.000 07/01/06 467,576
250 New Jersey Hlthcare Fac Fin Auth
Rev Genl Hosp Cent at Passaic
(FSA Insd)....................... 6.000 07/01/06 279,927
250 New Jersey Hlthcare Fac Fin Auth
Rev Genl Hosp Cent at Passaic
(FSA Insd)....................... 6.750 07/01/19 302,590
400 New Jersey Hlthcare Fac Fin Auth
Rev Jersey Shore Med Cent Rfdg
(AMBAC Insd)..................... 6.250 07/01/21 441,980
500 New Jersey Hlthcare Fac Fin Auth
Rev Southern Ocean Cnty Hosp Ser
A................................ 6.125 07/01/13 522,735
400 New Jersey Sports & Exposition
Auth Convention Cent Luxury Tax
Rev Ser A Rfdg (MBIA Insd)....... 6.250 07/01/20 438,492
200 New Jersey St Edl Fac Auth Rev
Caldwell College Ser A........... 7.250 07/01/25 216,972
250 New Jersey St Edl Fac Auth Rev
Glassboro St College Ser A
(Prerefunded @ 07/01/01) (MBIA
Insd)............................ 6.700 07/01/21 271,573
270 New Jersey St Hsg & Mtg Fin Agy
Rev Home Buyer Ser K (MBIA
Insd)............................ 6.375 10/01/26 289,543
</TABLE>
See Notes to Financial Statements
27
<PAGE> 166
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <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 $ 535,095
500 New Jersey St Hsg & Mtg Fin Agy
Rev Home Buyer Ser S (MBIA
Insd)............................ 6.000 10/01/21 530,085
3,480 New Jersey St Tpk Auth Tpk Rev
Ser C Rfdg (MBIA Insd) (b)....... 6.500 01/01/16 4,131,247
300 Union City, NJ (FSA Insd)........ 6.375 11/01/10 352,263
------------
32,094,827
------------
NEW MEXICO 0.5%
2,600 Albuquerque, NM Retirement Fac
Rev Louisiana Vida Llena Proj Ser
B Rfdg........................... 6.600 12/15/28 2,586,246
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 2,762,400
------------
5,348,646
------------
NEW YORK 9.6%
1,000 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev Woodcrest
Estates Fac A.................... 6.375 12/01/37 1,000,790
2,500 Clifton Springs, NY Hosp & Clinic
Hosp Rev Rfdg.................... 8.000 01/01/20 2,741,850
3,640 Metropolitan Tran Auth NY
Commuter Fac Rev Svcs Contract
Ser R Rfdg (b)................... 5.500 07/01/17 3,767,910
5,000 Metropolitan Tran Auth NY Svcs
Contract Tran Fac Ser 5 Rfdg
(b).............................. 7.000 07/01/12 5,415,250
1,000 New York City Indl Dev Agy Field
Hotel Assoc Lp JFK Rfdg.......... 6.000 11/01/28 1,004,160
1,000 New York City Indl Dev Agy
Laguardia Assoc Lp Proj Rfdg..... 6.000 11/01/28 1,004,160
1,000 New York City Indl Dev Agy Civic
Fac Marymount Manhattan College
Proj............................. 7.000 07/01/23 1,068,590
4,100 New York City Muni Wtr Fin Auth
Wtr & Swr Sys Rev Ser B (b)...... 5.000 06/15/17 4,068,225
5,000 New York City Ser A (b).......... 7.000 08/01/07 5,842,550
2,500 New York City Ser B (b).......... 7.500 02/01/07 2,764,800
4,055 New York City Ser C (b).......... 6.500 08/01/04 4,420,112
</TABLE>
See Notes to Financial Statements
28
<PAGE> 167
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 945 New York City Ser C (Prerefunded
@ 08/01/02)...................... 6.500% 08/01/04 $ 1,038,961
180 New York City Ser C Subser C1.... 7.500 08/01/20 201,020
460 New York City Ser C Subser C1
(Prerefunded @ 08/01/02)......... 7.500 08/01/20 520,338
2,000 New York City Ser D Rfdg (b)..... 8.000 02/01/05 2,380,880
2,200 New York City Ser E (b).......... 5.700 08/01/08 2,348,192
2,500 New York St Dorm Auth Rev Secd
Hosp Bronx Lebanon Rfdg.......... 5.200 02/15/14 2,534,475
5,000 New York St Dorm Auth Rev City
Univ Ser F (b)................... 5.500 07/01/12 5,185,300
2,750 New York St Dorm Auth Rev Court
Fac Lease Ser A (b).............. 5.500 05/15/10 2,856,810
2,295 New York St Dorm Auth Rev Mental
Hlth Svcs Fac Ser A.............. 5.750 02/15/11 2,482,502
2,285 New York St Dorm Auth Rev Mental
Hlth Svcs Fac Ser A.............. 5.750 02/15/12 2,464,213
1,000 New York St Dorm Auth Rev Mental
Hlth Svcs Fac Ser C.............. 4.750 08/15/19 961,430
2,500 New York St Energy Resh & Dev
Auth Gas Fac Rev (Inverse
Fltg)............................ 9.410 04/01/20 3,196,875
3,000 New York St Energy Resh & Dev
Auth Gas Fac Rev Brooklyn Union
Gas Co Ser B (Inverse Fltg)...... 10.284 07/01/26 3,960,000
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 2,294,160
185 New York St Med Care Fac Fin Agy
Rev Mental Hlth Svcs Fac Ser A... 7.750 08/15/11 200,923
175 New York St Med Care Fac Fin Agy
Rev Mental Hlth Svcs Fac Ser C... 7.300 02/15/21 190,636
2,400 New York St Urban Dev Corp Rev
Correctional Cap Fac Rfdg (b).... 5.625 01/01/07 2,535,648
</TABLE>
See Notes to Financial Statements
29
<PAGE> 168
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$20,500 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser A Rfdg
(FSA Insd) (b)................... 5.250% 01/01/14 $ 21,610,075
1,000 Peekskill, NY Indl Dev Agy Sr
Drum Hill Sr Living Proj......... 6.375 10/01/28 998,020
1,200 Port Auth NY & NJ Cons 95th
Ser.............................. 6.125 07/15/22 1,292,916
1,500 Suffolk Cnty, NY Indl Dev Agy
Indl Dev Rev Spellman High
Voltage Fac Ser A................ 6.375 12/01/17 1,500,525
------------
93,852,296
------------
OHIO 2.9%
1,250 Cleveland Cuyahoga Cnty, OH Port
Auth Rev Dev Port Cleveland Bond
Fund Ser A....................... 5.750 05/15/20 1,249,150
755 Cleveland Cuyahoga Cnty, OH Port
Auth Rev Dev Port Cleveland Bond
Fund Ser A....................... 5.800 05/15/27 752,343
2,350 Cleveland, OH Arpt Spl Rev
Continental Airls
Inc Proj (b)..................... 5.375 09/15/27 2,291,438
500 Cleveland, OH Pkg Fac Rev Impt
(Prerefunded @ 09/15/02)......... 8.000 09/15/12 575,205
1,000 Cuyahoga Cnty, OH Hlthcare Fac
Rev
Jennings Hall.................... 7.300 11/15/23 1,081,330
295 Fairfield, OH Econ Dev Rev
Beverly Enterprises Inc Proj
Rfdg............................. 8.500 01/01/03 314,045
1,750 Franklin Cnty, OH Hlthcare
Friendship Vlg Dublin, OH Rfdg... 5.625 11/01/22 1,753,465
1,000 Madison Cnty, OH Hosp Impt Rev
Madison Cnty Hosp Proj Rfdg...... 6.400 08/01/28 993,340
5,840 Ohio Hsg Fin Agy Single Family
Mtg Rev Ser B (Inverse Fltg)
(GNMA Collateralized)............ 10.247 03/31/31 6,467,800
1,000 Ohio St Air Quality Dev Auth Rev
JMG Funding Ltd Partn Proj Rfdg
(AMBAC Insd)..................... 6.375 04/01/29 1,111,040
2,000 Ohio St Solid Waste Rev CSC Ltd
Poj.............................. 8.500 08/01/22 2,084,040
4,000 Ohio St Solid Waste Rev Republic
Engineered Steels Proj........... 8.250 10/01/14 4,101,920
</TABLE>
See Notes to Financial Statements
30
<PAGE> 169
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 2,000 Ohio St Solid Waste Rev Republic
Engineered Steels Proj........... 9.000% 06/01/21 $ 2,141,800
3,000 Ohio St Tpk Comm Tpk Rev Ser A
Rfdg (FGIC Insd) (b)............. 5.500 02/15/26 3,222,540
------------
28,139,456
------------
OKLAHOMA 0.6%
1,980 McAlester, OK Pub Wks Auth Rev
Rfdg & Impt (FSA Insd)........... 5.250 12/01/22 2,023,105
2,050 Oklahoma Hsg Fin Agy Single
Family Rev Mtg Class B (GNMA
Collateralized).................. 7.997 08/01/18 2,271,379
1,000 Tulsa, OK Muni Arpt Tran Rev
American Airls Inc............... 7.600 12/01/30 1,082,580
------------
5,377,064
------------
OREGON 0.5%
2,000 Oregon St Econ Dev Rev Georgia
Pacific Corp..................... 6.350 08/01/25 2,112,220
2,000 Oregon St Hlth Hsg Edl & Cultural
Facs Auth........................ 7.250 06/01/28 2,036,480
475 Salem, OR Hosp Fac Auth Rev Cap
Manor Inc........................ 7.500 12/01/24 513,399
------------
4,662,099
------------
PENNSYLVANIA 5.1%
500 Chartiers Vly, PA Indl &
Commercial Dev Auth First Mtg
Rev.............................. 7.250 12/01/11 513,530
5,000 Chester Cnty, PA Hlth & Edl Fac
Auth Hlth Sys Rev (AMBAC Insd)
(b).............................. 5.650 05/15/20 5,198,250
1,000 Cliff House Ctf Trust Var Sts
Variable Ctfs Partn Ser A........ 6.625 06/01/27 1,000,000
5,000 Dauphin Cnty, PA Genl Auth Rev
Hotel & Conf Cent Hyatt
Regency.......................... 6.200 01/01/29 4,959,150
1,400 Erie, PA Sch Dist Cap Apprec Rfdg
(FSA Insd)....................... * 09/01/25 355,474
2,500 Harrisburg, PA Auth Wtr Rev
(Inverse Fltg) (FGIC Insd)....... 8.247 06/18/15 2,843,750
1,320 Harrisburg, PA Cap Apprec Nts Ser
D Rfdg........................... * 09/15/16 543,378
</TABLE>
See Notes to Financial Statements
31
<PAGE> 170
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,535 Harrisburg, PA Cap Apprec Nts Ser
D Rfdg (AMBAC Insd).............. * 09/15/19 $ 532,845
13,935 Lancaster, PA Ser A (FGIC
Insd)............................ 4.500% 05/01/28 12,664,267
1,000 Lebanon Cnty, PA Hlth Fac Auth
Hlth Cent Rev United Church of
Christ Homes Rfdg................ 6.750 10/01/10 1,005,370
1,000 Lehigh Cnty, PA Indl Dev Auth
Lifepath Inc Proj................ 6.100 06/01/18 959,050
905 Lehigh Cnty, PA Indl Dev Auth Rev
Rfdg............................. 8.000 08/01/12 962,830
1,230 Luzerne Cnty, PA Indl Dev Auth
First Mtg Gross Rev Rfdg......... 7.875 12/01/13 1,338,031
1,500 McKean Cnty, PA Hosp Auth Hosp
Rev Bradford Hosp Proj (Crossover
Rfdg @ 10/01/00)................. 8.875 10/01/20 1,642,620
3,000 Montgomery Cnty, PA Higher Edl &
Hlth Auth Hosp Rev (Embedded
Swap) (AMBAC Insd)............... 7.890 06/01/12 3,357,120
1,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev............. 6.300 01/01/13 1,006,700
1,000 Montgomery Cnty, PA Indl Dev Auth
Rev
Res Recov........................ 7.500 01/01/12 1,056,260
2,000 Pennsylvania St Higher Edl
Assistance Agy Student Ln Rev
Rfdg (Inverse Fltg) (AMBAC
Insd)............................ 10.149 09/01/26 2,485,000
3,150 Philadelphia, PA Auth For Indl
Dev Rev Coml Dev RMK Rfdg........ 7.750 12/01/17 3,507,682
685 Philadelphia, PA Hosp & Higher
Edl Fac Auth Hosp Rev............ 7.250 03/01/24 717,859
1,450 Ridley Park, PA Hosp Auth Rev
Taylor Hosp Ser A Rfdg Hosp Auth
Rev Ser 1993A.................... 6.000 12/01/13 1,630,772
1,000 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Allied Svcs
Rehab Hosp Ser A................. 7.375 07/15/08 1,106,150
500 Scranton Lackawanna, PA Hlth &
Welfare Auth Rev Moses Taylor
Hosp Proj (Prerefunded @
07/01/01)........................ 8.250 07/01/09 557,765
------------
49,943,853
------------
</TABLE>
See Notes to Financial Statements
32
<PAGE> 171
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RHODE ISLAND 0.5%
$ 1,975 Providence, RI Redev Agy Ctfs
Partn
Ser A............................ 8.000% 09/01/24 $ 2,150,301
2,345 Rhode Island Hsg & Mtg Fin Corp
Rental Hsg Pgm Ser B (FHA Gtd)... 7.950 10/01/30 2,433,289
600 West Warwick, RI Ser A........... 7.300 07/15/08 667,746
------------
5,251,336
------------
SOUTH CAROLINA 0.3%
2,000 Charleston Cnty, SC Indl Rev
Zeigler Coal Hldg (c)............ 6.950 08/10/28 2,005,500
1,070 Piedmont Muni Pwr Agy SC Elec
Rev.............................. 5.000 01/01/25 993,227
------------
2,998,727
------------
SOUTH DAKOTA 0.1%
1,000 South Dakota St Hlth & Edl Fac
Auth Rev Huron Regl Med Cent..... 7.250 04/01/20 1,105,090
------------
TENNESSEE 0.3%
2,000 Springfield, TN Hlth & Edl Jesse
Holman Jones Hosp Proj
(Prerefunded @ 04/01/06)......... 8.500 04/01/24 2,552,440
------------
TEXAS 8.5%
1,000 Abia Dev Corp TX Arpt Fac Rev
Austin Belly Port Dev Proj A..... 6.500 10/01/23 992,250
1,000 Austin, TX Arpt Sys Rev Prior
Lien Ser A (MBIA Insd)........... 6.125 11/15/25 1,088,060
1,000 Austin-Bergstorm Landhost
Enteprises Inc TX Arpt Hotel Sr
Ser A............................ 6.750 04/01/27 1,010,010
500 Baytown, TX Pptys Mgmt & Dev Corp
Ser A (FNMA Collateralized)...... 6.100 08/15/21 514,805
140 Bell Cnty, TX Hlth Fac Dev Corp
Rev Hosp Proj.................... 9.250 07/01/08 145,407
2,000 Bell Cnty, TX Indl Dev Corp Solid
Waste
Disposal Rev..................... 7.600 12/01/17 2,000,840
500 Bexar Cnty, TX Hlth Fac Dev Corp
Hosp Rev Saint Luke's Lutheran
Hosp............................. 7.000 05/01/21 628,395
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 1,718,610
</TABLE>
See Notes to Financial Statements
33
<PAGE> 172
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 272 Bexar Cnty, TX Hsg Fin Corp Rev
Ser A (GNMA Collateralized)...... 8.200% 04/01/22 $ 280,641
3,850 Brazos River Auth TX Rev Houston
Inds Inc Proj Ser D Rfdg (MBIA
Insd) (b)........................ 4.900 10/01/15 3,882,609
1,675 Cedar Hill, TX Indpt Sch Dist Cap
Apprec Rfdg...................... * 08/15/15 688,525
625 Clear Creek, TX Indpt Sch Dist
(Prerefunded @ 02/01/01) (b)..... 6.250 02/01/11 654,912
250 Coastal Wtr Auth TX Conveyance
Sys Rev (AMBAC Insd)............. 6.250 12/15/17 266,970
940 Dallas-Fort Worth, TX Intl Arpt
Fac Impt Corp Rev American Airls
Inc.............................. 7.500 11/01/25 1,003,168
1,500 Deer Park, TX Indpt Sch Dist..... 4.250 02/15/17 1,358,925
250 El Paso, TX Hsg Auth Multi-Family
Rev Ser A........................ 6.250 12/01/09 265,105
85 Galveston, TX Ppty Fin Auth
Single Family Mtg Rev Ser A...... 8.500 09/01/11 91,157
250 Guadalupe Blanco River Auth TX
Indl Dev Corp Pollutn Ctl Rev.... 6.350 07/01/22 269,488
1,250 Harris Cnty, TX Hlth Fac Dev Corp
Mem Hosp Sys Proj Rfdg........... 7.125 06/01/15 1,398,262
250 Harris Cnty, TX Muni Util Dist No
120 (Prerefunded @ 08/01/01)..... 8.000 08/01/14 273,753
375 Harris Cnty, TX Sch Hlthcare Corp
Sys Rev (Prerefunded @
07/01/01)........................ 7.100 07/01/21 409,646
64,525 Houston, TX Wtr & Swr Sys Rev Cap
Apprec Jr Lien Ser A Rfdg (FSA
Insd)............................ * 12/01/25 16,163,512
1,250 Irving, TX Indpt Sch Dist (PSF
Gtd)............................. * 02/15/17 502,900
1,000 Irving, TX Indpt Sch Dist Cap
Apprec Ser A Rfdg (PSF Gtd)...... * 02/15/18 379,530
5,045 Leander, TX Indpt Sch Dist Cap
Apprec Rfdg (PSF Gtd)............ * 08/15/19 1,687,452
250 Lockhart, TX Correctional Fac Fin
Corp Rev (Prerefunded @ 04/01/01)
(MBIA Insd)...................... 6.625 04/01/12 264,790
</TABLE>
See Notes to Financial Statements
34
<PAGE> 173
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,435 Montgomery Cnty, TX Muni Util
Dist No 47 Wtrworks & Swr (AMBAC
Insd)............................ 4.750% 10/01/24 $ 2,315,831
3,500 North Central TX Hlth Fac Dev
Corp Rev Presbyterian Hlthcare
Sys Ser C (Inverse Fltg)
(Prerefunded @ 06/19/01)
(MBIA Insd)...................... 9.454 06/22/21 4,055,625
5,000 North East Indpt Sch Dist TX..... 4.500 10/01/28 4,534,300
750 Northwest Harris Cnty, TX Muni
Util Dist No 23 (Prerefunded @
04/01/01)........................ 8.100 10/01/15 813,870
2,425 Pflugerville, TX (FGIC Insd)..... 4.750 08/01/20 2,316,772
5,625 Pflugerville, TX (FGIC Insd)..... 4.750 08/01/24 5,350,219
3,560 Rockwall, TX Indpt Sch Dist Cap
Apprec Rfdg (PSF Gtd) (c)........ * 08/15/20 1,132,116
2,600 Rockwall, TX Indpt Sch Dist Cap
Apprec Rfdg (PSF Gtd) (c)........ * 08/15/24 654,914
2,000 San Antonio, TX Elec & Gas Rev
Ser A Rfdg....................... 4.500 02/01/21 1,846,660
250 San Antonio, TX Hlth Fac Dev Corp
Rev Encore Nursing Cent Partn.... 8.250 12/01/19 274,928
250 Tarrant Cnty, TX Hlth Fac Dev
Corp Hosp Rev Rfdg & Impt........ 7.000 05/15/28 270,240
250 Tarrant Cnty, TX Hlth Fac Dev
Corp Hosp Rev Rfdg & Impt
(Prerefunded @ 05/15/03)......... 7.000 05/15/28 283,140
2,000 Tarrant Cnty, TX Hlth Facs Dev
Corp Rev (MBIA Insd)............. 6.000 01/01/37 2,200,120
243 Texas Genl Svcs Cmnty Partn
Interests Office Bldg & Land
Acquisition Proj................. 7.000 08/01/09 249,557
500 Texas Genl Svcs Cmnty Partn
Interests Office Bldg & Land
Acquisition Proj................. 7.000 08/01/19 513,865
500 Texas Genl Svcs Cmnty Partn
Interests Office Bldg & Land
Acquisition Proj................. 7.000 08/01/24 513,865
876 Texas Genl Svcs Cmnty Partn Lease
Purchase Ctfs.................... 7.500 02/15/13 897,221
100 Texas Hsg Agy Single Family Mtg
Rev Ser A Rfdg................... 7.150 09/01/12 106,422
</TABLE>
See Notes to Financial Statements
35
<PAGE> 174
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,250 Texas St Dept Hsg & Cmnty Affairs
Home Mtg Rev Coll Ser C Rfdg
(Inverse Fltg) (GNMA
Collateralized).................. 10.119% 04/03/98 $ 6,352,500
205 Texas St Higher Edl Brd College
Sr Lien.......................... 7.700 10/01/25 220,492
4,025 Texas St Higher Edl Coordinating
Brd College Student Ln........... * 10/01/25 4,144,985
1,000 Texas St Veterans Hsg Assist..... 6.800 12/01/10 1,074,630
1,100 Texas St Veterans Hsg Assist
(MBIA Insd)...................... 6.800 12/01/23 1,183,611
2,250 West Side Calhoun Cnty, TX Navig
Dist Solid Waste Disp Union
Carbide Chem & Plastics.......... 8.200 03/15/21 2,430,360
3,245 Wylie, TX Indpt Sch Dist Cap
Apprec Rfdg (PSF Gtd)............ * 08/15/26 739,698
------------
82,415,663
------------
UTAH 2.3%
3,050 Bountiful, UT Hosp Rev South
Davis Cmnty Hosp Proj
(Prerefunded @ 06/15/04)......... 9.500 12/15/18 3,907,081
1,340 Hildale, UT Elec Rev Gas Turbine
Elec
Fac Proj......................... 7.800 09/01/15 1,315,719
1,000 Hildale, UT Elec Rev Gas Turbine
Elec
Fac Proj......................... 8.000 09/01/20 982,330
1,000 Hildale, UT Elec Rev Gas Turbine
Elec
Fac Proj......................... 7.800 09/01/25 980,300
1,850 Intermountain Pwr Agy UT Pwr
Supply Rev Ser 86B............... 5.000 07/01/16 1,825,673
11,000 Salt Lake City, UT Hosp Rev IHC
Hosp Inc Rfdg (Embedded Swap).... 7.850 02/15/12 12,449,030
