<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Glossary of Terms................................ 5
Performance Results.............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Financial Highlights............................. 22
Notes to Financial Statements.................... 23
Report of Independent Accountants................ 29
Dividend Reinvestment Plan....................... 30
</TABLE>
VKQ ANR 10/98
<PAGE> 2
LETTER TO SHAREHOLDERS
September 25, 1998
Dear Shareholder,
Recently, we decided to
consolidate all Van Kampen American
Capital funds under the single name of
Van Kampen Funds. This move
accompanies the change in the legal
name of our firm to Van Kampen Funds [PHOTO]
Inc. Consequently, your Trust's name
was changed to Van Kampen Municipal
Trust on August 28. You can be assured
that the change in your Trust's name DENNIS J. MCDONNELL AND DON G. POWELL
will not affect its management or
daily operations, and your Trust will
continue to trade under its current ticker symbol. If you have any questions
regarding your investment or our new name, please contact your financial
adviser.
ECONOMIC OVERVIEW
The economy grew at a moderate rate for much of the past year, accompanied
by low inflation. During the three quarters that ended June 30, growth
accelerated at a 3.4 percent annual rate (as measured by gross domestic
product), while consumer prices rose 1.4 percent.
Beneath this tranquil scenario, however, lay periods of economic and
financial volatility. During the first quarter, for example, growth surged at a
5.5 percent annual rate, fueled by heavy consumer spending and business
inventory buildup. By the second quarter, growth had slowed to a sluggish 1.6
percent annual pace, due to the deepening Asian economic crisis and the General
Motors strike.
Despite the weakening economy, the dollar rallied as foreign investors
sought refuge from global turmoil by purchasing U.S. Treasury securities. The
strong dollar raised the price of U.S. exports and cut the price of imports. As
a result, U.S. companies found they could neither maintain their foreign sales
nor compete easily with cheap imports here. Corporate earnings fell, and U.S.
stock prices retreated. By August 31, the Dow Jones Industrial Average was down
19 percent from its mid-July high.
MARKET OVERVIEW
The stock market rout and foreign economic turmoil were nothing but good
news for Treasury bonds. The Federal Reserve refrained from raising interest
rates to avoid aggravating Asia's crisis, and investors worldwide aggressively
bought U.S. Treasury securities. Because these purchases occurred at a time when
the supply of new Treasury issues was declining, Treasury bond prices rocketed
to record levels. On August 31, the Dow Jones Industrial Average fell 512
points, and the 30-year Treasury bond yield, which moves in the opposite
direction of its price, fell to a record low of 5.25 percent. A year earlier,
its yield was 6.61 percent.
Continued on page 2
1
<PAGE> 3
Municipal bonds followed the gains in Treasuries but, true to form, they
didn't rally as strongly. While long-term Treasury bond yields fell 136 basis
points during the past year, the yield of the AAA-rated general obligation
municipal bond fell only 44 basis points to 4.86 percent on August 31, 1998,
from 5.30 percent a year earlier.
Municipal bonds were hampered by an excess of supply relative to demand.
State and local governments, taking advantage of the market's low interest
rates, issued $190 billion worth of bonds during the first seven months of this
year--47 percent more than they had issued during the comparable period last
year.
Despite an abundant supply from which to choose, U.S. investors were
reluctant to purchase municipal bonds because of their relatively low yields,
and foreign investors had even less interest because they had no need for the
tax-exempt income. Compounding the situation was the flood of insured issues,
which accounted for almost 60 percent of the new supply. As a result, fewer
lower-rated, higher-yielding bonds were issued, and the yield spread between
higher-quality and lower-quality bonds narrowed.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
as of August 31, 1998
<TABLE>
<S> <C>
AAA.............. 47.1%
AA............... 8.8%
A................ 14.1%
BBB.............. 19.2%
Non-Rated........ 10.8%
</TABLE>
TRUST STRATEGY
We used the following strategies to manage the Trust during the period:
A primary goal was to lengthen the duration of the Trust without
significantly affecting its dividend. To accomplish this goal, we sold certain
bonds that would be called in the next five years and purchased bonds with
positive call features. For example, we purchased long-term bonds with
longer-than-normal call features, including noncallable bonds. Most of our
acquisitions were discount bonds, which have the potential to appreciate faster
than par or premium bonds during periods of falling interest rates. Discount
bonds also have longer durations, which means they are more sensitive to
changing rates. Our purchases of discount bonds helped to offset some of the
decline in the Trust's duration due to prerefundings and repricings to call
dates. As of August 31, the duration of the Trust stood at 7.30 years, compared
with 7.64 years for the Lehman Brothers Municipal Bond Index (excluding bonds
maturing in five years or less).