430 Utah St Hsg Fin Agy Single Family
Mtg Sr Ser A1 (FHA Gtd).......... 7.100 07/01/14 438,488
585 Utah St Hsg Fin Agy Single Family
Mtg Sr Ser A2 (FHA Gtd).......... 7.200 01/01/27 596,998
------------
22,495,619
------------
VIRGINIA 3.5%
4,000 Alexandria, VA Redev & Hsg Auth
3001 Park Cent Apts Ser A Rfdg... 6.375 04/01/34 4,011,720
</TABLE>
See Notes to Financial Statements
36
<PAGE> 175
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VIRGINIA (CONTINUED)
$ 3,850 Charles City Cnty, VA Indl Dev
Waste Mgmt VA Inc Proj Rfdg...... 4.875% 02/01/09 $ 3,827,477
5,000 Chesapeake Bay Brdg & Tunl VA
Dist Rev Gen Resolution Rfdg
(MBIA Insd)...................... 5.500 07/01/25 5,374,300
2,000 Fairfax Cnty, VA Park Auth Park
Fac Rev (b)...................... 6.625 07/15/14 2,149,400
3,500 Fredericksburg, VA Indl Dev Auth
Hosp Fac Rev (Prerefunded @
08/15/01) (FGIC Insd) (b)........ 6.600 08/15/23 3,787,315
2,080 Loudoun Cnty, VA Ctfs Partn (FSA
Insd) (b)........................ 6.800 03/01/14 2,334,509
1,000 Loudoun Cnty, VA Ctfs Partn (FSA
Insd) (b)........................ 6.900 03/01/19 1,126,260
3,000 Peninsula Ports Auth VA Rev Port
Fac Zeigler Coal Rfdg (c)........ 6.900 05/02/22 3,006,660
5,000 Roanoke, VA Indl Dev Auth Hosp
Rev Roanoke Mem Hosp Carilion
Hlth Sys Ser B Rfdg (MBIA
Insd) (b)........................ 4.700 07/01/20 5,341,850
2,650 Virginia St Pub Bldg Auth Ser
A................................ 5.500 08/01/16 2,794,770
------------
33,754,261
------------
WASHINGTON 1.2%
2,000 King Cnty, WA Ser D.............. 5.700 12/01/10 2,198,480
1,250 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev (FGIC
Insd)............................ 7.125 07/01/16 1,556,975
3,555 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev Ser C Rfdg
(FSA Insd) (b)................... 5.375 07/01/15 3,643,733
3,750 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg
(FSA Insd)....................... 5.375 07/01/15 3,843,600
------------
11,242,788
------------
WEST VIRGINIA 0.4%
4,000 West VA St Hosp Fin Auth Hosp Rev
Rfdg (MBIA Insd)................. 6.100 01/01/18 4,279,200
------------
WISCONSIN 1.0%
750 Jefferson, WI Swr Sys Wtrwrks &
Elec Sys Mtg Rev (Prerefunded @
07/01/01)........................ 7.400 07/01/16 811,597
1,000 Oconto Falls, WI Cmnty Dev Oconto
Falls Tissue Inc Proj............ 7.750 12/01/22 1,063,840
</TABLE>
See Notes to Financial Statements
37
<PAGE> 176
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 1,250 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd)...................... * 12/15/21 $ 387,262
1,250 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd)...................... * 12/15/22 367,100
1,250 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd)...................... * 12/15/23 347,938
1,000 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd)...................... * 12/15/26 236,460
3,500 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd) (b).................. * 12/15/27 784,980
3,500 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd) (b).................. * 12/15/28 744,485
3,500 Southeast WI Professional
Baseball Pk Dist Sales Tax Rev
(MBIA Insd) (b).................. * 12/15/29 706,055
1,250 Wisconsin Hsg & Econ Dev Auth
Home Ownership Rev Rfdg (Inverse
Fltg)............................ 10.523% 10/25/22 1,387,500
540 Wisconsin St Hlth & Edl Fac Auth
Rev Hess Mem Hosp Assn........... 7.200 11/01/05 569,830
2,000 Wisconsin St Hlth & Edl Milwaukee
Catholic Home Proj............... 7.500 07/01/26 2,181,440
------------
9,588,487
------------
GUAM 0.0%
250 Guam Govt Ser A.................. 5.750 09/01/04 251,462
------------
PUERTO RICO 0.2%
200 Puerto Rico Comwlth Hwy & Tran
Auth Hwy Rev Ser V Rfdg.......... 6.625 07/01/12 217,100
250 Puerto Rico Elec Pwr Auth Pwr Rev
Ser T (Prerefunded @ 07/01/04)... 6.375 07/01/24 283,502
250 Puerto Rico Elec Pwr Auth Pwr Rev
Ser U Rfdg....................... 6.000 07/01/14 272,220
250 Puerto Rico Elec Pwr Auth Pwr Rev
Ser Z Rfdg....................... 5.500 07/01/14 263,265
</TABLE>
See Notes to Financial Statements
38
<PAGE> 177
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO (CONTINUED)
$ 320 Puerto Rico Hsg Bank & Fin Agy
Single Family Mtg Rev (GNMA
Collateralized).................. 6.250% 04/01/29 $ 337,248
300 Puerto Rico Pub Bldgs Auth Gtd
Pub Edl & Hlth Fac Ser M Rfdg
(FSA Insd)....................... 5.750 07/01/15 317,163
------------
1,690,498
------------
TOTAL INVESTMENTS 101.9%
(Cost $932,336,750)................................................. 994,268,258
LIABILITIES IN EXCESS OF OTHER ASSETS (1.9%)......................... (18,763,362)
------------
NET ASSETS 100.0%.................................................... $975,504,896
============
</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 not be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and futures transactions.
(c) Securities purchased on a when issued or delayed delivery basis.
(d) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(e) Currently is a payment-in-kind security which will convert to a cash paying
security at a predetermined date.
(f) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
AMBAC--AMBAC Indemnity Corporation
BIGI--Bond Investor Guaranty Inc.
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Public School Fund
See Notes to Financial Statements
39
<PAGE> 178
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $932,336,750)....................... $ 994,268,258
Receivables:
Interest.................................................. 16,577,030
Fund Shares Sold.......................................... 1,385,565
Investments Sold.......................................... 1,008,760
Variation Margin on Futures............................... 179,250
Other....................................................... 11,791
--------------
Total Assets.......................................... 1,013,430,654
--------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 20,337,126
Investments Purchased..................................... 8,941,840
Fund Shares Repurchased................................... 4,639,726
Income Distributions...................................... 2,124,295
Distributor and Affiliates................................ 957,812
Investment Advisory Fee................................... 396,807
Accrued Expenses............................................ 316,759
Trustees' Deferred Compensation and Retirement Plans........ 211,393
--------------
Total Liabilities..................................... 37,925,758
--------------
NET ASSETS.................................................. $ 975,504,896
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 921,374,732
Net Unrealized Appreciation................................. 62,017,779
Accumulated Undistributed Net Investment Income............. 1,410,677
Accumulated Net Realized Loss............................... (9,298,292)
--------------
NET ASSETS.................................................. $ 975,504,896
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $814,280,369 and 52,401,047 shares of
beneficial interest issued and outstanding)........... $ 15.54
Maximum sales charge (4.75%* of offering price)......... .77
--------------
Maximum offering price to public........................ $ 16.31
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $144,484,210 and 9,305,860 shares of
beneficial interest issued and outstanding)........... $ 15.53
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $16,740,317 and 1,079,177 shares of
beneficial interest issued and outstanding)........... $ 15.51
==============
* On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
40
<PAGE> 179
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 30,670,468
------------
EXPENSES:
Investment Advisory Fee..................................... 2,334,008
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $946,314, $872,383 and $77,722)............. 1,896,419
Shareholder Services........................................ 402,354
Custody..................................................... 39,143
Legal....................................................... 33,660
Trustees' Fees and Expenses................................. 19,566
Other....................................................... 454,847
------------
Total Operating Expenses................................ 5,179,997
------------
Interest Expense........................................ 588,704
------------
NET INVESTMENT INCOME....................................... $ 24,901,767
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 6,773,117
Options................................................... (781,047)
Futures................................................... (4,042,723)
------------
Net Realized Gain........................................... 1,949,347
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 90,902,720
------------
End of the Period:
Investments............................................. 61,931,508
Futures................................................. 86,271
------------
62,017,779
------------
Net Unrealized Depreciation During the Period............... (28,884,941)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(26,935,594)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (2,033,827)
============
</TABLE>
See Notes to Financial Statements
41
<PAGE> 180
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........... $ 24,901,767 $ 40,753,662 $ 53,413,395
Net Realized Gain............... 1,949,347 6,553,399 10,327,114
Net Unrealized
Appreciation/Depreciation
During the Period............. (28,884,941) 6,332,209 23,723,238
---------------- -------------- -------------
Change in Net Assets from
Operations.................... (2,033,827) 53,639,270 87,463,747
---------------- -------------- -------------
Distributions from Net
Investment Income:
Class A Shares................ (21,345,914) (31,284,803) (43,085,857)
Class B Shares................ (4,066,761) (7,203,055) (9,834,294)
Class C Shares................ (360,464) (518,861) (604,662)
---------------- -------------- -------------
Total Distributions......... (25,773,139) (39,006,719) (53,524,813)
---------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES......... (27,806,966) 14,632,551 33,938,934
---------------- -------------- -------------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold....... 437,190,154 531,715,930 535,028,913
Net Asset Value of Shares Issued
Through Dividend
Reinvestment.................. 13,088,767 19,893,086 27,237,798
Cost of Shares Repurchased...... (449,142,276) (556,676,605) (619,837,342)
---------------- -------------- -------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS.......... 1,136,645 (5,067,589) (57,570,631)
---------------- -------------- -------------
TOTAL INCREASE/DECREASE IN NET
ASSETS........................ (26,670,321) 9,564,962 (23,631,697)
NET ASSETS:
Beginning of the Period......... 1,002,175,217 992,610,255 1,016,241,952
---------------- -------------- -------------
End of the Period (Including
accumulated undistributed net
investment income of
$1,410,677, $2,282,049 and
$535,106, respectively)....... $ 975,504,896 $1,002,175,217 $ 992,610,255
================ ============== =============
</TABLE>
See Notes to Financial Statements
42
<PAGE> 181
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, -------------------------------------
Class A Shares 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ 15.9$91 $15.767 $15.267 $15.549 $14.261 $16.164
-- ------- ------- ------- ------- -------
Net Investment Income...... .408 .664 .852 .898 .874 .886
Net Realized and Unrealized
Gain/Loss................ (.437) .195 .500 (.298) 1.296 (1.907)
-- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.029) .859 1.352 .600 2.170 (1.021)
Less Distributions from Net
Investment Income........ .423 .635 .852 .882 .882 .882
-- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period................... $15.539 $15.991 $15.767 $15.267 $15.549 $14.261
======= ======= ======= ======= ======= =======
Total Return (a)........... (.23%)* 5.62%* 9.14% 4.07% 15.61% (6.37%)
Net Assets at End of the
Period (In millions)..... $814.3 $ 788.7 $766.2 $792.3 $839.7 $495.8
Ratio of Operating Expenses
to Average Net Assets
(b)...................... .91% .84% .89% .94% .99% .99%
Ratio of Interest Expense
to Average Net Assets.... .12% .03% N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets (b)............... 5.22% 5.63% 5.54% 5.93% 5.86% 5.93%
Portfolio Turnover......... 52%* 89%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
43
<PAGE> 182
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 Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, -------------------------------------
Class B Shares 1999(c) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period........... $15.982 $15.764 $15.267 $15.549 $14.261 $16.139
------- ------- ------- ------- ------- -------
Net Investment Income..... .351 .572 .734 .783 .762 .780
Net Realized and
Unrealized Gain/Loss.... (.441) .195 .501 (.297) 1.294 (1.890)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.............. (.090) .767 1.235 .486 2.056 (1.110)
Less Distributions from
Net Investment Income... .366 .549 .738 .768 .768 .768
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period.............. $15.526 $15.982 $15.764 $15.267 $15.549 $14.261
======= ======= ======= ======= ======= =======
Total Return (a).......... (.59%)* 5.05%* 8.27% 3.29% 14.74% (6.96%)
Net Assets at End of the
Period (In millions).... $144.5 $197.9 $211.2 $211.0 $216.6 $158.7
Ratio of Operating
Expenses to Average Net
Assets (b).............. 1.67% 1.62% 1.65% 1.70% 1.73% 1.70%
Ratio of Interest Expense
to Average Net Assets... .12% .03% N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets (b).............. 4.48% 4.85% 4.78% 5.17% 5.09% 5.22%
Portfolio Turnover........ 52%* 89%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
(c) Based on average shares outstanding.
* Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
44
<PAGE> 183
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 Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, -------------------------------------
Class C Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $ 15.964 $15.747 $15.254 $15.545 $14.262 $16.141
----------------- ------- ------- ------- ------- -------
Net Investment Income...... .347 .570 .730 .782 .771 .783
Net Realized and Unrealized
Gain/Loss................ (.433) .196 .501 (.305) 1.280 (1.894)
----------------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.086) .766 1.231 .477 2.051 (1.111)
Less Distributions from Net
Investment Income........ .366 .549 .738 .768 .768 .768
----------------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period................... $ 15.512 $15.964 $15.747 $15.254 $15.545 $14.262
================= ======= ======= ======= ======= =======
Total Return (a)........... (.59%)* 4.99%* 8.34% 3.16% 14.74% (6.97%)
Net Assets at End of the
Period (In millions)..... $16.7 $15.5 $15.3 $12.9 $11.2 $3.9
Ratio of Operating Expenses
to Average Net Assets
(b)...................... 1.67% 1.62% 1.66% 1.70% 1.72% 1.74%
Ratio of Interest Expense
to Average net Assets.... .12% .03% N/A N/A N/A N/A
Ratio of Net Investment
Income to Average Net
Assets (b)............... 4.41% 4.86% 4.75% 5.17% 5.24% 5.19%
Portfolio Turnover......... 52%* 89%* 104% 73% 61% 75%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended December 31, 1996 and 1995, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
* Non-Annualized
N/A = Not Applicable
See Notes to Financial Statements
45
<PAGE> 184
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Income Fund (the "Fund") is organized as a series of the
Van Kampen Tax Free Trust, a Delaware business trust, and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's investment objective is to provide a high
level of current income exempt from federal income tax, consistent with
preservation of capital. The Fund commenced investment operations on August 1,
1990. The distribution of the Fund's Class B and Class C shares commenced on
August 24, 1992 and August 13, 1993, respectively. In July, 1998, the Fund's
Board of Trustees approved a change in the Fund's fiscal year end from December
31 to September 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
46
<PAGE> 185
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $11,480,037 which will expire on September 30,
2003. Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.
At March 31, 1999, for federal income tax purposes, cost of long-term
investments is $932,342,114; the aggregate gross unrealized appreciation is
$74,029,013 and the aggregate gross unrealized depreciation is $12,102,869,
resulting in net unrealized appreciation on long-term investments of
$61,926,144.
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.
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>
47
<PAGE> 186
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $23,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $141,100 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
March 31, 1999, the Fund recognized expenses of approximately $287,100. 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.
48
<PAGE> 187
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 March 31, 1999, capital aggregated $766,696,290, $138,293,666 and
$16,384,776 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 26,792,538 $ 420,778,727
Class B.................................. 829,189 13,036,076
Class C.................................. 215,227 3,375,351
----------- -------------
Total Sales................................ 27,836,954 $ 437,190,154
=========== =============
Dividend Reinvestment:
Class A.................................. 689,900 $ 10,837,581
Class B.................................. 130,981 2,057,317
Class C.................................. 12,364 193,869
----------- -------------
Total Dividend Reinvestment................ 833,245 $ 13,088,767
=========== =============
Repurchases:
Class A.................................. (24,402,882) $(383,855,026)
Class B.................................. (4,040,198) (63,404,601)
Class C.................................. (119,990) (1,882,649)
----------- -------------
Total Repurchases.......................... (28,563,070) $(449,142,276)
=========== =============
</TABLE>
49
<PAGE> 188
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $718,935,008, $186,604,874 and
$14,698,205 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 32,662,126 $ 513,944,856
Class B................................... 929,950 14,649,977
Class C................................... 198,389 3,121,097
----------- -------------
Total Sales................................. 33,790,465 $ 531,715,930
=========== =============
Dividend Reinvestment:
Class A................................... 1,003,395 $ 15,819,172
Class B................................... 239,468 3,773,374
Class C................................... 19,090 300,540
----------- -------------
Total Dividend Reinvestment................. 1,261,953 $ 19,893,086
=========== =============
Repurchases:
Class A................................... (32,937,857) $(518,889,151)
Class B................................... (2,179,386) (34,392,429)
Class C................................... (216,155) (3,395,025)
----------- -------------
Total Repurchases........................... (35,333,398) $(556,676,605)
=========== =============
</TABLE>
At December 31, 1997, capital aggregated $708,060,131, $202,573,952 and
$14,671,593 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 33,152,701 $ 506,790,274
Class B................................... 1,551,226 23,205,097
Class C................................... 328,583 5,033,542
----------- -------------
Total Sales................................. 35,032,510 $ 535,028,913
=========== =============
</TABLE>
50
<PAGE> 189
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 March 31, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $97,200 and CDSC on redeemed shares of approximately $99,400.
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
51
<PAGE> 190
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
valued at $7,384,748, $9,798,388 and $985,356, respectively, in exchange for NJ
Fund's net assets. Included in these net assets was a capital loss carryforward
of $203,930 which is included in accumulated net realized gain/loss and
cumulative book and tax basis differences related to expenses not yet deductible
for tax purposes of $15,721 which is a component of undistributed net investment
income. Shares issued in connection with this reorganization are included in
common share sales for the year ended December 31, 1997. Combined net assets on
the day of acquisition were $1,013,024,339.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments were $537,109,362 and
$564,360,602, 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.
52
<PAGE> 191
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended March 31, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at September 30, 1998............... 2,250 $ 6,775
Options Written and Purchased (Net)............. 3,850 (642,904)
Options Terminated in Closing Transactions
(Net)......................................... (3,250) 231,794
Options Expired (Net)........................... (2,850) 404,335
------ ---------
Outstanding at March 31, 1999................... -0- $ -0-
====== =========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
Transactions in futures contracts for the six months ended March 31, 1999
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... 1,660
Futures Opened............................................ 14,707
Futures Closed............................................ (15,575)
-------
Outstanding at March 31, 1999............................. 792
=======
</TABLE>
53
<PAGE> 192
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The futures contracts outstanding at March 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
DESCRIPTION CONTRACTS (DEPRECIATION)
- -------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--U.S. Treasury Bond Futures
June 1999
(Current notional value $120,563 per
contract).............................. 192 $(233,869)
Short Contracts--Municipal Bond Index Futures June 1999
(Current notional value $123,594 per
contract).............................. 600 320,140
--- ---------
792 $ 86,271
=== =========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Fund to enhance the yield of the portfolio.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short-term interest rates which it
pays on its preferred shares.
54
<PAGE> 193
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended March 31, 1999, are payments retained by Van
Kampen of approximately $727,800.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
in an amount up to 5% of its total assets. The Fund, in combination with two
other funds in the fund complex, has entered into a $100 million revolving
credit agreement which expires September 27, 1999. The maximum amount available
to any single fund is $75 million. Interest is charged under the agreement at a
rate of .45% above the federal funds rate. The interest rate in effect at March
31, 1999 was 5.575%. An annual facility fee of .06% is charged on the unused
portion of the credit facility.
The average daily balance of bank borrowings for the six months ended March
31, 1999 was approximately $21,647,200 with an average interest rate of 5.45%.
At March 31, 1999, borrowings under this agreement represented 2.0% of the
Fund's total assets.
55
<PAGE> 194
VAN KAMPEN MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After August 31, 1999, the report, if used by prospective
investors, must be accompanied by a monthly performance update.
56
<PAGE> 195
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 196
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.............. 16
Statement of Operations.......................... 17
Statement of Changes in Net Assets............... 18
Financial Highlights............................. 19
Notes to Financial Statements.................... 22
</TABLE>
INF SAR 5/99
<PAGE> 197
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 198
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory
Corp.
2
<PAGE> 199
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 1.46% 1.12% 1.12%
Six-month total return(2)................ (1.83%) (1.86%) 0.13%
One-year total return(2)................. 2.10% 1.68% 3.78%
Five-year average annual total
return(2).............................. 6.25% 6.18% 6.19%
Life-of-Fund average annual total
return(2).............................. 5.93% 5.76% 4.84%
Commencement date........................ 05/28/93 05/28/93 10/19/93
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.69% 4.12% 4.12%
Taxable equivalent distribution
rate(4).................................. 7.33% 6.44% 6.44%
SEC Yield(5)............................. 3.84% 3.20% 3.20%
</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 March 31, 1999.
A portion of the interest income may be taxable for investors subject to the
federal alternative minimum tax (AMT).
Investing in high-yield, lower-rated securities involves certain risks, which
may include the potential for greater sensitivity to general economic downturns
and greater market price volatility.
See the 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.
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> 200
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 201
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 202
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
We recently spoke with the management team of the Van Kampen Intermediate Term
Municipal Income Fund about the key events and economic forces that shaped the
markets during the reporting period. The team includes Timothy D. Haney,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 203
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND?
A The Fund's proportion of AAA-rated bonds increased significantly because
we received a substantial inflow of new funds during the past six months.
Typically, when new assets come into the Fund, we put that new money to
work right away in insured bonds because we have been able to find attractive
AAA bonds easily and quickly. Then, we gradually move some of the assets into
lower-rated and non-rated bonds as opportunities arise. Because the marketplace
currently offers a wide range of strong lower-rated credits, we plan to continue
shifting assets into non-rated bonds throughout the next several months.
In addition, we focused on premium bonds with 10-15 year maturities because
we feel they currently provide some of the best values in the municipal market.
Bonds in this maturity range currently offer yields that are similar to
longer-maturity bonds, but present less interest rate risk. In fact, the Fund
generated a yield that was quite competitive with that of a 30-year insured
municipal bond, but experienced less than half as much price volatility (as
measured by duration). To keep the Fund's average maturity within our target
range, we have balanced these 10-15 year bonds with very short-maturity bonds.
For additional portfolio highlights, please refer to page 9.
Q WHERE DID YOU FIND VALUE IN THE MUNICIPAL MARKET?
A We looked for areas of the municipal marketplace where a large number of
issues had temporarily reduced bond prices. For example, smaller states
often don't have enough demand to immediately absorb a large volume of new
bonds. We took advantage of those situations to purchase bonds at below-market
prices, and then sold them once the issues had been absorbed and prices had
risen.
In addition, we found value in a new type of utility bond that has entered
the marketplace as a part of pooled gas purchase programs. In these new
programs, municipalities join together to purchase natural gas in larger
quantities so that they can each benefit from the lower rates offered to large
buyers. These programs are often financed through municipal bonds. Because these
bonds are new and unfamiliar, we were able to purchase them at below-market
rates and have subsequently seen good price appreciation as the market has grown
accustomed to this kind of bond issue. In sectors that are undergoing rapid
transitions--areas such as health care and utilities--we can take advantage of
our research capabilities to seek out those issuers that we feel have the
potential to perform well as their industries are transformed.
7
<PAGE> 204
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
A During the past six months, the Fund generated a total return of 1.46
percent(1) (Class A shares at net asset value). By comparison, the Lehman
Brothers 10-Year Municipal Bond Index produced a total return of 1.23
percent over the same period. This index is a broad-based statistical composite
of municipal bonds and does not reflect any commissions or sales charges that
would be paid by an investor purchasing the securities or investments it
represents. The Fund's tax-exempt distribution rate of 4.69 percent(3)
translates into a taxable-equivalent yield of 7.33 percent(4) for an investor in
the 36 percent federal income tax bracket. Past performance does not guarantee
future results.
The Fund's monthly dividend was increased on March 1, 1999, from $0.0405 per
Class A share to $0.0430. As intermediate-term bonds became more attractive in
the municipal market, we were able to purchase higher-yielding bonds and build
the Fund's income stream. Because the increase in income was significant enough
to support a higher dividend, the Fund's Board of Trustees approved the dividend
increase. Please refer to the chart and footnotes on page 3 for additional
performance results.
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
[SIG]
Timothy D. Haney
Timothy D. Haney
Portfolio Manager
[SIG]
Peter W. Hegel
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 205
PORTFOLIO HIGHLIGHTS
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
TOP TEN STATES AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Illinois............... 10.1%
New York............... 9.9%
Georgia................ 6.4%
New Jersey............. 5.7%
Alabama................ 5.4%
Ohio................... 5.4%
Florida................ 5.3%
Texas.................. 5.0%
California............. 4.6%
Tennessee.............. 3.9%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
AAA AA A BBB CCC NON-RATED
<S> <C> <C> <C> <C> <C> <C>
3/31/1999 40.2 5.0 8.2 20.9 0.4 25.3
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
AAA AA A BBB BB NON-RATED
<S> <C> <C> <C> <C> <C> <C>
9/30/1998 35.9 4.3 7.7 20.6 2.9 28.6
</TABLE>
[PIE CHART]
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
As of March 31, 1999
<S> <C>
Health Care........... 20.8%
General Purpose....... 12.7%
Multi-Family
Housing............. 12.5%
Industrial Revenue.... 11.6%
Airport............... 11.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Health Care............ 21.0%
Multi-Family Housing... 14.3%
General Purpose........ 13.3%
Industrial Revenue..... 11.9%
Airport................ 8.6%
</TABLE>
9
<PAGE> 206
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 105.7%
ALABAMA 5.7%
$1,015 Birmingham, AL Arpt Auth Arpt Rev Rfdg
(AMBAC Insd) (b)....................... 5.250% 07/01/06 $ 1,061,385
1,000 Montgomery, AL BMC Spl Care Facs Fin
Auth Rev Baptist Hlth Ser B (MBIA
Insd).................................. 4.100 11/15/05 999,100
500 West Jefferson Cnty, AL Amusement & Pub
Pk Auth (Prerefunded @ 12/01/06)....... 7.500 12/01/08 614,740
-----------
2,675,225
-----------
ALASKA 0.6%
250 Seward, AK Rev AK Sealife Cent Proj.... 7.100 10/01/05 262,377
-----------
ARIZONA 3.7%
500 Maricopa Cnty, AZ Indl Dev Auth Sr
Living Fac Rev......................... 7.250 04/01/05 521,030
1,070 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson Ser A
Rfdg (FSA Insd) (c).................... 7.250 07/15/10 1,184,436
-----------
1,705,466
-----------
CALIFORNIA 4.9%
335 California Edl Fac Auth Rev Pacific
Grad School............................ 6.950 11/01/07 348,387
1,000 California St (AMBAC Insd)............. 6.400 09/01/08 1,171,740
240 Del Mar, CA Race Track Auth Rev Rfdg... 6.000 08/15/06 254,707
500 Stockton, CA Cmnty Fac Dist Spl Tax No
1 Mello Roos Weston Ranch Ser A........ 5.500 09/01/09 505,650
-----------
2,280,484
-----------
COLORADO 3.5%
330 Colorado Hlth Fac Auth Rev Sr Living
Fac Eaton Terrace Ser A................ 6.800 07/01/09 342,405
134 Colorado Hsg Fin Auth Access Pgm Single
Family Pgm Ser E....................... 8.125 12/01/24 145,935
1,000 Denver, CO City & Cnty Arpt Rev Ser
A...................................... 7.400 11/15/04 1,135,770
-----------
1,624,110
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 207
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONNECTICUT 1.4%
$ 145 Mashantucket Western Pequot Tribe CT
Spl Rev Ser A (Escrowed to Maturity),
144A - Private Placement (a)........... 6.500% 09/01/06 $ 167,407
475 New Haven, CT Indl Fac Rev Adj Govt
Cent Thermal Energies.................. 7.250 07/01/09 490,523
-----------
657,930
-----------
FLORIDA 5.6%
1,150 Florida Hsg Fin Agy Hsg Maitland Club
Apts Ser B1 (AMBAC Insd)............... 6.750 08/01/14 1,257,468
190 Lee Cnty, FL Indl Dev Auth Econ Rev
Encore Nursing Cent Partner Rfdg....... 8.125 12/01/07 207,928
250 Orange Cnty, FL Hlth Fac Auth Rev First
Mtg Orlando Lutheran Twr Rfdg.......... 8.125 07/01/06 274,895
300 Volusia Cnty, FL Indl Dev Auth Bishops
Glen Proj Rfdg......................... 7.125 11/01/06 342,237
535 Westchase East Cmnty Dev Dist FL Cap
Impt Rev............................... 7.250 05/01/03 552,639
-----------
2,635,167
-----------
GEORGIA 6.7%
1,455 De Kalb Cnty, GA Hsg Auth Multi-Family
Hsg Rev North Hill Apts Proj Rfdg (FNMA
Collateralized) (c).................... 6.625 01/01/25 1,585,383
500 Forsyth Cnty, GA Hosp Auth Rev Antic
Ctfs GA Baptist Hlth Care Sys Proj..... 6.000 10/01/08 498,570
1,000 George L Smith II GA World Congress Ctr
Auth Rev Rfdg Domed Stadium Proj (MBIA
Insd) (b).............................. 6.000 07/01/04 1,052,350
-----------
3,136,303
-----------
ILLINOIS 10.7%
400 Bedford Park, IL Tax Increment 71st &
Cicero Proj Rfdg....................... 7.000 01/01/06 429,240
500 Carol Stream, IL First Mtg Rev Windsor
Pk Mnr Proj............................ 6.500 12/01/07 537,370
445 Chicago, IL Tax Increment Allocation
San Drainage & Ship Canal A............ 7.375 01/01/05 470,810
545 Clay Cnty, IL Hosp Rev................. 5.500 12/01/10 536,209
135 Danville, IL Single Family Mtg Rev
Rfdg................................... 7.300 11/01/10 143,829
330 Huntley, IL Spl Svc Area No 7 Spl
Tax.................................... 6.000 03/01/09 329,858
</TABLE>
See Notes to Financial Statements
11
<PAGE> 208
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$1,335 Illinois Dev Fin Auth Elderly Hsg Rev
Libertyville Towers Ser A.............. 6.500% 09/01/09 $ 1,412,924
750 Illinois Hlth Fac Auth Rev Holy Cross
Hosp Proj Ser 94-A..................... 6.250 03/01/04 791,385
300 Peoria, IL Spl Tax WeaverRidge Spl Svc
Area................................... 7.625 02/01/08 327,108
-----------
4,978,733
-----------
INDIANA 0.7%
350 Indiana Hlth Fac Fin Auth Hosp Rev Rfdg
Floyd Mem Hosp & Hlth Svcs............. 4.800 02/15/07 353,731
-----------
KANSAS 2.4%
1,120 Kansas St Dev Fin Auth Rev Rfdg Dept
Corr El Dorado Proj Ser A1 (MBIA
Insd).................................. 4.050 08/01/05 1,120,258
-----------
KENTUCKY 1.2%
500 Kenton Cnty, KY Arpt Brd Rev (MBIA
Insd).................................. 5.900 03/01/05 545,495
-----------
LOUISIANA 1.6%
230 Iberia Parish, LA Hosp Svc Dist No 1
Hosp Rev............................... 7.500 05/26/06 234,158
500 Louisiana Hsg Fin Agy Rev Multi-Family
Hsg Plantation Ser A................... 7.200 01/01/06 500,900
-----------
735,058
-----------
MASSACHUSETTS 3.7%
500 Massachusetts St Hlth & Edl Fac Auth
Rev Cent New England Hlth Sys Ser A.... 6.125 08/01/13 511,650
500 Massachusetts St Hlth & Edl North Adams
Regl Hosp Ser C........................ 6.250 07/01/04 537,810
210 Massachusetts St Indl Fin Agy East
Boston Neighborhood Proj............... 7.250 07/01/06 199,500
500 Massachusetts St Indl Fin Agy Rev Grtr
Lynn Mental Hlth....................... 6.200 06/01/08 498,255
-----------
1,747,215
-----------
MICHIGAN 3.2%
1,500 Michigan St Strategic Fd Ltd Oblig Rev
United Waste Sys Proj (b).............. 5.200 04/01/10 1,503,735
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 209
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINNESOTA 1.7%
$ 500 Dakota Cnty, MN Hsg & Redev Auth
Multi-Family Hsg Rev Affordable Hsg
View Pointe Proj....................... 6.000% 11/01/09 $ 499,980
300 Minneapolis, MN Multi-Family Rev Hsg
Belmont Apts Proj...................... 7.000 11/01/06 312,120
-----------
812,100
-----------
MISSOURI 3.6%
1,500 Kansas City, MO Arpt Rev Genl Impt Ser
A (FSA Insd) (c)....................... 7.000 09/01/12 1,702,965
-----------
MONTANA 1.1%
500 Crow Fin Auth MT Tribal Purp Rev, 144A-
Private Placement (a).................. 5.400 10/01/07 526,910
-----------
NEW JERSEY 6.1%
500 Camden Cnty, NJ Impt Auth Lease Rev
Kaighn Pt Marine Terminal A............ 7.375 06/01/07 535,060
1,000 East Orange, NJ Brd Ed Ctfs Partn Cap
Apprec (FSA Insd)...................... * 02/01/16 432,620
250 New Jersey Econ Dev Auth Rev Sr Mtg
Arbor Glen Proj Ser A (Escrowed to
Maturity).............................. 8.000 05/15/04 290,862
1,000 New Jersey Hlthcare Fac Fin Auth Rev
Christ Hosp Group Issue (Connie Lee
Insd).................................. 7.000 07/01/06 1,168,940
375 New Jersey Hlthcare Fac Fin Auth Rev
Palisades Med Cent..................... 7.500 07/01/06 398,040
-----------
2,825,522
-----------
NEW MEXICO 2.1%
1,000 Rio Rancho, NM Wtr & Wastewtr Sys Rev
Rfdg (AMBAC Insd)...................... 4.400 05/15/11 981,250
-----------
NEW YORK 10.5%
500 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev Woodcrest Estates
Fac Ser A.............................. 5.875 12/01/09 500,385
500 New York City Ser A.................... 7.000 08/01/07 584,255
500 New York St Dorm Auth Rev Rfdg Secd
Hosp North Gen Hosp Ser G.............. 5.125 02/15/08 519,475
1,000 New York St Med Care Fac Fin Agy Rev NY
Hosp Mtg Ser A (Prerefunded @ 02/15/05)
(AMBAC Insd)........................... 6.200 08/15/05 1,127,390
</TABLE>
See Notes to Financial Statements
13
<PAGE> 210
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$1,000 New York St Twy Auth Svc Contract Loc
Hwy & Brdg............................. 5.800% 04/01/00 $ 1,024,840
1,000 Niagara Falls, NY Pub Impt (MBIA
Insd).................................. 6.900 03/01/20 1,136,270
-----------
4,892,615
-----------
OHIO 5.7%
500 Cuyahoga Cnty, OH Hlthcare Fac Rev
Judson Retirement Cmnty Ser A Rfdg..... 7.000 11/15/10 535,350