Our purchases included non-rated bonds, which have relatively high yields
and helped us to maintain the Trust's dividend. In order to qualify for
inclusion in the Trust, all non-rated bonds were rated the equivalent of
triple-B or higher by our research staff. As a
Continued on page 3
2
<PAGE> 4
result of these acquisitions, the percentage of non-rated bonds in the Trust
rose slightly, while the percentage of triple-B bonds fell. The portfolio
remains well-diversified in terms of its credit quality.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR*
<TABLE>
<CAPTION>
AS OF
AUGUST 31, 1998
<S> <C>
Health Care.............................................. 18.2%
General Purpose.......................................... 13.2%
Industrial Revenue....................................... 12.0%
Wholesale Electric....................................... 8.3%
Single-Family Housing.................................... 6.7%
</TABLE>
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the 12-month period ended August 31, 1998, the Trust generated a total
return of 9.06 percent(1) at market price. This reflects a gain in market price
per common share from $15.7500 on August 31, 1997, to $16.1875 on August 31,
1998, plus reinvestment of all dividends. The Trust had a tax-exempt
distribution rate of 5.93 percent(3), based on the closing price of its common
shares. Because income from the Trust is exempt from federal income taxes, this
distribution rate is equivalent to a yield of 9.27 percent(4) on a taxable
investment (for investors in the federal income tax bracket of 36 percent).
Please refer to the chart on page 7 for additional performance numbers.
[DIVIDED HISTORY GRAPH]
TWELVE-MONTH DIVIDEND HISTORY
FOR THE PERIOD ENDED AUGUST 31, 1998
<TABLE>
<CAPTION>
DIVIDEND PER COMMON SHARE
<S> <C>
Sep 1997...................... $.080
Oct 1997...................... $.080
Nov 1997...................... $.080
Dec 1997...................... $.080
Jan 1998...................... $.080
Feb 1998...................... $.080
Mar 1998...................... $.080
Apr 1998...................... $.080
May 1998...................... $.080
Jun 1998...................... $.080
Jul 1998...................... $.080
Aug 1998...................... $.080
</TABLE>
The dividend history represents past performance of the
Trust and does not predict Trust's future distributions.
Continued on page 4
3
<PAGE> 5
ECONOMIC OUTLOOK
We believe the economy will rebound later this year, provided some stability
is restored in the stock market. Domestic economic activity remains strong
despite the market's decline and should overcome many of the negative effects of
the global economic crisis. In Asia, where the crisis began, there are signs of
potential rebounds. If the economic crisis in Asia, Russia, and other emerging
markets continues unabated, however, we believe the Fed will refrain from
raising rates and could even lower them. Fed Chairman Alan Greenspan
acknowledged as much in a recent speech, when he disclosed that Fed
policy-makers had abandoned their bias toward a rate hike in favor of a neutral
position. Due to events overseas, policy-makers are now more concerned about an
economic slowdown than about rising inflation, Greenspan indicated. The impact
of slower economic growth abroad should help to offset any acceleration in
domestic inflation.
We will closely monitor these global and domestic events and their effects
on the performance of the Trust, adjusting the portfolio when appropriate. We
remain committed to providing a high level of tax-exempt income while preserving
shareholders' capital. Thank you for your continued support and confidence in
Van Kampen and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Please see footnotes on page 7
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial call price is
usually higher than the face value of the bond. Bonds are usually called when
interest rates drop so significantly that the issuer can save money by issuing
new bonds at lower rates.
A callable bond is "priced to call" when it is selling at a premium,
because it is assumed that the issuer will redeem the bond at its call date,
rather than at maturity.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of
C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 7
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most insured bonds are AAA-rated. Recently, an A-rated insurer has
started to insure lower-quality municipal bonds, and those bonds are A-rated.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's net asset value, the fund is
trading at a discount. When the price is more than the NAV, the fund is trading
at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures such as the construction of
highways, public works, or school buildings. Interest on municipal bonds is
exempt from federal taxation and, potentially, from state and local taxation.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
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.