250 Marion Cnty, OH Hosp Impt Rev Cmnty
Hosp Rfdg.............................. 6.375 05/15/11 271,373
1,000 Ohio St Air Quality Dev Auth Rev Owens
Corning Fiberglass Proj Rfdg........... 6.250 06/01/04 1,051,480
775 Sandusky Cnty, OH Hosp Fac Rev Rfdg Mem
Hosp................................... 5.000 01/01/06 791,763
-----------
2,649,966
-----------
OKLAHOMA 1.0%
445 Shawnee, OK Hosp Auth Hosp Rev
Midamerica Hlthcare Inc Rfdg........... 5.750 10/01/03 455,818
-----------
PENNSYLVANIA 1.6%
225 Erie, PA Higher Edl Bldg Auth College
Rev Mercyhurst College Proj A Rfdg..... 5.300 03/15/03 234,655
490 Philadelphia, PA Auth For Indl Dev
Hlthcare Fac Rev Baptist Home of Phil
Ser A.................................. 5.200 11/15/04 494,214
-----------
728,869
-----------
TENNESSEE 4.2%
2,000 Municipal Energy Acq Corp TN Gas Rev
(FSA Insd)............................. 4.125 03/01/09 1,941,240
-----------
TEXAS 5.3%
500 Austin, TX Util Sys Rev Rfdg (AMBAC
Insd).................................. 6.500 11/15/05 570,350
1,110 Garland, TX Rfdg Ser A................. 5.300 02/15/14 1,148,273
405 Mesquite, TX Hlth Fac Dev Retirement
Fac Christian Ser A.................... 6.100 02/15/08 427,931
300 San Antonio, TX Hsg Fin Corp
Multi-Family Hsg Rev Beverly Oaks Arpt
Proj Ser A............................. 7.500 02/01/10 315,876
-----------
2,462,430
-----------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 211
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH 2.5%
$1,070 Utah St Hsg Fin Agy Single Family Mtg
Mezz Ser A (FHA Gtd) (c)............... 7.150% 07/01/12 $ 1,150,689
-----------
VIRGINIA 1.2%
500 Pittsylvania Cnty, VA Indl Dev Auth Rev
Exempt Fac Ser A....................... 7.450 01/01/09 546,190
-----------
U. S. VIRGIN ISLANDS 3.5%
1,000 Virgin Islands Port Auth Arpt Rev Rfdg
Ser A (ACA Insd) (b)................... 4.050 09/01/01 1,001,390
600 Virgin Islands Pub Fin Auth Rev Sr Lien
Fd Ln Nts Ser C........................ 5.500 10/01/07 632,028
-----------
1,633,418
-----------
TOTAL LONG-TERM INVESTMENTS 105.7%
(Cost $46,661,229).................................................. 49,271,269
TOTAL SHORT-TERM INVESTMENTS 4.5%
(Cost $2,100,000)................................................... 2,100,000
-----------
TOTAL INVESTMENTS 110.2%
(Cost $48,761,229).................................................. 51,371,269
LIABILITIES IN EXCESS OF OTHER ASSETS (10.2%)........................ (4,773,045)
----------
NET ASSETS 100.0%.................................................... $46,598,224
==========
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
15
<PAGE> 212
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $48,761,229)........................ $51,371,269
Cash........................................................ 3,730
Receivables:
Investments Sold.......................................... 2,520,054
Interest.................................................. 642,086
Fund Shares Sold.......................................... 48,901
-----------
Total Assets.......................................... 54,586,040
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 6,598,167
Fund Shares Repurchased................................... 1,073,646
Income Distributions...................................... 64,206
Distributor and Affiliates................................ 43,636
Investment Advisory Fee................................... 20,178
Trustees' Deferred Compensation and Retirement Plans........ 123,587
Accrued Expenses............................................ 64,396
-----------
Total Liabilities..................................... 7,987,816
-----------
NET ASSETS.................................................. $46,598,224
===========
NET ASSETS CONSIST OF:
Capital..................................................... $44,172,289
Net Unrealized Appreciation................................. 2,610,040
Accumulated Undistributed Net Investment Income............. 25,269
Accumulated Net Realized Loss............................... (209,374)
-----------
NET ASSETS.................................................. $46,598,224
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $26,813,152 and 2,520,847 shares of
beneficial interest issued and outstanding)............. $ 10.64
Maximum sales charge (3.25%* of offering price)......... .36
-----------
Maximum offering price to public........................ $ 11.00
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $15,296,319 and 1,440,415 shares of
beneficial interest issued and outstanding)............. $ 10.62
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,488,753 and 422,733 shares of
beneficial interest issued and outstanding)............. $ 10.62
===========
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
16
<PAGE> 213
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,217,123
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $28,887, $76,967 and $21,338,
respectively)............................................. 127,192
Investment Advisory Fee..................................... 106,738
Accounting Services......................................... 22,486
Shareholder Services........................................ 21,175
Custody..................................................... 1,844
Legal....................................................... 769
Other....................................................... 25,501
-----------
Total Expenses.......................................... 305,705
-----------
NET INVESTMENT INCOME....................................... $ 911,418
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 90,678
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 3,084,453
End of the Period:
Investments........................................... 2,610,040
-----------
Net Unrealized Depreciation During the Period............... (474,413)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (383,735)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 527,683
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 214
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, the Nine Months Ended September 30,
1998 and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............. $ 911,418 $ 1,184,525 $ 1,380,936
Net Realized Gain................. 90,678 38,354 347,481
Net Unrealized
Appreciation/Depreciation During
the Period...................... (474,413) 650,720 651,462
----------- ----------- -----------
Change in Net Assets from
Operations...................... 527,683 1,873,599 2,379,879
----------- ----------- -----------
Distributions from Net Investment
Income:
Class A Shares.................. (532,581) (625,738) (560,309)
Class B Shares.................. (302,629) (469,656) (628,468)
Class C Shares.................. (83,873) (89,521) (186,777)
----------- ----------- -----------
Total Distributions........... (919,083) (1,184,915) (1,375,554)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES........... (391,400) 688,684 1,004,325
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......... 12,063,069 13,360,043 5,579,082
Net Asset Value of Shares Issued
Through Dividend Reinvestment... 588,554 800,943 883,487
Cost of Shares Repurchased........ (4,722,214) (8,183,923) (9,753,115)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............ 7,929,409 5,977,063 (3,290,546)
----------- ----------- -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS.......................... 7,538,009 6,665,747 (2,286,221)
NET ASSETS:
Beginning of the Period........... 39,060,215 32,394,468 34,680,689
----------- ----------- -----------
End of the Period (Including
accumulated undistributed net
investment income of $25,269,
$32,934, $33,324,
respectively)................... $46,598,224 $39,060,215 $32,394,468
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 215
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Nine Months Year Ended December 31,
Ended Ended -------------------------------------
Class A Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............. $ 10.728 $ 10.536 $10.213 $10.264 $ 9.330 $10.145
----------------- ----------------- ------- ------- ------- -------
Net Investment
Income........... .240 .358 .480 .455 .508 .489
Net Realized and
Unrealized
Gain/Loss........ (.085) .199 .317 (.032) .900 (.815)
----------------- ----------------- ------- ------- ------- -------
Total from Investment
Operations......... .155 .557 .797 .423 1.408 (.326)
Less Distributions
from Net Investment
Income............. .246 .365 .474 .474 .474 .489
----------------- ----------------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $ 10.637 $ 10.728 $10.536 $10.213 $10.264 $ 9.330
================= ================= ======= ======= ======= =======
Total Return* (a).... 1.46%** 5.36%** 8.08% 4.27% 15.31% (3.32%)
Net Assets at End of
the Period (In
millions).......... $ 26.8 $ 20.6 $ 12.9 $ 12.5 $ 15.6 $ 15.7
Ratio of Expenses to
Average Net
Assets*............ 1.09% 1.30% 1.52% 1.56% 1.00% .67%
Ratio of Net
Investment Income
to Average Net
Assets*............ 4.58% 4.61% 4.67% 4.45% 5.10% 5.07%
Portfolio Turnover... 30%** 15%** 37% 45% 75% 274%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses
to Average Net
Assets............. n/a n/a 1.67% 1.74% 1.61% 1.75%
Ratio of Net
Investment Income
to Average Net
Assets............. n/a n/a 4.52% 4.27% 4.49% 3.99%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
n/a - not applicable
See Notes to Financial Statements
19
<PAGE> 216
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 Nine Months Year Ended December 31,
Ended Ended -------------------------------------
Class B Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............. $ 10.714 $ 10.526 $10.209 $10.263 $ 9.319 $10.137
----------------- ----------------- ------- ------- ------- -------
Net Investment
Income........... .207 .308 .402 .375 .430 .417
Net Realized and
Unrealized
Gain/Loss........ (.093) .191 .317 (.027) .916 (.818)
----------------- ----------------- ------- ------- ------- -------
Total from Investment
Operations......... .114 .499 .719 .348 1.346 (.401)
Less Distributions
from Net Investment
Income............. .209 .311 .402 .402 .402 .417
----------------- ----------------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $ 10.619 $ 10.714 $10.526 $10.209 $10.263 $ 9.319
================= ================= ======= ======= ======= =======
Total Return* (a).... 1.12%** 4.74%** 7.23% 3.54% 14.62% (4.04%)
Net Assets at End of
the Period (In
millions).......... $ 15.3 $ 15.2 $ 16.4 $ 16.4 $ 17.5 $ 17.7
Ratio of Expenses to
Average Net
Assets*............ 1.82% 2.06% 2.28% 2.32% 1.75% 1.43%
Ratio of Net
Investment Income
to Average Net
Assets*............ 3.90% 3.90% 3.91% 3.69% 4.33% 4.30%
Portfolio Turnover... 30%** 15%** 37% 45% 75% 274%
* If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to
Average Net
Assets............. n/a n/a 2.42% 2.50% 2.36% 2.50%
Ratio of Net
Investment Income
to Average Net
Assets............. n/a n/a 3.77% 3.51% 3.72% 3.24%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
n/a - not applicable
See Notes to Financial Statements
20
<PAGE> 217
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 Nine Months Year Ended December 31,
Ended Ended -------------------------------------
Class C Shares March 31, 1999 September 30, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............. $ 10.712 $ 10.525 $10.206 $10.260 $ 9.314 $10.134
----------------- ----------------- ------- ------- ------- -------
Net Investment
Income........... .205 .308 .402 .374 .430 .419
Net Realized and
Unrealized
Gain/Loss........ (.090) .190 .319 (.026) .918 (.822)
----------------- ----------------- ------- ------- ------- -------
Total from Investment
Operations......... .115 .498 .721 .348 1.348 (.403)
Less Distributions
from Net Investment
Income............. .209 .311 .402 .402 .402 .417
----------------- ----------------- ------- ------- ------- -------
Net Asset Value, End
of the Period...... $ 10.618 $ 10.712 $10.525 $10.206 $10.260 $ 9.314
================= ================= ======= ======= ======= =======
Total Return* (a).... 1.12%** 4.74%** 7.23% 3.54% 14.74% (4.04%)
Net Assets at End of
the Period (In
millions).......... $ 4.5 $ 3.3 $ 3.1 $ 5.8 $ 4.9 $ 4.7
Ratio of Expenses to
Average
Net Assets*........ 1.83% 2.06% 2.29% 2.32% 1.74% 1.43%
Ratio of Net
Investment Income
to Average
Net Assets*........ 3.87% 3.89% 3.88% 3.70% 4.36% 4.34%
Portfolio Turnover... 30%** 15%** 37% 45% 75% 274%
*If certain expenses had not been reimbursed by Van Kampen, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to
Average Net
Assets............. n/a n/a 2.43% 2.50% 2.34% 2.46%
Ratio of Net
Investment Income
to Average Net
Assets............. n/a n/a 3.74% 3.52% 3.75% 3.31%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
n/a - not applicable
See Notes to Financial Statements
21
<PAGE> 218
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Intermediate Term Municipal Income Fund (the "Fund") is organized as
a series of Van Kampen Tax Free Trust (the "Trust"), a Delaware business trust,
and is registered as a diversified open-end management investment company under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is to seek a high level of current income exempt from federal income tax,
consistent with preservation of capital. The Fund commenced investment
operations on May 28, 1993 with two classes of common shares, Class A and Class
B shares. The distribution of the Fund's Class C shares commenced on October 19,
1993. In July 1998, the Fund's Board of Trustees approved a change in the Fund's
Fiscal year end from December 31 to September 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
22
<PAGE> 219
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At September 30, 1998, the Fund had an accumulated capital loss carryforward for
tax purposes of $300,052 which will expire between September 30, 2002 and
September 30, 2003. Net realized gains or losses may differ for financial
reporting and tax purposes primarily as a result of post October losses which
may not be recognized for tax purposes until the first day of the following
fiscal year.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $48,761,229; the aggregate gross unrealized
appreciation is $2,644,879 and the aggregate gross unrealized depreciation is
$34,839, resulting in net unrealized appreciation on long- and short-term
investments of $2,610,040.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays dividends
monthly from net investment income. Net realized gains, if any, are distributed
annually. Distributions from net realized gains for book purposes may include
short-term capital gains, which are included as ordinary income for tax
purposes.
23
<PAGE> 220
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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.................................... .500 of 1%
Over $500 million..................................... .450 of 1%
</TABLE>
For the six months ended March 31, 1999, 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 March 31, 1999, the Fund recognized expenses of
approximately $22,700 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
March 31, 1999, the Fund recognized expenses of approximately $9,200. Transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
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.
24
<PAGE> 221
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At March 31, 1999, capital aggregated $25,860,094, $14,266,857 and
$4,045,338 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 835,756 $ 8,934,406
Class B....................................... 152,075 1,622,747
Class C....................................... 140,863 1,505,916
--------- -----------
Total Sales..................................... 1,128,694 $12,063,069
========= ===========
Dividend Reinvestment:
Class A....................................... 32,998 $ 352,365
Class B....................................... 15,539 165,692
Class C....................................... 6,612 70,497
--------- -----------
Total Dividend Reinvestment..................... 55,149 $ 588,554
========= ===========
Repurchases:
Class A....................................... (266,453) $(2,838,487)
Class B....................................... (144,977) (1,544,774)
Class C....................................... (31,813) (338,953)
--------- -----------
Total Repurchases............................... (443,243) $(4,722,214)
========= ===========
</TABLE>
25
<PAGE> 222
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $19,411,810, $14,023,192 and
$2,807,878 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 1,074,637 $11,350,330
Class B....................................... 130,358 1,377,259
Class C....................................... 59,963 632,454
--------- -----------
Total Sales..................................... 1,264,958 $13,360,043
========= ===========
Dividend Reinvestment:
Class A....................................... 43,203 $ 457,668
Class B....................................... 25,218 266,756
Class C....................................... 7,232 76,519
--------- -----------
Total Dividend Reinvestment..................... 75,653 $ 800,943
========= ===========
Repurchases:
Class A....................................... (425,765) $(4,501,920)
Class B....................................... (297,555) (3,150,507)
Class C....................................... (50,238) (531,496)
--------- -----------
Total Repurchases............................... (773,558) $(8,183,923)
========= ===========
</TABLE>
26
<PAGE> 223
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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>
27
<PAGE> 224
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $1,900 and CDSC on redeemed shares of approximately $12,100. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments were $22,755,509 and
$13,129,276, 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. 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, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation
28
<PAGE> 225
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
margin). There were no transactions in futures contracts for the six months
ended March 31, 1999.
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. There were no
transactions in options for the six months ended March 31, 1999.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended March 31, 1999, are payments retained by Van Kampen of
approximately $65,500.
29
<PAGE> 226
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and expenses. Please
read it carefully before you invest
or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
30
<PAGE> 227
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After August 31, 1999, this report, if used with
prospective investors, must be accompanied by a monthly performance update.
31
<PAGE> 228
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
32
<PAGE> 229
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>
FLI SAR 5/99
<PAGE> 230
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 231
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG.]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 232
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on
NAV(1)................................. 0.74% 0.31% 0.31%
Six-month total return(2).............. (4.02)% (3.62)% (0.67)%
One-year total return(2)............... 0.98% 1.16% 4.15%
Life-of-Fund average annual total
return(2)............................ 6.23% 6.29% 6.56%
Commencement date...................... 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3)................... 4.71% 4.22% 4.21%
Taxable-equivalent distribution
rate(4).............................. 7.36% 6.59% 6.58%
SEC Yield(5)........................... 4.47% 3.91% 3.92%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) 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 March 31, 1999. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 3.51%, 2.91% and 2.91% 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> 233
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 234
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 235
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen Florida Insured Tax
Free Income Fund about the key events and economic forces that shaped the
markets during the reporting period. The team includes Thomas M. Byron,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 236
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Florida's economy continued to be healthy, bolstered by increased tourism
and international trade. The state's credit profile remained strong, thanks to
sound fiscal management, strong employment growth, and unemployment rates below
the national average.
Q HOW DID YOU MANAGE THE FUND'S PORTFOLIO DURING THE PAST SIX MONTHS?
A The Fund's assets increased during the period, so we were continually
seeking to find attractive places to invest new money coming into the
Fund. Although in terms of bond maturities yield spreads widened somewhat
during the reporting period, they still remained on the narrow side by
historical standards. Consequently, we found value among bonds with maturities
in the 15-year range, because they offered nearly as much yield as bonds with
longer maturities while being less volatile.
Although Florida bond issuance decreased during the reporting period,
insured issuance did not change dramatically, meaning that a significant
percentage of new Florida bonds were insured (73 percent in 1998). As a result,
we had little difficulty identifying new insured issues in which we wished to
invest.
Q DID YOU MAKE ANY SIGNIFICANT SHIFTS IN THE PORTFOLIO DURING THE LAST SIX
MONTHS?
A No, we did not make dramatic shifts in sector allocation or in our
exposure to different credit ratings. Our exposure to AAA-rated bonds
increased very slightly to nearly 86 percent during the reporting period,
reflecting the abundant supply of insured issues.
We continue to hold a broad variety of bonds--at the end of the reporting
period, the Fund held securities from 16 different industry sectors. As of March
31, 1999, the Fund's largest portfolio allocation was public education,
representing 21.7 percent of the Fund's total long-term investments (up from
13.5 percent on September 30, 1998). This increase in public education bonds was
largely the result of new purchases of bonds issued by the Florida State Board
of Education. Health care bonds held the second-largest place in the Fund at
12.0 percent (down from 13.3 percent), while water and sewer issues were in the
Fund's third position at 10.6 percent of the Fund (up incrementally).
For additional Fund portfolio highlights, please refer to page 9.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund's total return during the six-month reporting period was 0.74
percent(1) (Class A shares at net asset value), while its distribution
rate was 4.71 percent(3) as of March 31, 1999. By comparison, the Lehman
Brothers Municipal Bond Index produced a total return of 1.49 percent for the
same period. This broad-based index of municipal bonds does not reflect any
commissions that would be paid by an investor purchasing the securities it
represents. The Fund's distribution rate translates into a taxable-equivalent
rate of 7.36 percent(4) for an investor in the 36 percent federal income
7
<PAGE> 237
tax bracket. Income may subject certain individuals to the federal alternative
minimum tax. The Fund's dividend remained unchanged at $0.0645 per Class A share
during the period. Please refer to the chart and footnotes on page 3 for
additional Fund performance results. Past performance does not indicate future
results.
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
We see the potential for changes in traditional economic activity toward the
end of the year because of investor concerns about the year 2000 computer
problem. These temporary concerns, however, may result in attractive investment
opportunities that our research staff can explore which may uncover potential
value.
We anticipate that Florida will continue its economic growth, leading to a
healthy municipal market in the state. One question mark is the degree to which
Latin American economic difficulties will affect Florida's economy, which is
closely linked to the Latin American region.
Another potential impact on Florida municipal bond investors would come with
a repeal of the state's intangibles tax. Eliminating the tax would likely create
a positive climate for business expansion and economic growth, although it
remains to be seen how the Florida legislature would obtain additional revenue
in the tax's absence. Sentiment and political backing for repeal appear to be
growing, so we will be watching this situation as it unfolds over the coming
months.
[SIG]
Thomas M. Byron
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 238
PORTFOLIO HIGHLIGHTS
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
AAA AA A BBB
--- -- - ---
<S> <C> <C> <C> <C>
As of March 31, 1999
85.5 3.4 3.7 7.4
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
AAA AA A BBB
--- -- - ---
<S> <C> <C> <C> <C>
As of September 30, 1998 83.1 2 6.3 8.6
</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>
<S> <C>
AS OF MARCH 31, 1999
Public Education............................... 21.7%
Health Care.................................... 12.0%
Water & Sewer.................................. 10.6%
Higher Education............................... 10.2%
Retail Electric/Gas/Telephone.................. 9.4%
AS OF SEPTEMBER 30, 1998
Public Education............................... 13.5%
Health Care.................................... 13.3%
Water & Sewer.................................. 10.2%
Higher Education............................... 9.8%
Single-Family Housing.......................... 8.1%
</TABLE>
9
<PAGE> 239
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 95.4%
FLORIDA 93.3%
$1,000 Alachua Cnty, FL Sch Brd Ctfs Partn
(AMBAC Insd)........................... 5.000% 07/01/18 $ 1,002,490
1,100 Bay Cnty, FL Sch Brd Ctfs Partn (AMBAC
Insd).................................. 4.750 07/01/17 1,076,922
1,850 Boca Raton, FL Cmnty Redev Agy Tax
Increment Rev Mizner Pk Proj Rfdg (FSA
Insd).................................. * 03/01/15 841,620
465 Brevard Cnty, FL Hsg Fin Auth Single
Family Mtg Rev (GNMA Collateralized)... 6.650 09/01/21 498,173
650 Brevard Cnty, FL Sales Tax Rev (MBIA
Insd).................................. 5.750 12/01/13 704,574
1,000 Brevard Cnty, FL Sch Brd Ctfs Partn Ser
A (AMBAC Insd) (b)..................... 5.400 07/01/12 1,070,930
370 Broward Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Rfdg Ser A (GNMA
Collateralized)........................ 6.100 10/01/19 393,932
560 Broward Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Rfdg Ser A (GNMA
Collateralized)........................ 6.200 04/01/30 596,047
500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem
Hosp Ser A Rfdg (FSA Insd) (b)......... 6.500 08/15/12 546,375
1,500 Cocoa, FL Wtr & Swr Rev Rfdg (FGIC
Insd).................................. 4.500 10/01/26 1,366,680
1,000 Dade Cnty, FL Aviation Rev Ser B (MBIA
Insd).................................. 5.600 10/01/26 1,052,280
1,000 Dade Cnty, FL Edl Fac Auth Rev Univ of
Miami Ser B (MBIA Insd)................ 5.750 04/01/20 1,068,540
980 Dade Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 05/01/04) (MBIA Insd)... 5.750 05/01/08 1,072,551
500 Dade Cnty, FL Sch Brd Ctfs Partn Ser A
(Prerefunded @ 05/01/04) (MBIA Insd)... 6.000 05/01/14 552,935
750 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd).................................. 5.375 10/01/16 782,415
900 Daytona Beach, FL Wtr & Swr Rev Rfdg
(AMBAC Insd) (b)....................... 5.750 11/15/10 969,759
400 Florida Hsg Fin Agy Hsg Reserves at
Kanapaha Ser G (AMBAC Insd)............ 5.600 07/01/27 414,484
1,250 Florida St Brd of Edl Cap Outlay Pub
Edl Ser A Rfdg (FGIC Insd)............. 4.500 06/01/23 1,148,850
2,000 Florida St Brd of Edl Cap Outlay Pub
Edl Ser B (MBIA Insd).................. 4.500 06/01/28 1,817,340
2,250 Florida St Brd of Edl Cap Outlay Pub
Edl Ser B Rfdg (MBIA Insd)............. 4.500 06/01/24 2,064,150
</TABLE>
See Notes to Financial Statements
10
<PAGE> 240
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$2,500 Florida St Brd of Edl Cap Outlay Pub
Edl Ser C (MBIA Insd).................. 5.600% 06/01/20 $ 2,612,950
1,000 Florida St Brd of Regts Univ Sys Impt
Rev (AMBAC Insd)....................... 4.500 07/01/23 918,930
1,750 Florida St Brd of Regts Univ Sys Impt
Rev (MBIA Insd)........................ 5.625 07/01/19 1,845,305
1,500 Florida St Dept Trans Right of Way Ser
B (MBIA Insd).......................... 5.000 07/01/15 1,518,180
3,500 Florida St Div Bond Fin Dept Genl Svcs
Rev Dept Envrnmtl Presvtn 2000 Ser A
(AMBAC Insd)........................... 5.000 07/01/12 3,587,010
1,500 Florida St Div Bond Fin Dept Genl Svcs
Rev Dept Envrnmtl Presvtn 2000 Ser A
(AMBAC Insd)........................... 5.000 07/01/13 1,528,260
1,450 Hillsborough Cnty, FL Edl Fac Univ
Tampa Proj Rfdg........................ 5.750 04/01/18 1,503,142
500 Hillsborough Cnty, FL Hosp Auth Hosp
Rev Tampa Genl Hosp Proj Rfdg (FSA
Insd).................................. 6.375 10/01/13 544,385
750 Hillsborough Cnty, FL Indl Dev Auth
Pollutn Ctl Rev Tampa Elec Co Proj Rfdg
(MBIA Insd)............................ 6.250 12/01/34 829,193
1,300 Indian River Cnty, FL Hosp Rev Rfdg
(FSA Insd)............................. 5.700 10/01/15 1,395,095
1,000 Indian River Cnty, FL Hosp Rev Rfdg
(FSA Insd)............................. 6.100 10/01/18 1,099,410
1,000 Jacksonville, FL Elec Auth Rev Saint
John's Pwr-2 Ser 7 Rfdg (MBIA Insd)
(b).................................... 5.500 10/01/14 1,054,730
1,000 Jacksonville, FL Wtr & Swr Rev United
Wtr FL Proj (AMBAC Insd) (b)........... 6.350 08/01/25 1,118,040
845 Lee Cnty, FL Hsg Fin Auth Single Family
Mtg Rev Multi-Cnty Pgm Ser A (GNMA
Collateralized)........................ 7.450 09/01/27 957,275
330 Leon Cnty, FL Sch Dist Rfdg (AMBAC
Insd) (a).............................. 5.000 07/01/08 338,986
945 Manatee Cnty, FL Hsg Fin Auth Mtg Rev
(GNMA Collateralized) (b).............. 6.875 11/01/26 1,057,464
835 Martin Cnty, FL Consolidated Util Sys
Rev (FGIC Insd)........................ 5.750 10/01/08 916,454
55 Martin Cnty, FL Consolidated Util Sys
Rev (Prerefunded @ 10/01/04) (FGIC
Insd).................................. 5.750 10/01/08 60,984
750 Martin Cnty, FL Indl Dev Auth Indl Dev
Rev Indiantown Cogeneration Proj Ser A
Rfdg................................... 7.875 12/15/25 781,350
545 Melbourne, FL Arpt Rev Rfdg (MBIA
Insd).................................. 6.250 10/01/18 604,994
</TABLE>
See Notes to Financial Statements
11
<PAGE> 241
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FLORIDA (CONTINUED)
$ 500 Miramar, FL Wastewtr Impt Assmt Rev
(FGIC Insd) (b)........................ 6.750% 10/01/25 $ 574,910
1,000 Naples, FL Hosp Rev Naples Cmnty Hosp
Inc Rfdg (MBIA Insd)................... 5.500 10/01/26 1,037,830
1,250 North Broward, FL Hosp Dist Rev Rfdg &
Impt (MBIA Insd)....................... 5.375 01/15/24 1,278,550
775 Orange Cnty, FL Hsg Fin Auth Single
Family Mtg Rev (GNMA Collateralized)
(b).................................... 6.550 10/01/21 828,948
900 Orange Cnty, FL Tourist Dev Tax Rev Ser
B (Prerefunded @ 10/01/02) (AMBAC
Insd).................................. 6.500 10/01/19 997,695
750 Palm Beach Cnty, FL Hlth Fac Auth Rev
Abbey Delray South Proj Rfdg........... 5.500 10/01/11 770,123
1,550 Palm Beach Cnty, FL Hlth Fac Auth Rev
Retirement Cmnty....................... 5.625 11/15/20 1,604,622
450 Palm Beach Cnty, FL Hlth Fac Auth Rev
Waterford Proj Rfdg.................... 5.500 10/01/15 455,828
750 Palm Beach Cnty, FL Sch Brd Ctfs Partn
Ser A (Prerefunded @ 08/01/04) (AMBAC
Insd).................................. 6.375 08/01/15 846,015
1,000 Polk Cnty, FL Indl Dev Auth Tampa Elec
Co Proj................................ 5.850 12/01/30 1,064,850
1,000 Santa Rosa Bay Brdg Auth FL Rev........ 6.250 07/01/28 1,099,080
750 Sarasota Cnty, FL Util Sys Rev
(Prerefunded @ 10/01/04) (FGIC Insd)... 6.500 10/01/14 859,230
4,000 Sunrise, FL Util Sys Rev Rfdg (AMBAC
Insd).................................. 5.000 10/01/28 3,984,720
1,000 Volusia Cnty, FL Edl Fac Auth Rev
Stetson Univ Proj Ser A (MBIA Insd).... 5.500 06/01/26 1,044,940
500 Volusia Cnty, FL Hlth Fac Auth Rev Hosp
Fac Mem Hlth Rfdg & Impt (AMBAC
Insd).................................. 5.750 11/15/13 541,230
1,000 Volusia Cnty, FL Hlth Fac Auth Rev John
Knox Hlth Care Rfdg (Asset Gty Insd)
(b).................................... 6.000 06/01/17 1,073,120
-----------
61,374,875
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 242
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PUERTO RICO 2.1%
$ 670 Puerto Rico Comwlth Hwy & Tran Auth Hwy
Rev Ser V Rfdg......................... 6.625% 07/01/12 $ 727,285
650 Puerto Rico Pub Bldgs Auth Gtd Pub Edl
& Hlth Fac Ser M Rfdg (FSA Insd)....... 5.750 07/01/15 687,186
------------
1,414,471
------------
TOTAL LONG-TERM INVESTMENTS 95.4%
(Cost $59,332,945).................................................. 62,789,346
SHORT-TERM INVESTMENTS 2.6%
(Cost $1,700,000)................................................... 1,700,000
------------
TOTAL INVESTMENTS 98.0%
(Cost $61,032,945).................................................. 64,489,346
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%........................... 1,289,188
------------
NET ASSETS 100.0%.................................................... $ 65,778,534
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
Asset Gty--Asset Guaranty Insurance Company
See Notes to Financial Statements
13
<PAGE> 243
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $61,032,945)........................ $64,489,346
Cash........................................................ 104,441
Receivables:
Interest.................................................. 1,175,304
Fund Shares Sold.......................................... 788,383
Investments Sold.......................................... 65,430
Variation Margin on Futures............................... 7,031
Unamortized Organizational Costs............................ 4,554
Other....................................................... 60
-----------
Total Assets.......................................... 66,634,549
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 340,088
Income Distributions...................................... 243,379
Distributor and Affiliates................................ 92,911
Fund Shares Repurchased................................... 31,492
Trustees' Deferred Compensation and Retirement Plans........ 89,476
Accrued Expenses............................................ 58,669
-----------
Total Liabilities..................................... 856,015
-----------
NET ASSETS.................................................. $65,778,534
===========
NET ASSETS CONSIST OF:
Capital..................................................... $62,569,592
Net Unrealized Appreciation................................. 3,452,311
Accumulated Distributions in Excess of Net Investment
Income.................................................... (76,043)
Accumulated Net Realized Loss............................... (167,326)
-----------
NET ASSETS.................................................. $65,778,534
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $35,186,834 and 2,248,923 shares of
beneficial interest issued and outstanding)............. $ 15.65
Maximum sales charge (4.75%* of offering price)......... .78
-----------
Maximum offering price to public........................ $ 16.43
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $27,948,765 and 1,786,305 shares of
beneficial interest issued and outstanding)............. $ 15.65
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $2,642,935 and 168,741 shares of
beneficial interest issued and outstanding)............. $ 15.66
===========
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
See Notes to Financial Statements
14
<PAGE> 244
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,533,658
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $38,558, $126,310, and $10,589,
respectively)............................................. 175,457
Investment Advisory Fee..................................... 145,238
Accounting.................................................. 25,605
Shareholder Services........................................ 15,126
Registration and Filing Fees................................ 12,650
Trustees' Fees and Expenses................................. 10,742
Amortization of Organizational Costs........................ 6,978
Legal....................................................... 4,550
Custody..................................................... 3,037
Other....................................................... 30,592
-----------
Total Expenses.......................................... 429,975
Less Fees Waived and Expenses Reimbursed ($145,238 and
$61,816, respectively)................................ 207,054
-----------
Net Expenses............................................ 222,921
-----------
NET INVESTMENT INCOME....................................... $ 1,310,737
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 119,448
Futures................................................... (3,987)
-----------
Net Realized Gain........................................... 115,461
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 4,590,349
-----------
End of the Period:
Investments............................................. 3,456,401
Futures................................................. (4,090)
-----------
3,452,311
-----------
Net Unrealized Depreciation During the Period............... (1,138,038)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,022,577)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 288,160
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 245
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999,
the Nine Months Ended September 30, 1998
and Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................. $ 1,310,737 $ 1,689,056 $ 2,104,005
Net Realized Gain/Loss................ 115,461 310,611 (593,398)
Net Unrealized
Appreciation/Depreciation During the
Period.............................. (1,138,038) 952,580 2,178,761
------------ ----------- -----------
Change in Net Assets from
Operations.......................... 288,160 2,952,247 3,689,368
------------ ----------- -----------
Distributions from Net Investment
Income.............................. (1,310,737) (1,689,056) (2,104,005)
Distributions in Excess of Net
Investment Income................... (17,972) (53,515) (24,977)
------------ ----------- -----------
Distributions from and in Excess of
Net Investment Income*.............. (1,328,709) (1,742,571) (2,128,982)
Distributions from Net Realized
Gain*............................... -0- -0- (28,108)
------------ ----------- -----------
Total Distributions................... (1,328,709) (1,742,571) (2,157,090)
------------ ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............... (1,040,549) 1,209,676 1,532,278
------------ ----------- -----------
FROM CAPITAL TRANSACTIONS
Proceeds from Shares Sold............. 23,224,327 11,498,972 15,913,603
Net Asset Value of Shares Issued
Through Dividend Reinvestment....... 576,672 804,084 999,451
Cost of Shares Repurchased............ (9,332,677) (14,206,014) (7,278,428)
------------ ----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS........................ 14,468,322 (1,902,958) 9,634,626
------------ ----------- -----------
TOTAL INCREASE/DECREASE IN NET
ASSETS.............................. 13,427,773 (693,282) 11,166,904
NET ASSETS:
Beginning of the Period............... 52,350,761 53,044,043 41,877,139
------------ ----------- -----------
End of the Period (Including
accumulated distributions in excess
of net investment income of $76,043,
$58,071 and $4,556, respectively)... $ 65,778,534 $52,350,761 $53,044,043
============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
*Distributions by Class March 31, 1999 September 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $ (756,637) $ (981,519) $(1,223,114)
Class B Shares...................... (528,169) (722,360) (878,013)
Class C Shares...................... (43,903) (38,692) (27,855)
----------- ----------- -----------
$(1,328,709) $(1,742,571) $(2,128,982)
=========== =========== ===========
Distributions from Net Realized Gain:
Class A Shares...................... $ -0- $ -0- $ (14,898)
Class B Shares...................... -0- -0- (12,813)
Class C Shares...................... -0- -0- (397)
----------- ----------- -----------
$ -0- $ -0- $ (28,108)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 246
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 Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
March 31, September 30, ---------------------------- December 31,
Class A Shares 1999 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $15.921 $15.550 $15.060 $ 15.203 $13.796 $14.300
------- ------- ------- -------- ------- -------
Net Investment Income.......... .389 .564 .766 .784 .789 .291
Net Realized and Unrealized
Gain/Loss.................... (.277) .388 .508 (.153) 1.416 (.507)
------- ------- ------- -------- ------- -------
Total from Investment
Operations..................... .112 .952 1.274 .631 2.205 (.216)
------- ------- ------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .387 .581 .774 .774 .798 .288
Distributions from Net Realized
Gain......................... -0- -0- .010 -0- -0- -0-
------- ------- ------- -------- ------- -------
Total Distributions.............. .387 .581 .784 .774 .798 .288
------- ------- ------- -------- ------- -------
Net Asset Value, End of the
Period......................... $15.646 $15.921 $15.550 $ 15.060 $15.203 $13.796
======= ======= ======= ======== ======= =======
Total Return* (a)................ .74%** 6.26%** 8.72% 4.37% 16.29% (1.47%)**
Net Assets at End of the Period
(In millions).................. $ 35.2 $ 27.1 $ 29.3 $ 22.2 $ 16.2 $ 9.0
Ratio of Expenses to Average Net
Assets*........................ .41% .60% .59% .28% .44% .49%
Ratio of Net Investment Income to
Average Net Assets*............ 4.86% 4.85% 5.05% 5.31% 5.33% 5.13%
Portfolio Turnover............... 43%** 50%** 48% 73% 41% 19%**
* If certain expenses had not
been assumed by Van Kampen,
total return would have been
lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets......................... 1.12% 1.30% 1.29% 1.47% 1.70% 1.99%
Ratio of Net Investment Income to
Average Net Assets............. 4.15% 4.15% 4.35% 4.13% 4.07% 3.64%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
17
<PAGE> 247
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 Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
March 31, September 30, ------------------------------ December 31,
Class B Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $ 15.925 $ 15.554 $ 15.064 $ 15.201 $13.792 $14.300
-------- -------- --------- -------- ------- -------
Net Investment Income......... .327 .478 .650 .677 .685 .251
Net Realized and Unrealized
Gain/Loss................... (.276) .388 .510 (.154) 1.415 (.509)
-------- -------- --------- -------- ------- -------
Total from Investment
Operations.................... .051 .866 1.160 .523 2.100 (.258)
-------- -------- --------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income...................... .330 .495 .660 .660 .691 .250
Distributions from Net
Realized Gain............... -0- -0- .010 -0- -0- -0-
-------- -------- --------- -------- ------- -------
Total Distributions............. .330 .495 .670 .660 .691 .250
-------- -------- --------- -------- ------- -------
Net Asset Value, End of the
Period........................ $ 15.646 $ 15.925 $ 15.554 $ 15.064 $15.201 $13.792
======== ======== ========= ======== ======= =======
Total Return* (a)............... .31%** 5.74%** 7.91% 3.58% 15.53% (1.81%)**
Net Assets at End of the Period
(In millions)................. $ 27.9 $ 23.6 $ 22.5 $ 18.9 $ 16.9 $ 10.9
Ratio of Expenses to Average Net
Assets*....................... 1.17% 1.35% 1.33% 1.03% 1.12% 1.26%
Ratio of Net Investment Income
to Average Net Assets*........ 4.11% 4.09% 4.30% 4.56% 4.66% 4.31%
Portfolio Turnover.............. 43%** 50%** 48% 73% 41% 19%**
* If certain expenses had not
been assumed by Van Kampen,
total return would have been
lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net
Assets........................ 1.88% 2.05% 2.03% 2.22% 2.38% 2.75%
Ratio of Net Investment Income
to Average Net Assets......... 3.39% 3.39% 3.60% 3.38% 3.40% 2.81%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 248
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 Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
March 31, September 30, ----------------------------- December 31,
Class C Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period......................... $ 15.941 $ 15.581 $ 15.081 $ 15.213 $13.786 $14.300
-------- -------- -------- -------- ------- -------
Net Investment Income.......... .330 .483 .666 .668 .690 .249
Net Realized and Unrealized
Gain/Loss.................... (.278) .372 .504 (.140) 1.428 (.513)
-------- -------- -------- -------- ------- -------
Total from Investment
Operations..................... .052 .855 1.170 .528 2.118 (.264)
-------- -------- -------- -------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .330 .495 .660 .660 .691 .250
Distribution from Net Realized
Gain......................... -0- -0- .010 -0- -0- -0-
-------- -------- -------- -------- ------- -------
Total Distributions.............. .330 .495 .670 .660 .691 .250
-------- -------- -------- -------- ------- -------
Net Asset Value, End of the
Period......................... $ 15.663 $ 15.941 $ 15.581 $ 15.081 $15.213 $13.786
======== ======== ======== ======== ======= =======
Total Return* (a)................ .31%** 5.60%** 7.97% 3.65% 15.61% (1.81%)**
Net Assets at End of the Period
(In thousands)................. $2,642.9 $1,622.4 $1,195.1 $ 849.2 $ 461.8 $ 11.4
Ratio of Expenses to Average Net
Assets*........................ 1.16% 1.32% 1.37% 1.03% 1.13% 1.26%
Ratio of Net Investment Income to
Average Net Assets*............ 4.06% 4.08% 4.38% 4.56% 4.51% 4.28%
Portfolio Turnover............... 43%** 50%** 48% 73% 41% 19%**
* If certain expenses had not
been assumed by Van Kampen,
total return would have been
lower and the ratios would have
been as follows:
Ratio of Expenses to Average Net
Assets......................... 1.87% 2.03% 2.06% 2.22% 2.39% 2.74%
Ratio of Net Investment Income to
Average Net Assets............. 3.35% 3.38% 3.68% 3.38% 3.25% 2.87%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
19
<PAGE> 249
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Florida Insured Tax Free Income Fund (the "Fund") is organized as a
series of the Van Kampen Tax Free Trust, a Delaware business trust, and is
registered as a non-diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to provide investors a high level of current income exempt from federal income
and Florida state intangibles taxes, consistent with preservation of capital.