6
<PAGE> 8
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1998
VAN KAMPEN MUNICIPAL TRUST
(NYSE TICKER SYMBOL -- VKQ)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............ 9.06%
One-year total return based on NAV(2)..................... 10.38%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3).................................................. 5.93%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 9.27%
SHARE VALUATIONS
Net asset value........................................... $ 17.32
Closing common stock price................................ $16.1875
One-year high common stock price (08/26/98)............... $16.5625
One-year low common stock price (04/27/98)................ $ 15.125
Preferred share (Series A) rate(5)........................ 3.500%
Preferred share (Series B) rate(5)........................ 3.410%
Preferred share (Series C) rate(5)........................ 3.430%
Preferred share (Series D) rate(5)........................ 3.429%
</TABLE>
(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing stock price at the end of the period indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4)The taxable-equivalent distribution rate is calculated assuming a 36% federal
income tax bracket.
(5)See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
On August 20, 1998, the Trust's Board of Trustees voted to change the
Trust's fiscal year end from August 31 to October 31, effective at the close
of the August 31, 1998 fiscal year. As a result, the next fiscal year will
commence on September 1, 1998 and end on October 31, 1998; however, you will not
receive an annual report for the two-month transition period from August 31,
1998 to October 31, 1998. Instead, the financial information for those two
months will appear in a separate column in the April 30, 1999 semiannual report.
If you would like to receive the audited financial statements for this two-month
period, please contact our Investor Services Department at 1-800-341-2929.
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 99.9%
ALASKA 3.3%
$ 30,000 Alaska Indl Dev & Expt Auth Pwr Rev
Snettisham Hydroelec First Ser (AMBAC
Insd)...................................... 5.375% 01/01/34 $ 30,567,000
------------
CALIFORNIA 4.9%
3,000 California Hlth Fac Fin Rev Ser A (CA Mtg
Insd)...................................... 5.250 08/01/17 3,038,040
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................ * 09/01/17 1,989,350
1,500 Davis, CA Pub Fac Fin Auth Loc Agy Rev..... 6.600 09/01/25 1,603,890
2,000 Del Mar, CA Race Track Auth Rev Rfdg....... 6.000 08/15/06 2,140,060
7,310 Delano, CA Ctfs Partn Ser A (Prerefunded @
01/01/03).................................. 9.250 01/01/22 9,069,225
2,240 Huntington Park, CA Redev Agy Rev Tax Alloc
Santa Fe Redev............................. 6.200 10/01/27 2,331,907
3,000 Los Angeles, CA Uni Sch Dist Ctfs Partn
(FSA Insd)................................. 5.500 10/01/16 3,182,190
10,000 Orange Cnty, CA Recovery Ctfs Ser A Rfdg
(MBIA Insd) (b)............................ 6.000 06/01/09 11,441,000
5,695 Sacramento, CA City Fin Auth Rev Comb Proj
B (MBIA Insd).............................. * 11/01/14 2,585,359
1,375 San Bernardino, CA Jt Pwrs Fin Auth Alloc
Rev Central City Merged Proj A Rfdg (AMBAC
Insd)...................................... 5.750 07/01/20 1,541,430
4,000 San Francisco, CA City & Cnty Arpts Comm
Intl Arpt Rev Second Ser Issue 13B (MBIA
Insd)...................................... 5.625 05/01/21 4,192,400
7,000 San Joaquin Hills, CA Trns Corridor Agy
Toll Rd Rev Cap Apprec Ser A Rfdg (MBIA
Insd)...................................... * 01/15/30 1,454,810
1,000 Stockton, CA Comnty Fac Dist Spl Tax....... 5.800 09/01/14 1,028,650
----------
45,598,311
----------
COLORADO 9.7%
19,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
Rev E-470 Proj Ser C (Prerefunded @