Under normal market conditions, the Fund will invest at least 80% of its assets
in insured Florida municipal securities. The Fund commenced investment
operations on July 29, 1994. In July, 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from December 31 to September
30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
20
<PAGE> 250
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the expected life of each applicable security. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $70,000. These costs are being amortized on
a straight line basis over the 60 month period ending July 28, 1999. Van Kampen
Investment Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Fund originally purchased by Van Kampen are redeemed
during the amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At September 30, 1998, the Fund had an accumulated capital loss carryforward for
tax purposes of $282,787 which will expire on September 30, 2005. Net realized
gains or losses differ for financial reporting and tax purposes as a result of
post October 31 losses which are not realized for tax purposes until the first
day of the following fiscal year.
At March 31, 1999, for federal income tax purposes the cost of long- and
short-term investments is $61,032,945, the aggregate gross unrealized
appreciation is $3,553,652 and the aggregate gross unrealized depreciation is
$97,251, resulting in net unrealized appreciation on long- and short-term
investments of $3,456,401.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of expenses
under generally accepted
21
<PAGE> 251
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .500 of 1%
Over $500 million..................................... .450 of 1%
</TABLE>
For the six months ended March 31, 1999, the Adviser voluntarily waived
$145,238 of its investment advisory fees and assumed $61,816 of the Fund's other
expenses. This waiver is voluntary in nature and can be discontinued at the
Adviser's discretion.
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $1,400 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 March 31, 1999, the Fund recognized expenses of
approximately $28,700 representing Van Kampen's cost of providing accounting and
legal services to the Fund. All of these expenses were assumed by Van Kampen.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the six months ended March 31,
1999, the Fund recognized expenses of approximately $7,300. All of these
expenses were assumed by Van Kampen. Transfer agency fees are determined through
negotiations with the Fund's Board of Trustees and are based on competitive
market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At March 31, 1999, Van Kampen owned 100 shares each of Classes A, B and C.
22
<PAGE> 252
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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 March 31, 1999, capital aggregated $33,544,166, $26,408,212 and
$2,617,214 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 867,774 $13,696,380
Class B.................................... 470,598 7,427,150
Class C.................................... 132,948 2,100,797
---------- -----------
Total Sales.................................. 1,471,320 $23,224,327
========== ===========
Dividend Reinvestment:
Class A.................................... 20,580 $ 324,736
Class B.................................... 14,633 230,925
Class C.................................... 1,330 21,011
---------- -----------
Total Dividend Reinvestment.................. 36,543 $ 576,672
========== ===========
Repurchases:
Class A.................................... (342,460) $(5,401,216)
Class B.................................... (181,762) (2,869,031)
Class C.................................... (67,311) (1,062,430)
---------- -----------
Total Repurchases............................ (591,533) $(9,332,677)
========== ===========
</TABLE>
23
<PAGE> 253
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $24,924,266, $21,619,168 and
$1,557,836 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 352,234 $ 5,494,787
Class B..................................... 320,092 4,997,538
Class C..................................... 64,525 1,006,647
-------- ------------
Total Sales................................... 736,851 $ 11,498,972
======== ============
Dividend Reinvestment:
Class A..................................... 30,117 $ 469,824
Class B..................................... 19,918 310,753
Class C..................................... 1,504 23,507
-------- ------------
Total Dividend Reinvestment................... 51,539 $ 804,084
======== ============
Repurchases:
Class A..................................... (566,619) $ (8,834,774)
Class B..................................... (303,798) (4,731,240)
Class C..................................... (40,958) (640,000)
-------- ------------
Total Repurchases............................. (911,375) $(14,206,014)
======== ============
</TABLE>
24
<PAGE> 254
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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>
25
<PAGE> 255
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, Van Kampen as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $14,300 and CDSC on redeemed shares of approximately $38,000.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments were $33,618,413 and
$25,078,581.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index
and typically closes the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
26
<PAGE> 256
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended March 31, 1999,
were as follows.
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... -0-
Futures Opened............................................ 20
Futures Closed............................................ (5)
----
Outstanding at March 31, 1999............................. 15
====
</TABLE>
The futures contracts outstanding as of March 31, 1999, and the description
and unrealized appreciation/depreciation is as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS
Municipal Bond Index Future, June 1999--
(Current Notional Value of $123,594 per
contract).................................. 15 $(4,090)
== =======
</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 March 31, 1999, are payments retained by Van Kampen of
approximately $103,300.
27
<PAGE> 257
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN*--Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After August 31, 1999, the report, if used with
prospective investors, must be accompanied by monthly performance update.
28
<PAGE> 258
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 259
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>
NYTF SAR 5/99
<PAGE> 260
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 261
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. The high-yield market rebounded late
in 1998 as investors saw that the economy was performing well and that the
global financial crisis was on its way to recovery. The prices of most
investment-grade bonds experienced similar though much less dramatic movement
during this period. However, municipal bonds--particularly high-quality
municipals--saw very little price movement during this time.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 262
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 1.17% .77% .77%
Six-month total return(2)................ (3.64%) (3.16%) (.21%)
One-year total return(2)................. 1.60% 1.92% 4.85%
Life-of-Fund average annual total
return(2)................................ 6.99% 7.07% 7.31%
Commencement date........................ 07/29/94 07/29/94 07/29/94
DISTRIBUTION RATES AND YIELD
Distribution rate(3)..................... 4.78% 4.34% 4.34%
Taxable-equivalent distribution rate(4).. 8.02% 7.28% 7.28%
SEC Yield(5)............................. 4.71% 4.17% 4.17%
</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 March 31, 1999. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 3.72%, 3.13%, and 3.12% 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> 263
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
CLASS A SHARES: When Class A shares of a fund are purchased, the share price
includes the net asset value plus a one-time sales charge (or "load"). In
most cases, there is no redemption fee (contingent deferred sales charge).
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA. Municipal
bond insurance applies to specific securities held in the portfolio. It does
not protect the shareholder against changes in the value of Fund shares.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY DATE: The date a bond expires, usually at face value.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1998
and maturing in 2008 is a 10-year bond.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
in some states, from state and local income taxes.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD: The annual rate of return on an investment, expressed as a percentage.
4
<PAGE> 264
YIELD CURVE: A result of viewing the yields of 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.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 265
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
We recently spoke with the management team of the Van Kampen New York Tax Free
Income Fund about the key events and economic forces that shaped the markets
during the reporting period. The team includes Dennis S. Pietrzak, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six months ended March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE CONDITIONS IN THE MUNICIPAL MARKET DURING THE
PAST SIX MONTHS?
A Although most of the financial markets experienced significant volatility
during the period, the municipal market remained relatively stable. For
the majority of the six months, municipal bond yields remained within a
range of about 5.1 to 5.3 percent, even as the Federal Reserve cut interest
rates and the 30-year U.S. Treasury bond reached its lowest yield on record.
Much of the stability in the municipal market can be attributed to its isolation
from turbulence abroad. Concerns about the financial conditions in Asia and
Latin America hurt the stock and high-yield bond markets last fall, but had
little effect on municipals.
The positive economic and market conditions encouraged more municipalities
to take advantage of low interest rates and issue new bonds. In 1998 we
experienced the second-heaviest level of municipal issuance ever. Although the
amount of municipal debt increased, the credit quality of many issuers was not
compromised--in fact, it improved as the positive economic environment led to
stronger balance sheets. As a result, we saw more issuers financing special
growth and expansion projects, as opposed to using municipal bonds to finance
their regular operations.
The proportion of higher-yielding municipal bonds also increased during the
period as the number of insured bonds declined. Because bond insurers tightened
their underwriting criteria, more issuers came to market without insurance and
offered higher yields to compensate bondholders for the increased credit risk.
This benefited the Fund because it allowed our experienced research staff to
seek out those higher-yielding bonds that we felt had strong underlying quality.
Q WHY WERE MUNICIPAL BONDS SO ATTRACTIVE RELATIVE TO COMPARABLE TREASURY
BONDS?
A Toward the end of 1998, the yields on 30-year insured municipal bonds and
comparable U.S. Treasury bonds reached equivalent levels, which is a rare
occurrence. Typically, investment-grade municipal bonds have offered about 80 to
90 percent as much yield as comparable Treasury bonds because their interest
payments are exempt from federal income taxes. However, as Treasury yields fell
and municipal yields remained stable, the yield difference between the two types
of bonds shrank. Early in 1999, investors realized the tremendous opportunities
available in the municipal market, and demand for municipals began to increase.
In conjunction with a recent slowdown in
6
<PAGE> 266
supply, this boost in municipal demand pushed the municipal-to-Treasury yield
ratio back to more traditional but still attractive levels.
Healthy new-bond issue volume, particularly in the fourth quarter of 1998,
was characteristic of the New York municipal market during the reporting period.
The state benefited from continued sound fiscal management and a growing
economy, although upstate regions did not experience the same employment and
income growth as New York City.
Q HOW DID YOU MANAGE THE FUND'S PORTFOLIO DURING THE PAST SIX MONTHS?
A We did not make major changes to the credit-quality composition of the
Fund during the period. We added to our insured, AAA rated holdings and
ended the reporting period with AAA rated bonds at approximately 40
percent of the Fund's long-term investments. Insurance on bonds provides some
additional protection to our position, although bond insurance does not protect
against changes in the market value of Fund shares.
Meanwhile, our exposure to BBB rated and nonrated bonds fell slightly on a
percentage basis. Whenever possible, we looked to buy higher-yielding bonds that
our research analysts believed represented the soundest credit risks within this
higher-risk universe. Given current market conditions, however, it was not
always easy to identify such bonds. As of March 31, 1999, BBB rated bonds
represented approximately 32 percent of the Fund's long-term investments, down 4
percentage points from six months ago, and nonrated issues represented about 16
percent, down 2 percentage points from the beginning of the reporting period.
During the last six months, the Fund continued to own bonds from a variety
of sectors. The largest weightings included general purpose (15 percent); higher
education (15 percent); transportation (14 percent); industrial revenue (13
percent); and public building (12 percent).
Q HOW WERE YOU ABLE TO ADD VALUE TO THE PORTFOLIO?
A When we search for opportunities in the bond market, we look at the areas
along the yield curve where we think the best relative value can be found.
Recently, the best relative value has been in bonds with maturities of 15
to 20 years--we added some noncallable bonds in that range. We also took
advantage of tightening yield spreads by favoring higher-quality issues,
enabling us to obtain almost as much yield with less risk. For additional Fund
portfolio highlights, please refer to page 9.
Q HOW WELL DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund continued to perform well. For the six months ended March 31,
1999, the Fund's total return was 1.17 percent(1) (Class A shares at net
asset value). By comparison, the Lehman Brothers Municipal Bond Index
returned 1.49 percent over the same period. This broad-based index of municipal
bonds does not reflect any commissions that would be paid by an investor
purchasing the securities it represents.
7
<PAGE> 267
The Fund's distribution rate was 4.78 percent(3) (Class A shares) as of
March 31, 1999, representing a taxable-equivalent rate of 8.02 percent(4) for an
investor in the 40.4 percent combined federal and state income tax bracket. The
Fund's monthly dividend of $0.06650 per Class A share was unchanged during the
reporting period. Income may subject certain individuals to the federal
alternative minimum tax. Please refer to the chart and footnotes on page 3 for
additional Fund performance results.
The Fund has performed very well compared to its peers. For the year ended
March 31, 1999, the Fund's total return ranked it 1 out of 99 funds in the New
York municipal debt category, according to Lipper Analytical Services. For the
three-year period ended March 31, 1999, the Fund's total return ranked it 1 out
of 86 funds. (The Fund's Class A share returns ranked 1 out of 44 funds and 1
out of 41 funds for the one- and three-year periods, respectively, ended March
31, 1999 for Class A share funds in the New York Municipal debt category.)
Lipper calculations are based upon changes in net asset value with dividends
reinvested. Lipper calculations do not include sales charges; if they had,
results might have been less favorable. Past performance does not guarantee
future performance.
Q WHAT DO YOU SEE AHEAD FOR THE MUNICIPAL MARKET?
A Strong economic performance continues to bolster the credit conditions of
municipal issuers--a trend we expect to persist. As we mentioned earlier,
economic strength has made issuers more likely to issue debt for special
projects rather than for general operating financing. We believe that as long as
municipalities remain economically healthy, this situation is likely to
continue.
Although insured debt has been increasing in recent years, we have started
to see a reversal of this trend, as municipal bond insurers have become more
cautious as of late. If, as anticipated, this caution continues, credit spreads
may widen as the proportion of higher-yielding uninsured bonds increases.
Finally, we see the potential for changes in traditional economic activity
toward the end of the year because of investor concerns about the year 2000
computer problem. These temporary concerns, however, may result in attractive
investment opportunities that our research staff can explore to uncover
potential value.
Improved economic conditions, better fiscal management, and a trend of
budget surpluses provide the foundation for a positive outlook for New York. The
state's economy is closely linked to the health of Wall Street, the traditional
financial engine of New York City. As long as the financial industry remains
strong, we anticipate continued economic health and an active municipal market.
[SIG]
Dennis Pietrzak
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 268
PORTFOLIO HIGHLIGHTS
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
AS OF MARCH 31, 1999
AAA................................. 40.4%
AA.................................. 2.1%
A................................... 10.0%
BBB................................. 31.6%
Non-Rated........................... 15.9%
[PIE CHART]
AS OF SEPTEMBER 30, 1999
AAA................................. 30.2%
AA.................................. 5.9%
A................................... 10.6%
BBB................................. 35.6%
Non-Rated........................... 17.7%
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 MARCH 31, 1999
<S> <C>
General Purpose ........... 15.1%
Higher Education .......... 15.1%
Transportation ............ 13.6%
Industrial Revenue ........ 12.7%
Public Building ........... 12.4%
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
Industrial Revenue ........ 15.3%
Transportation ............ 12.9%
Higher Education .......... 12.2%
General Purpose ........... 11.4%
Health Care ............... 9.7%
</TABLE>
9
<PAGE> 269
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 100.9%
NEW YORK 98.8%
$ 760 Brookhaven, NY Indl Dev Agy Sr
Residential Hsg Rev..................... 6.375% 12/01/37 $ 760,600
1,605 Buffalo, NY Genl Impt Ser A (AMBAC
Insd)................................... 4.750 02/01/09 1,651,304
605 Buffalo, NY Sch Ser B (FSA Insd)........ 4.500 02/01/08 614,002
630 Buffalo, NY Sch Ser B (FSA Insd)........ 4.750 02/01/09 648,176
750 Clifton Springs, NY Hosp & Clinic Ser A
Rfdg & Impt............................. 7.650 01/01/12 845,662
500 Erie Cnty, NY Indl Dev Agy Civic Fac Rev
Depaul Ppty Inc Proj Ser A.............. 5.750 09/01/28 481,265
250 Erie Cnty, NY Indl Dev Agy Life Care
Cmnty Rev Episcopal Church Home Ser A... 6.000 02/01/28 251,955
500 Islip, NY Cmnty Dev Agy Cmnty Dev Rev NY
Institute of Technology Rfdg............ 7.500 03/01/26 548,470
1,000 Long Island Power Auth NY Elec Sys Rev
Genl Ser A.............................. 5.500 12/01/29 1,027,990
1,645 Metropolitan Tran Auth NY Commuter Fac
Rev..................................... 5.500 07/01/14 1,727,464
800 Metropolitan Tran Auth NY Commuter Fac
Rev Ser A (MBIA Insd)................... 5.625 07/01/27 848,552
400 Metropolitan Tran Auth NY Commuter Fac
Svc Contract Ser O...................... 5.750 07/01/13 435,704
2,250 Metropolitan Tran Auth NY Tran Facs Rev
(MBIA Insd)............................. 4.750 07/01/24 2,137,185
500 Monroe Cnty, NY Indl Dev Agy Rev Indl
Dev Empire Sports Proj Ser A............ 6.250 03/01/28 498,575
600 New York City Indl Dev Agy Brooklyn Navy
Yard.................................... 5.650 10/01/28 612,984
500 New York City Indl Dev Agy Civic Fac Rev
Cmnty Res Developmentally Disabled...... 7.500 08/01/26 541,335
500 New York City Indl Dev Agy Civic Fac Rev
College of New Rochelle Proj............ 5.750 09/01/17 521,265
1,250 New York City Indl Dev Agy LaGuardia
Assoc LP
Proj Rfdg............................... 6.000 11/01/28 1,255,200
500 New York City Indl Dev Agy Rev Visy
Paper Inc Proj.......................... 7.950 01/01/28 552,375
375 New York City Indl Dev Agy Spl Fac Rev
Terminal One Group Assn Proj............ 5.700 01/01/04 397,148
500 New York City Indl Dev Agy Spl Fac
United Airls Inc Proj................... 5.650 10/01/32 511,530
</TABLE>
See Notes to Financial Statements
10
<PAGE> 270
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 New York City Indl Dev Civic YMCA
Greater NY Proj......................... 6.000% 08/01/07 $ 541,845
515 New York City Indl Dev Civic YMCA
Greater NY Proj......................... 5.800 08/01/16 543,593
500 New York City Muni Wtr Fin Auth Wtr &
Swr Sys Rev Ser B (AMBAC Insd).......... 5.375 06/15/19 509,460
500 New York City Ser B..................... 5.700 08/15/07 544,535
500 New York City Ser C (Prerefunded @
08/15/01)............................... 7.250 08/15/24 541,825
2,000 New York City Ser F (AMBAC Insd)........ 5.250 08/01/14 2,074,340
20 New York City Ser H (FSA Insd).......... 7.000 02/01/21 21,839
480 New York City Ser H (Prerefunded @
02/01/02) (FSA Insd).................... 7.000 02/01/21 528,994
300 New York St Dorm Auth Rev City Univ Ser
F....................................... 5.000 07/01/14 299,502
750 New York St Dorm Auth Rev City Univ Sys
Cons Ser A.............................. 5.625 07/01/16 802,342
600 New York St Dorm Auth Rev City Univ Sys
Third Genl Res 2 Rfdg................... 6.000 07/01/05 654,822
500 New York St Dorm Auth Rev Court Fac
Lease Ser A............................. 5.700 05/15/22 520,975
570 New York St Dorm Auth Rev Dept Ed St of
NY Issue Ser A.......................... 5.800 07/01/22 606,879
750 New York St Dorm Auth Rev FHA Nursing
Home Menorah (FHA Insd)................. 5.950 02/01/17 802,650
500 New York St Dorm Auth Rev Kingsbrook
Jewish Med Cent FHA (MBIA Insd)......... 4.750 02/01/23 473,020
1,000 New York St Dorm Auth Rev Mental Hlth
Svcs Facs Ser C......................... 4.750 08/15/19 961,430
1,000 New York St Dorm Auth Rev Second Hosp
Interfaith Med Cent Ser D............... 5.750 02/15/08 1,084,080
500 New York St Dorm Auth Rev St Univ Edl
Fac..................................... 5.750 05/15/10 541,950
1,250 New York St Dorm Auth Rev St Univ Edl
Facs Ser B.............................. 4.750 05/15/28 1,165,125
1,200 New York St Dorm Auth Rev Svc Contract
Albany Cnty............................. 5.250 04/01/13 1,232,820
1,000 New York St Dorm Auth Rev Svc Contract
Albany Cnty............................. 5.250 04/01/17 1,004,560
1,245 New York St Dorm Auth Revs NY Univ Ser A
(AMBAC Insd)............................ 5.250 04/03/01 1,281,591
</TABLE>
See Notes to Financial Statements
11
<PAGE> 271
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 830 New York St Dorm Auth Revs NY Univ Ser
A....................................... 5.250% 07/01/06 $ 854,825
500 New York St Energy Resh & Dev Auth Elec
Fac Rev Cons Edison Co NY Inc Proj Ser A
(MBIA Insd)............................. 7.500 01/01/26 518,920
500 New York St Energy Resh & Dev Auth Gas
Fac Rev Brooklyn Union Gas Co Ser B
(Inverse Fltg) (a)...................... 9.944 07/01/26 660,000
1,515 New York St Energy Resh & Dev Auth St
Svc Contract Rev Western NY Nuclear Svc
Ser A................................... 5.000 04/01/06 1,567,873
500 New York St Environmental Fac Corp
Pollutn Ctl Rev St Wtr Revolving Fund
Ser D................................... 6.850 11/15/11 573,895
490 New York St Hsg Fin Agy Rev Insd
Multi-Family Mtg Ser B (AMBAC Insd)..... 6.250 08/15/14 529,014
500 New York St Med Care Fac Fin Agy Rev NY
Hosp Mtg Ser A (Prerefunded @ 02/15/05)
(AMBAC Insd)............................ 6.200 08/15/05 563,695
500 New York St Med Care Fac Fin Agy Rev NY
Hosp Mtg Ser A (Prerefunded @ 02/15/01)
(AMBAC Insd)............................ 6.600 02/15/11 526,430
300 New York St Med Care Fac Fin Agy Rev
Presbyterian Hosp Mtg Ser A Rfdg (FHA
Insd)................................... 5.250 08/15/14 307,542
500 New York St Mtg Agy Rev Homeowner Mtg
Ser 30B................................. 6.650 10/01/25 532,075
745 New York St Mtg Agy Rev Homeowner Mtg
Ser 58.................................. 6.400 04/01/27 811,536
540 New York St Thruway Auth Svc Contract
Rev Loc Hwy & Brdg...................... 5.100 04/01/08 562,340
290 New York St Thruway Auth Svc Contract
Rev Loc Hwy & Brdg...................... 5.750 04/01/09 313,534
1,550 New York St Urban Dev Corp Rev Cmnty
Enhancement Facs........................ 5.000 04/01/06 1,606,931
2,060 New York St Urban Dev Corp Rev Cmnty
Enhancement Facs (AMBAC Insd)........... * 04/01/13 1,051,733
1,000 New York St Urban Dev Corp Rev Sports
Fac Assistance Pg Ser A................. 5.000 04/01/18 968,420
370 New York St Urban Dev Corp Rev
Correctional Cap Fac Rfdg............... 5.625 01/01/07 390,912
</TABLE>
See Notes to Financial Statements
12
<PAGE> 272
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 450 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser 7.............. 5.700% 01/01/27 $ 473,504
500 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser A Rfdg......... 5.500 01/01/14 532,560
300 New York St Urban Dev Corp Rev
Correctional Fac Rfdg................... 5.750 01/01/13 314,532
1,000 New York St Urban Dev Corp Rev
Correctional Facs Svcs Contract Ser B
(AMBAC Insd)............................ 4.750 01/01/28 943,830
420 Niagara Falls, NY Pub Impt (MBIA
Insd)................................... 6.900 03/01/20 477,233
500 Oneida Cnty, NY Pub Impt (Prerefunded @
03/15/01)............................... 5.850 03/15/12 530,345
500 Oneida County, NY Indl Dev Agy Rev Civic
Fac Mohawk Vly Handicap................. 5.300 03/15/19 499,070
455 Orange County, NY Indl Dev Agy Life Care
Cmnty Rev............................... 5.625 01/01/18 453,235
500 Peekskill NY Indl Dev Agy Sr Drum Hill
Sr Living Proj.......................... 6.375 10/01/28 499,010
300 Port Auth NY & NJ Spl Oblig............. 7.000 10/01/07 332,418
1,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj
JFK Intl Arpt Terminal 6 (MBIA Insd).... 5.750 12/01/25 1,060,450
555 Rockland Cnty, NY Indl Dev Agy Civic Fac
Rev Dominican College Proj.............. 6.250 05/01/28 562,715
625 Rockland Cnty, NY Solid Waste Mgmt Auth
Ser B (AMBAC Insd)...................... 5.550 12/15/16 658,750
500 Suffolk Cnty, NY Indl Dev Agy Civic Fac
Rev (MBIA Insd)......................... 4.750 01/01/19 481,050
500 Suffolk Cnty, NY Indl Dev Agy Indl Dev
Rev Spellman High Voltage Fac Ser A..... 6.375 12/01/17 500,175
1,000 Syracuse, NY Ser C (FSA Insd)........... 4.900 10/01/09 1,023,510
225 Syracuse, NY Hsg Auth Rev Sub Proj
Loretto Rest Ser B...................... 7.500 08/01/10 230,240
400 Triborough Brdg & Tunl Auth NY Rev Genl
Purp Ser A Rfdg......................... 5.000 01/01/12 403,848
</TABLE>
See Notes to Financial Statements
13
<PAGE> 273
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 Triborough Brdg & Tunl Auth NY Ser A
Rfdg (FGIC Insd)........................ 5.000% 01/01/17 $ 498,505
1,000 Utica NY Indl Dev Agy Civic Fac Rev
Utica College Proj Ser A................ 5.750 08/01/28 1,022,910
-----------
57,444,483
-----------
GUAM 0.9%
500 Guam Arpt Auth Rev Ser B................ 6.700 10/01/23 550,500
-----------
U. S. VIRGIN ISLANDS 1.2%
650 Virgin Islands Pub Fin Auth Rev Sr Lien
Fd Ln Nts Ser C......................... 5.500 10/01/07 684,697
-----------
TOTAL LONG-TERM INVESTMENTS 100.9%
(Cost $56,333,837)................................................... 58,679,680
SHORT-TERM INVESTMENTS 0.9%
(Cost $500,000)...................................................... 500,000
-----------
TOTAL INVESTMENTS 101.8%
(Cost $56,833,837)................................................... 59,179,680
LIABILITIES IN EXCESS OF OTHER ASSETS (1.8%).......................... (1,035,252)
-----------
NET ASSETS 100.0%..................................................... $58,144,428
===========
</TABLE>
(a) 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.
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
14
<PAGE> 274
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $56,833,837)........................ $59,179,680
Cash........................................................ 212,871
Receivables:
Interest.................................................. 821,561
Fund Shares Sold.......................................... 420,726
Unamortized Organizational Costs............................ 4,894
Other....................................................... 53
-----------
Total Assets.......................................... 60,639,785
-----------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,136,416
Fund Shares Repurchased................................... 141,913
Income Distributions...................................... 77,262
Distributor and Affiliates................................ 48,373
Trustees' Deferred Compensation and Retirement Plans........ 45,827
Accrued Expenses............................................ 45,566
-----------
Total Liabilities..................................... 2,495,357
-----------
NET ASSETS.................................................. $58,144,428
===========
NET ASSETS CONSIST OF:
Capital..................................................... $55,703,167
Net Unrealized Appreciation................................. 2,345,843
Accumulated Net Realized Gain............................... 128,599
Accumulated Distributions in Excess of Net Investment
Income.................................................... (33,181)
-----------
NET ASSETS.................................................. $58,144,428
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $30,087,951 and 1,890,227 shares of
beneficial interest issued and outstanding)........... $ 15.92
Maximum sales charge (4.75%* of offering price)......... .79
-----------
Maximum offering price to public........................ $ 16.71
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $23,778,295 and 1,495,772 shares of
beneficial interest issued and outstanding)........... $ 15.90
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,278,182 and 269,169 shares of
beneficial interest issued and outstanding)........... $ 15.89
===========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
15
<PAGE> 275
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $1,363,525
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $33,767, $105,151 and $16,792,
respectively)............................................. 155,710
Investment Advisory Fee..................................... 153,859
Accounting Services......................................... 25,776
Shareholder Services........................................ 13,908
Trustees' Fees and Expenses................................. 8,410
Legal....................................................... 4,744
Custody..................................................... 3,405
Other....................................................... 32,057
----------
Total Expenses.......................................... 397,869
Less Fees Deferred and Expenses Reimbursed ($153,859 and
$60,959, respectively)................................ 214,818
----------
Net Expenses............................................ 183,051
----------
NET INVESTMENT INCOME....................................... $1,180,474
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 137,197
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,166,131
End of the Period......................................... 2,345,843
----------
Net Unrealized Depreciation During the Period............... (820,288)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (683,091)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 497,383
==========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 276
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, the Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................... $ 1,180,474 $ 1,386,721 $ 1,115,725
Net Realized Gain......................... 137,197 271,958 255,029
Net Unrealized Appreciation/Depreciation
During the Period....................... (820,288) 1,080,991 1,117,382
---------------- ------------------ -----------------
Change in Net Assets from Operations...... 497,383 2,739,670 2,488,136
---------------- ------------------ -----------------
Distributions from Net Investment
Income.................................. (1,180,474) (1,386,749) (1,126,124)
Distributions in Excess of Net Investment
Income.................................. (17,511) (15,670) -0-
---------------- ------------------ -----------------
Distributions from and in Excess of Net
Investment Income*...................... (1,197,985) (1,402,419) (1,126,124)
Distributions from Net Realized Gains*.... (280,511) (40,996) (83,754)
---------------- ------------------ -----------------
Total Distributions....................... (1,478,496) (1,443,415) (1,209,878)
---------------- ------------------ -----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. (981,113) 1,296,255 1,278,258
---------------- ------------------ -----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................. 14,231,087 16,595,104 16,610,486
Net Asset Value of Shares Issued Through
Dividend Reinvestment................... 980,880 924,200 683,838
Cost of Shares Repurchased................ (3,179,639) (3,838,934) (4,637,600)
---------------- ------------------ -----------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................ 12,032,328 13,680,370 12,656,724
---------------- ------------------ -----------------
TOTAL INCREASE IN NET ASSETS.............. 11,051,215 14,976,625 13,934,982
NET ASSETS:
Beginning of the Period................... 47,093,213 32,116,588 18,181,606
---------------- ------------------ -----------------
End of the Period (Including accumulated
undistributed net investment income of
($33,181), ($15,670) and $28,
respectively)........................... $ 58,144,428 $ 47,093,213 $ 32,116,588
================ ================== =================
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
*Distributions by Class March 31, 1999 September 30, 1998 December 31, 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares.......................... $ (672,402) $ (809,026) $ (584,822)
Class B Shares.......................... (453,352) (523,570) (515,371)
Class C Shares.......................... (72,231) (69,823) (25,931)
---------------- ------------------ -----------------
$ (1,197,985) $ (1,402,419) $ (1,126,124)
================ ================== =================
Distributions from Net Realized Gain:
Class A Shares.......................... $ (147,076) $ (22,100) $ (46,829)
Class B Shares.......................... (116,190) (16,870) (34,234)
Class C Shares.......................... (17,245) (2,026) (2,691)
---------------- ------------------ -----------------
$ (280,511) $ (40,996) $ (83,754)
================ ================== =================
</TABLE>
See Notes to Financial Statements
17
<PAGE> 277
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 Nine Months of Investment
Ended Ended Year Ended December 31 Operations) to
March 31, September 30, --------------------------- December 31,
Class A Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $16.223 $15.734 $14.992 $15.048 $13.579 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income............. .397 .596 .786 .816 .821 .302
Net Realized and
Unrealized
Gain/Loss.......... (.215) .509 .795 (.074) 1.476 (.722)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... .182 1.105 1.581 .742 2.297 (.420)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............. .399 .599 .798 .798 .828 .301
Distributions from
Net Realized
Gain............... .088 .017 .041 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions.... .487 .616 .839 .798 .828 .301
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $15.918 $16.223 $15.734 $14.992 $15.048 $13.579
======= ======= ======= ======= ======= =======
Total Return*(a)....... 1.17%** 7.11%** 10.92% 5.14% 17.33% (2.93%)**
Net Assets at End of
the Period (In
millions)............ $30.1 $ 25.0 $ 18.0 $ 7.7 $ 5.4 $ 2.9
Ratio of Expenses to
Average Net
Assets*.............. .36% .39% .64% .31% .21% .26%
Ratio of Net Investment
Income to Average Net
Assets*.............. 4.95% 5.01% 5.16% 5.56% 5.63% 5.27%
Portfolio Turnover..... 46%** 53%** 60% 126% 51% 68%**
*If certain expenses had
not been assumed by Van
Kampen, total return would
have been lower and
the ratios would have been
as follows:
Ratio of Expenses to
Average Net Assets... 1.19% 1.43% 1.47% 1.82% 2.10% 2.73%
Ratio of Net Investment
Income to Average Net
Assets............... 4.12% 3.97% 4.33% 4.04% 3.74% 2.81%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
18
<PAGE> 278
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 Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
March 31, September 30, --------------------------- December 31,
Class B Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $16.208 $15.727 $14.992 $15.046 $13.578 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income............. .339 .509 .684 .704 .713 .263
Net Realized and
Unrealized
Gain/Loss.......... (.217) .507 .782 (.068) 1.476 (.722)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... .122 1.016 1.466 .636 2.189 (.459)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............. .345 .518 .690 .690 .721 .263
Distributions from
Net Realized
Gain............... .088 .017 .041 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions.... .433 .535 .731 .690 .721 .263
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $15.897 $16.208 $15.727 $14.992 $15.046 $13.578
======= ======= ======= ======= ======= =======
Total Return*(a)....... .77%** 6.58%** 10.07% 4.37% 16.47% (3.20%)**
Net Assets at End of
the Period (In
millions)............ $ 23.8 $19.0 $ 13.1 $ 10.1 $ 9.7 $ 8.1
Ratio of Expenses to
Average Net
Assets*.............. 1.11% 1.14% 1.36% 1.07% .93% .96%
Ratio of Net Investment
Income to Average Net
Assets*.............. 4.20% 4.26% 4.49% 4.79% 4.93% 4.58%
Portfolio Turnover..... 46%** 53%** 60% 126% 51% 68%**
*If certain expenses had not
been assumed by Van Kampen,
total return would
have been lower and the
ratios would have been as
follows:
Ratio of Expenses to
Average Net Assets... 1.94% 2.19% 2.18% 2.60% 2.82% 3.42%
Ratio of Net Investment
Income to Average Net
Assets............... 3.36% 3.21% 3.67% 3.26% 3.04% 2.12%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
19
<PAGE> 279
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 Nine Months of Investment
Ended Ended Year Ended December 31, Operations) to
March 31, September 30, --------------------------- December 31,
Class C Shares 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $16.204 $15.726 $14.992 $15.041 $13.579 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income............. .342 .515 .676 .701 .711 .267
Net Realized and
Unrealized
Gain/Loss.......... (.219) .498 .789 (.060) 1.472 (.725)
------- ------- ------- ------- ------- -------
Total from Investment
Operations........... .123 1.013 1.465 .641 2.183 (.458)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............. .345 .518 .690 .690 .721 .263
Distributions from
Net Realized
Gain............... .088 .017 .041 -0- -0- -0-
------- ------- ------- ------- ------- -------
Total Distributions.... .433 .535 .731 .690 .721 .263
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period........... $15.894 $16.204 $15.726 $14.992 $15.041 $13.579
======= ======= ======= ======= ======= =======
Total Return*(a)....... .77%** 6.51%** 10.07% 4.44% 16.39% (3.20%)**
Net Assets at End of
the Period (In
millions)............ $ 4.3 $ 3.1 $ 1.0 $ .4 $ .4 $ .2
Ratio of Expenses to
Average Net
Assets*.............. 1.10% 1.14% 1.41% 1.08% .98% .96%
Ratio of Net Investment
Income to Average Net
Assets*.............. 4.19% 4.22% 4.37% 4.78% 4.81% 4.58%
Portfolio Turnover..... 46%** 53%** 60% 126% 51% 68%**
*If certain expenses had not
been assumed by Van Kampen,
total return would
have been lower and the
ratios would have been
as follows:
Ratio of Expenses to
Average Net Assets... 1.94% 2.18% 2.23% 2.61% 2.86% 3.42%
Ratio of Net Investment
Income to Average Net
Assets............... 3.36% 3.17% 3.55% 3.25% 2.93% 2.12%
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
See Notes to Financial Statements
20
<PAGE> 280
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen New York Tax Free Income Fund (the "Fund") is organized as a series
of the Van Kampen Tax Free Trust, a Delaware business trust, and is registered
as a non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide
investors with a high level of current income exempt from federal, New York
State and New York City income taxes, consistent with preservation of capital.