08/31/05).................................. * 08/31/26 3,039,075
5,000 Boulder Cnty, CO Rev Natl Cent Atmosphere
Rfdg & Impt................................ 6.900 12/01/07 5,474,950
8,500 Boulder Cnty, CO Rev Natl Cent Atmosphere
Rfdg & Impt................................ 7.000 12/01/13 9,304,440
1,635 Colorado Hsg Fin Auth Single Family Pgm Sr
Gtd Mtg Ln D3 (FHA Gtd).................... 7.200 08/01/23 1,733,590
9,135 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.250 11/15/12 10,036,716
11,695 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.500 11/15/23 12,910,110
7,795 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.000 11/15/25 8,506,606
1,105 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)................... 8.500 11/15/23 1,236,208
740 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)................... 8.000 11/15/25 820,105
865 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)................... 8.250 11/15/12 963,169
8,790 Denver, CO City & Cnty Arpt Rev Ser D
(b)........................................ 7.000 11/15/25 9,453,293
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO (CONTINUED)
$ 2,310 Denver, CO City & Cnty Arpt Rev Ser D
(Prerefunded @ 11/15/01)................... 7.000% 11/15/25 $ 2,531,298
22,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig Co Rfdg (b)........... 7.500 12/01/11 24,131,580
------------
90,141,140
------------
CONNECTICUT 2.5%
7,140 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Proj AHF/Hartford............. 7.125 11/01/24 8,266,335
3,540 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A -- Private Placement (c)... 6.400 09/01/11 3,931,064
3,460 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A -- Private Placement
(Prerefunded @ 09/01/07) (c)............... 6.400 09/01/11 4,039,481
7,000 Mashantucket Western Pequot Tribe CT Spl
Rev Ser B, 144A -- Private Placement (c)... 5.750 09/01/27 7,274,820
----------
23,511,700
----------
DELAWARE 0.5%
2,000 Delaware St Econ Dev Auth Rev Exempt Fac
Delmarva Pwr & Lt Co....................... 7.500 10/01/17 2,078,240
2,460 Delaware St Hsg Auth Rev Sr Home Mtg Ser B
SubSer B2.................................. 7.200 12/01/21 2,614,783
----------
4,693,023
----------
DISTRICT OF COLUMBIA 0.3%
1,000 District of Columbia Hosp Rev Medlantic
Hlthcare Group A Rfdg (MBIA Insd) (b)...... 5.875 08/15/19 1,081,390
2,000 District of Columbia Rev Carnegie
Endowment.................................. 5.750 11/15/26 2,095,100
----------
3,176,490
----------
FLORIDA 1.4%
2,600 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)............................... 5.400 07/01/10 2,837,666
1,000 Hillsborough Cnty, FL Indl Dev Auth Indl
Dev Rev Univ Cmnty Hosp (MBIA Insd)........ 5.750 08/15/14 1,071,570
7,615 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Kobernick/ Meadow Pk (Prerefunded
@ 07/01/02)................................ 10.000 07/01/22 9,321,674
----------
13,230,910
----------
GEORGIA 3.6%
1,500 Atlanta, GA Wtr & Swr Rev (FGIC Insd)...... 4.500 01/01/18 1,413,855
8,950 Atlanta, GA Wtr & Swr Rev (FGIC Insd)...... 4.750 01/01/23 8,612,137
20,000 Georgia Local Govt Ctfs Partn Grantor Trust
Ser A (MBIA Insd).......................... 4.750 06/01/28 19,264,600
4,000 Muni Elec Auth GA Proj One Subser A (AMBAC
Insd)...................................... 6.250 01/01/14 4,422,600
----------
33,713,192
----------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS 10.2%
$ 4,795 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj....................... 9.250% 02/01/12 $ 5,514,202
3,650 Carol Stream, IL First Mtg Rev 1st Mtg
Windsor Pk Mnr Proj........................ 7.000 12/01/13 3,982,114
2,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Rfdg............... 8.200 12/01/24 3,000,200
7,475 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc........................... 8.400 05/01/04 8,016,339