The Fund seeks to achieve its investment objective by investing at least 80% of
its assets in a portfolio of New York municipal securities rated investment
grade at the time of investment. The Fund commenced investment operations on
July 29, 1994. In July, 1998, the Fund's Board of Trustees approved a change in
the Fund's fiscal year end from December 31 to September 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At March 31, 1999, there were no
when issued or delayed delivery purchase commitments.
21
<PAGE> 281
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount on securities purchased are amortized over
the expected life of each applicable security. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
D. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $75,000. These costs are being amortized on
a straight line basis over the 60 month period ending July 28, 1999. Van Kampen
Investment Advisory Corp. (the "Adviser") has agreed that in the event any of
the initial shares of the Fund originally purchased by Van Kampen are redeemed
during the amortization period, the Fund will be reimbursed for any unamortized
organizational costs in the same proportion as the number of shares redeemed
bears to the number of initial shares held at the time of redemption.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income, if any, to its shareholders.
Therefore, no provision for federal income taxes is required.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $56,833,837; the aggregate gross unrealized
appreciation is $2,424,389 and the aggregate gross unrealized depreciation is
$78,546, resulting in net unrealized appreciation on long- and short-term
investments of $2,345,843.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of expenses under generally
accepted accounting principles and federal income tax purposes, the amount of
distributed net investment income may differ for a particular period. These
differences are temporary in nature, but may result in book basis distribution
in excess of net investment income for certain periods.
22
<PAGE> 282
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million.................................... .600 of 1%
Over $500 million..................................... .500 of 1%
</TABLE>
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $1,600, 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.
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $29,100 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
March 31, 1999, the Fund recognized expenses of approximately $7,400. Transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At March 31, 1999, 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.
23
<PAGE> 283
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At March 31, 1999, capital aggregated $28,942,587, $22,535,282 and
$4,225,298 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................................ 401,712 $ 6,447,232
Class B........................................ 405,912 6,498,534
Class C........................................ 80,558 1,285,321
-------- ------------
Total Sales...................................... 888,182 $ 14,231,087
======== ============
Dividend Reinvestment:
Class A........................................ 38,373 $ 614,503
Class B........................................ 19,024 304,247
Class C........................................ 3,886 62,130
-------- ------------
Total Dividend Reinvestment...................... 61,283 $ 980,880
======== ============
Repurchases:
Class A........................................ (91,053) $ (1,460,519)
Class B........................................ (98,526) (1,576,685)
Class C........................................ (8,923) (142,435)
-------- ------------
Total Repurchases................................ (198,502) $ (3,179,639)
======== ============
</TABLE>
24
<PAGE> 284
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $23,341,371, $17,309,186, and
$3,020,282 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A....................................... 520,265 $ 8,251,633
Class B....................................... 391,237 6,192,887
Class C....................................... 135,402 2,150,584
---------- -----------
Total Sales..................................... 1,046,904 $16,595,104
========== ===========
Dividend Reinvestment:
Class A....................................... 39,009 $ 619,536
Class B....................................... 16,654 264,369
Class C....................................... 2,532 40,295
---------- -----------
Total Dividend Reinvestment..................... 58,195 $ 924,200
========== ===========
Repurchases:
Class A....................................... (160,416) $(2,542,226)
Class B....................................... (72,177) (1,139,992)
Class C....................................... (9,896) (156,716)
---------- -----------
Total Repurchases............................... (242,489) $(3,838,934)
========== ===========
</TABLE>
25
<PAGE> 285
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (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>
26
<PAGE> 286
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $13,500 and CDSC on redeemed shares of approximately $28,100.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $36,631,256 and
$23,525,397, respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended March 31, 1999, are payments retained by Van Kampen of
approximately $93,600.
27
<PAGE> 287
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After September 30, 1999, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
28
<PAGE> 288
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> T.F.H.I CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 1,149,994,980<F1>
<INVESTMENTS-AT-VALUE> 1,193,594,524<F1>
<RECEIVABLES> 29,778,586<F1>
<ASSETS-OTHER> 13,665<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,223,386,775<F1>
<PAYABLE-FOR-SECURITIES> 29,400,771<F1>
<SENIOR-LONG-TERM-DEBT> 19,460,522<F1>
<OTHER-ITEMS-LIABILITIES> 6,384,924<F1>
<TOTAL-LIABILITIES> 55,246,217<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 854,825,061
<SHARES-COMMON-STOCK> 53,859,373
<SHARES-COMMON-PRIOR> 51,164,482
<ACCUMULATED-NII-CURRENT> (10,289,239)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (94,007,437)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 43,449,357<F1>
<NET-ASSETS> 794,643,187
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 35,310,068<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,659,889)<F1>
<NET-INVESTMENT-INCOME> 28,650,179<F1>
<REALIZED-GAINS-CURRENT> 1,590,924<F1>
<APPREC-INCREASE-CURRENT> (24,876,816)<F1>
<NET-CHANGE-FROM-OPS> 5,364,287<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (21,444,278)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,409,992
<NUMBER-OF-SHARES-REDEEMED> (3,364,694)
<SHARES-REINVESTED> 649,593
<NET-CHANGE-IN-ASSETS> 23,275,715
<ACCUMULATED-NII-PRIOR> (9,019,837)<F1>
<ACCUMULATED-GAINS-PRIOR> (95,598,361)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,683,074<F1>
<INTEREST-EXPENSE> 115,514<F1>
<GROSS-EXPENSE> 6,659,889<F1>
<AVERAGE-NET-ASSETS> 782,208,956
<PER-SHARE-NAV-BEGIN> 15.076
<PER-SHARE-NII> 0.401
<PER-SHARE-GAIN-APPREC> (0.315)
<PER-SHARE-DIVIDEND> (0.408)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.754
<EXPENSE-RATIO> 0.93
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> T.F.H.I CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 1,149,994,980<F1>
<INVESTMENTS-AT-VALUE> 1,193,594,524<F1>
<RECEIVABLES> 29,778,586<F1>
<ASSETS-OTHER> 13,665<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,223,386,775<F1>
<PAYABLE-FOR-SECURITIES> 29,400,771<F1>
<SENIOR-LONG-TERM-DEBT> 19,460,522<F1>
<OTHER-ITEMS-LIABILITIES> 6,384,924<F1>
<TOTAL-LIABILITIES> 55,246,217<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 301,172,344
<SHARES-COMMON-STOCK> 20,392,654
<SHARES-COMMON-PRIOR> 18,554,723
<ACCUMULATED-NII-CURRENT> (10,289,239)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (94,007,437)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 43,449,357<F1>
<NET-ASSETS> 300,729,048
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 35,310,068<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,659,889)<F1>
<NET-INVESTMENT-INCOME> 28,650,179<F1>
<REALIZED-GAINS-CURRENT> 1,590,924<F1>
<APPREC-INCREASE-CURRENT> (24,876,816)<F1>
<NET-CHANGE-FROM-OPS> 5,364,287<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (6,878,801)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,661,232
<NUMBER-OF-SHARES-REDEEMED> (1,009,886)
<SHARES-REINVESTED> 186,585
<NET-CHANGE-IN-ASSETS> 21,097,617
<ACCUMULATED-NII-PRIOR> (9,019,837)<F1>
<ACCUMULATED-GAINS-PRIOR> (95,598,361)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,683,074<F1>
<INTEREST-EXPENSE> 115,514<F1>
<GROSS-EXPENSE> 6,659,889<F1>
<AVERAGE-NET-ASSETS> 290,581,376
<PER-SHARE-NAV-BEGIN> 15.071
<PER-SHARE-NII> 0.335
<PER-SHARE-GAIN-APPREC> (0.306)
<PER-SHARE-DIVIDEND> (0.353)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.747
<EXPENSE-RATIO> 1.70
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> T.F.H.I CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 1,149,994,980<F1>
<INVESTMENTS-AT-VALUE> 1,193,594,524<F1>
<RECEIVABLES> 29,778,586<F1>
<ASSETS-OTHER> 13,665<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 1,223,386,775<F1>
<PAYABLE-FOR-SECURITIES> 29,400,771<F1>
<SENIOR-LONG-TERM-DEBT> 19,460,522<F1>
<OTHER-ITEMS-LIABILITIES> 6,384,924<F1>
<TOTAL-LIABILITIES> 55,246,217<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,990,472
<SHARES-COMMON-STOCK> 4,934,472
<SHARES-COMMON-PRIOR> 4,194,703
<ACCUMULATED-NII-CURRENT> (10,289,239)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (94,007,437)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 43,449,357<F1>
<NET-ASSETS> 72,768,323
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 35,310,068<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (6,659,889)<F1>
<NET-INVESTMENT-INCOME> 28,650,179<F1>
<REALIZED-GAINS-CURRENT> 1,590,924<F1>
<APPREC-INCREASE-CURRENT> (24,876,816)<F1>
<NET-CHANGE-FROM-OPS> 5,364,287<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,596,502)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 977,857
<NUMBER-OF-SHARES-REDEEMED> (297,821)
<SHARES-REINVESTED> 59,733
<NET-CHANGE-IN-ASSETS> 9,560,295
<ACCUMULATED-NII-PRIOR> (9,019,837)<F1>
<ACCUMULATED-GAINS-PRIOR> (95,598,361)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,683,074<F1>
<INTEREST-EXPENSE> 115,514<F1>
<GROSS-EXPENSE> 6,659,889<F1>
<AVERAGE-NET-ASSETS> 67,616,644
<PER-SHARE-NAV-BEGIN> 15.069
<PER-SHARE-NII> 0.337
<PER-SHARE-GAIN-APPREC> (0.306)
<PER-SHARE-DIVIDEND> (0.353)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.747
<EXPENSE-RATIO> 1.69
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 81
<NAME> N.Y.T.F. CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 56,833,837<F1>
<INVESTMENTS-AT-VALUE> 59,179,680<F1>
<RECEIVABLES> 1,242,287<F1>
<ASSETS-OTHER> 4,947<F1>
<OTHER-ITEMS-ASSETS> 212,871<F1>
<TOTAL-ASSETS> 60,639,785<F1>
<PAYABLE-FOR-SECURITIES> 2,136,416<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 358,941<F1>
<TOTAL-LIABILITIES> 2,495,357<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,942,587
<SHARES-COMMON-STOCK> 1,890,227
<SHARES-COMMON-PRIOR> 1,541,194
<ACCUMULATED-NII-CURRENT> (33,181)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 128,599<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,345,843<F1>
<NET-ASSETS> 30,087,951
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,363,525<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (183,051)<F1>
<NET-INVESTMENT-INCOME> 1,180,474<F1>
<REALIZED-GAINS-CURRENT> 137,197<F1>
<APPREC-INCREASE-CURRENT> (820,288)<F1>
<NET-CHANGE-FROM-OPS> 497,383<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (672,402)
<DISTRIBUTIONS-OF-GAINS> (147,076)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 401,712
<NUMBER-OF-SHARES-REDEEMED> (91,053)
<SHARES-REINVESTED> 38,373
<NET-CHANGE-IN-ASSETS> 5,085,777
<ACCUMULATED-NII-PRIOR> (15,670)<F1>
<ACCUMULATED-GAINS-PRIOR> 271,913<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 153,859<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 397,869<F1>
<AVERAGE-NET-ASSETS> 27,081,659
<PER-SHARE-NAV-BEGIN> 16.223
<PER-SHARE-NII> 0.397
<PER-SHARE-GAIN-APPREC> (0.215)
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> (0.088)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.918
<EXPENSE-RATIO> 0.36
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 82
<NAME> N.Y.T.F. CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 56,833,837<F1>
<INVESTMENTS-AT-VALUE> 59,179,680<F1>
<RECEIVABLES> 1,242,287<F1>
<ASSETS-OTHER> 4,947<F1>
<OTHER-ITEMS-ASSETS> 212,871<F1>
<TOTAL-ASSETS> 60,639,785<F1>
<PAYABLE-FOR-SECURITIES> 2,136,416<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 358,941<F1>
<TOTAL-LIABILITIES> 2,495,357<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,535,282
<SHARES-COMMON-STOCK> 1,495,772
<SHARES-COMMON-PRIOR> 1,169,362
<ACCUMULATED-NII-CURRENT> (33,181)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 128,599<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,345,843<F1>
<NET-ASSETS> 23,778,295
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,363,525<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (183,051)<F1>
<NET-INVESTMENT-INCOME> 1,180,474<F1>
<REALIZED-GAINS-CURRENT> 137,197<F1>
<APPREC-INCREASE-CURRENT> (820,288)<F1>
<NET-CHANGE-FROM-OPS> 497,383<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (453,352)
<DISTRIBUTIONS-OF-GAINS> (116,190)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 405,912
<NUMBER-OF-SHARES-REDEEMED> (98,526)
<SHARES-REINVESTED> 19,024
<NET-CHANGE-IN-ASSETS> 4,825,291
<ACCUMULATED-NII-PRIOR> (15,670)<F1>
<ACCUMULATED-GAINS-PRIOR> 271,913<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 153,859<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 397,869<F1>
<AVERAGE-NET-ASSETS> 21,083,294
<PER-SHARE-NAV-BEGIN> 16.208
<PER-SHARE-NII> 0.339
<PER-SHARE-GAIN-APPREC> (0.217)
<PER-SHARE-DIVIDEND> (0.345)
<PER-SHARE-DISTRIBUTIONS> (0.088)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.897
<EXPENSE-RATIO> 1.11
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 83
<NAME> N.Y.T.F. CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 56,833,837<F1>
<INVESTMENTS-AT-VALUE> 59,179,680<F1>
<RECEIVABLES> 1,242,287<F1>
<ASSETS-OTHER> 4,947<F1>
<OTHER-ITEMS-ASSETS> 212,871<F1>
<TOTAL-ASSETS> 60,639,785<F1>
<PAYABLE-FOR-SECURITIES> 2,136,416<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 358,941<F1>
<TOTAL-LIABILITIES> 2,495,357<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,225,298
<SHARES-COMMON-STOCK> 269,169
<SHARES-COMMON-PRIOR> 193,648
<ACCUMULATED-NII-CURRENT> (33,181)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 128,599<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,345,843<F1>
<NET-ASSETS> 4,278,182
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,363,525<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (183,051)<F1>
<NET-INVESTMENT-INCOME> 1,180,474<F1>
<REALIZED-GAINS-CURRENT> 137,197<F1>
<APPREC-INCREASE-CURRENT> (820,288)<F1>
<NET-CHANGE-FROM-OPS> 497,383<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (72,231)
<DISTRIBUTIONS-OF-GAINS> (17,245)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,558
<NUMBER-OF-SHARES-REDEEMED> (8,923)
<SHARES-REINVESTED> 3,886
<NET-CHANGE-IN-ASSETS> 1,140,147
<ACCUMULATED-NII-PRIOR> (15,670)<F1>
<ACCUMULATED-GAINS-PRIOR> 271,913<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 153,859<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 397,869<F1>
<AVERAGE-NET-ASSETS> 3,366,835
<PER-SHARE-NAV-BEGIN> 16.204
<PER-SHARE-NII> 0.342
<PER-SHARE-GAIN-APPREC> (0.219)
<PER-SHARE-DIVIDEND> (0.345)
<PER-SHARE-DISTRIBUTIONS> (0.088)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.894
<EXPENSE-RATIO> 1.10
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