10,600 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc. (b)...................... 8.500 05/01/18 11,453,194
4,380 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser A..................... 8.400 05/01/18 4,617,177
4,415 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B..................... 8.950 05/01/18 4,928,244
1,100 Hodgkins, IL Tax Increment................. 9.500 12/01/09 1,297,406
3,400 Hodgkins, IL Tax Increment (Prerefunded @
12/01/01).................................. 9.500 12/01/09 4,003,772
4,000 Hodgkins, IL Tax Increment Ser A Rfdg...... 7.625 12/01/13 4,466,280
1,730 Illinois Dev Fin Auth Econ Dev Rev Latin
School of Chicago Proj..................... 5.650 08/01/28 1,750,206
2,500 Illinois Dev Fin Auth Rev Catholic
Charities Hsg Dev.......................... 6.350 01/01/25 2,628,875
4,000 Illinois Edl Fac Auth Rev.................. 6.000 10/01/24 4,127,560
1,740 Illinois Edl Fac Auth Rev Rfdg Riverside
Hlth Sys Ser A............................. 5.900 10/01/14 1,798,012
2,500 Illinois Hlth Fac Auth Rev Evangelical Hosp
Ser C Rfdg (FSA Insd)...................... 6.750 04/15/12 2,861,475
7,750 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj A (Prerefunded @ 10/01/02)...... 9.500 10/01/22 9,469,260
4,565 Illinois Hlth Fac Auth Rev Hinsdale Hosp
Ser B Rfdg................................. 9.000 11/15/15 5,165,663
1,500 Illinois Hlth Fac Auth Rev Sarah Bush
Lincoln Hlth Cent (Prerefunded @
5/15/02)................................... 7.250 05/15/12 1,699,095
10,000 Illinois Hlth Fac Auth Rev Servantcor Ser A
(Prerefunded @ 08/15/01) (b)............... 8.000 08/15/21 11,310,800
1,200 Illinois Hsg Dev Auth Rev Homeowner Mtg
Subser A2.................................. 7.125 08/01/26 1,307,484
1,510 Roselle, IL Multi-Family Hsg Rev Waterbury
Apts Ser A Rfdg (GNMA Collateralized)...... 7.000 01/01/25 1,661,770
------------
95,059,128
------------
INDIANA 1.4%
2,500 Indiana Bond Bank Spl Pgm Ser F............ 7.150 08/01/15 2,715,025
2,874 Indiana Dev Fin Auth Indl Dev Rev Unr-Rohn
Inc Proj................................... 7.500 03/01/11 3,152,663
4,620 Marion Cnty, IN Conv & Rectl Fac Auth
Excise Tax Rev (MBIA Insd)................. 5.000 06/01/27 4,526,445
2,000 Plymouth, IN Multi Sch Bldg Corp First Mtg
(Prerefunded @ 01/01/02) (AMBAC Insd)...... 6.750 01/01/13 2,211,260
------------
12,605,393
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
KANSAS 2.4%
$ 20,000 Burlington, KS Pollutn Ctl Rev KS Gas &
Elec Co Proj Rfdg (MBIA Insd) (b).......... 7.000% 06/01/31 $ 21,825,200
------------
KENTUCKY 0.7%
2,000 Ashland, KY Solid Waste Rev Ashland Oil Inc
Proj....................................... 7.200 10/01/20 2,181,960
4,000 Elsmere, KY Indl Dev Rev Rfdg.............. 6.750 04/01/10 4,338,720
------------
6,520,680
------------
LOUISIANA 0.7%
790 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Pur Ser A Rfdg (GNMA
Collateralized) (b)........................ 7.100 10/01/24 837,993
5,490 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Pur Ser C Rfdg (GNMA
Collateralized) (b)........................ 7.000 04/01/32 5,805,949
------------
6,643,942
------------
MAINE 0.1%
1,000 Maine Vets Homes ME Rev.................... 7.750 10/01/20 1,139,330
------------
MARYLAND 2.0%
2,300 Baltimore, MD Cap Apprec Cons Pub Impt Rfdg
(FGIC Insd)................................ * 10/15/06 1,586,908
1,845 Baltimore, MD Cap Apprec Ser A (FGIC
Insd)...................................... * 10/15/07 1,196,815
2,075 Baltimore, MD Cap Apprec Ser A (Prerefunded
@ 10/15/05) (FGIC Insd).................... * 10/15/07 1,373,505
139,445 Maryland St Cmnty Dev Admin Dept Hsg &
Cmnty Dev Single Family Rev Pgm 6.......... * 04/01/30 14,202,473
------------
18,359,701
------------
MASSACHUSETTS 1.2%
2,600 Massachusetts St Hlth & Edl Fac Auth Rev
Med Cent of Central MA..................... 7.100 07/01/21 2,814,500
5,000 Massachusetts St Hlth & Edl Fac Auth Rev
New England Med Cent Hosp Ser G (Embedded
Swap) (MBIA Insd) (d)...................... 3.100/5.000 07/01/13 4,920,900
1,375 Massachusetts St Hlth & Edl Fac Auth Rev
Winchester Hosp Ser D Rfdg (Connie Lee
Insd)...................................... 5.750 07/01/14 1,468,142
1,805 Massachusetts St Hsg Fin Agy Hsg Rev Amt
Rental Mtg Ser C (AMBAC Insd).............. 5.450 07/01/18 1,847,887
------------
11,051,429
------------
MICHIGAN 1.9%
4,000 Detroit, MI Local Dev Fin Auth Tax
Increment Sr Ser B......................... 6.700 05/01/21 4,156,800
1,000 Detroit, MI Local Dev Fin Auth Ser C....... 6.850 05/01/21 1,042,060
4,000 Detroit, MI Swg Disp Rev Ser A (MBIA
Insd)...................................... 5.000 07/01/27 3,960,520
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Cent.................. 5.750 05/15/18 1,240,935
2,000 Michigan Muni Bond Auth Rev Loc Govt Ln Ser
C-A (FSA Insd)............................. * 06/15/13 985,980
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys
Regl Med Rfdg (ACA Insd)................... 5.500% 10/01/18 $ 1,027,950
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys
Regl Med Rfdg (ACA Insd)................... 5.500 10/01/27 2,047,420
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys
Regl Med Ser A Rfdg........................ 5.375 10/01/13 1,028,990
1,720 Michigan St Hosp Fin Auth Rev Saratoga
Cmnty Hosp Rfdg (Prerefunded 06/01/02)..... 8.750 06/01/10 2,000,911
------------
17,491,566
------------
MINNESOTA 0.4%
4,100 Minnesota St Higher Ed Fac Auth Rev Adj
Bethel 4S.................................. 5.100 04/01/28 4,105,986
------------
MISSISSIPPI 0.7%
3,750 Claiborne Cnty, MS Pollutn Ctl Rev Sys
Energy Res Inc Rfdg........................ 7.300 05/01/25 3,954,862
1,985 Mississippi Home Corp Single Family Rev Mtg
Ser F (GNMA Collateralized)................ 7.550 12/01/27 2,270,741
------------
6,225,603
------------
MISSOURI 1.3%
1,740 Good Shepherd Nursing Home Dist MO Nursing
Home Fac Rev (Prerefunded @ 08/15/05)...... 7.625 08/15/15 2,134,719
2,730 Good Shepherd Nursing Home Dist MO Nursing
Home Fac Rev (Prerefunded @ 08/15/05)...... 7.750 08/15/25 3,369,776
3,750 Hannibal, MO Indl Dev Auth Hlth Fac Rev
Hannibal Regl Hlthcare Sys Inc (Prerefunded
@ 09/01/01)................................ 9.500 03/01/22 4,476,937
2,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)..... 5.000 06/01/11 2,066,420
------------
12,047,852
------------
MONTANA 0.5%
3,900 Montana St Coal Severance Tax Broadwater
Pwr Proj Ser A Rfdg........................ 6.875 12/01/17 4,201,860
------------
NEBRASKA 0.1%
1,000 Nebraska Invt Fin Auth Single Ser D (FHA
Insd)...................................... 5.850 09/01/28 1,042,020
------------
NEVADA 1.9%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj
Ser B Rfdg................................. 5.900 10/01/30 2,046,060
4,260 Clark Cnty, NV Pollutn Ctrl Rev NV Pwr Co
Proj Ser D................................. 5.450 10/01/23 4,271,417
885 Henderson, NV Loc Impt Dist No T-4 Ser A... 8.500 11/01/12 922,719
1,750 Nevada St Rfdg............................. 4.375 08/01/03 1,786,032
1,445 Reno, NV Redev Agy Tax Alloc Downtown Redev
Senior Lien F Rfdg (MBIA Insd)............. 5.000 09/01/13 1,459,161
1,000 Reno, NV Redev Agy Tax Alloc Downtown Redev
Senior Lien F Rfdg (MBIA Insd)............. 5.000 09/01/14 1,005,080
6,075 Washoe Cnty, NV Gas & Wtr Fac Rev Sierra
Pacific (AMBAC Insd)....................... 6.300 12/01/14 6,598,786
------------
18,089,255
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW HAMPSHIRE 0.2%
$ 2,000 New Hampshire High Edl & Hlth Riverwoods At
Exeter Ser A............................... 6.500% 03/01/23 $ 2,152,140
------------
NEW JERSEY 5.5%
4,000 Camden Cnty, NJ Impt Auth Lease Rev........ 8.000 06/01/27 4,537,240
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/00 946,070
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/02 873,550
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/03 838,600
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/04 802,100
1,460 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/05 1,120,740
1,465 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/06 1,071,852
1,615 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/07 1,128,675
1,555 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/08 1,035,117
5,000 New Jersey Econ Dev Auth Wtr Fac Rev (FGIC
Insd)...................................... 6.500 04/01/22 5,442,950
25,000 New Jersey Econ Dev Auth Contract Econ Rec
(Embedded Cap) (MBIA Insd) (b)............. 5.900 03/15/21 28,592,500
3,500 New Jersey St Turnpike Auth Turnpike Rev
Ser C (FSA Insd)........................... 6.500 01/01/16 4,215,330
------------
50,604,724
------------
NEW MEXICO 0.1%
580 Santa Fe, NM Single Family Mtg Rev Rfdg.... 8.450 12/01/11 621,757
------------
NEW YORK 10.4%
5,550 Metro Tran Auth NY Svcs Contract Commuter
Fac Ser N Rfdg............................. 6.000 07/01/11 5,797,030
1,900 Metro Tran Auth NY Svcs Contract Tran Fac
Ser N Rfdg................................. 6.000 07/01/11 1,984,569
2,000 New York City Hlth & Hosp Corp Rev Ser A
Rfdg (AMBAC Insd).......................... 5.750 02/15/22 2,103,780
7,000 New York City Ser A........................ 6.250 08/01/08 7,926,870
75 New York City Ser A........................ 7.750 08/15/12 83,666
1,425 New York City Ser A (Prerefunded @
08/15/01).................................. 7.750 08/15/12 1,603,253
1,065 New York City Ser C........................ 7.100 08/15/10 1,154,907
435 New York City Ser C (Prerefunded @
8/15/01)................................... 7.100 08/15/10 475,925
5,000 New York City SubSer A1 (Embedded Swap).... 6.485 08/01/12 5,321,300
1,250 New York St Dorm Auth Rev FHA-Sarah Neuman
Nursing Home (AMBAC Insd).................. 5.500 08/01/37 1,305,775
5,000 New York St Dorm Auth Rev City Univ Ser
F.......................................... 5.500 07/01/12 5,186,750
6,800 New York St Dorm Auth Rev Cons City Univ
Sys Ser A.................................. 5.625 07/01/16 7,368,548
1,400 New York St Dorm Auth Rev Hosp Spl Surgery
(MBIA Insd)................................ 5.000 02/01/18 1,392,202
3,925 New York St Dorm Auth Rev St Univ Edl
Facs....................................... 5.125 05/15/21 3,914,246
4,250 New York St Energy Resh & Dev Auth Fac Rev
Cons Edison Co Proj Ser B Rfdg (MBIA
Insd)...................................... 5.250 08/15/20 4,316,343
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 4,425 New York St Environmental Fac Corp Pollutn
Ctl Rev (Prerefunded 6/15/04).............. 6.700% 06/15/10 $ 5,083,175
2,950 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fd Ser E.......... 6.700 06/15/10 3,355,153
2,920 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser D........................ 7.400 02/15/18 3,268,648
6,150 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser A Rfdg (FSA Insd).............. 5.250 01/01/14 6,547,474
6,610 New York, NY Ser B......................... 7.500 02/01/05 7,396,722
390 New York, NY Ser B (Prerefunded
02/01/02).................................. 7.500 02/01/05 440,349
420 New York, NY Ser F......................... 8.250 11/15/02 478,195
2,165 New York, NY Ser F (Prerefunded
11/15/01).................................. 8.250 11/15/02 2,484,965
5,535 New York, NY Ser J......................... 5.200 08/01/16 5,599,981
3,000 Onondaga Cnty, NY Indl Dev Agy Swr Fac Rev
Bristol-Meyers Squibb Co Proj (MBIA
Insd)...................................... 5.750 03/01/24 3,338,520
6,449 Plainedge, NY Union Free Sch Dist #2063.... 6.000 06/01/12 6,855,324
1,500 Triborough Bridge & Tunnel Auth NY Ser A
Rfdg....................................... 5.000 01/01/17 1,503,120
------------
96,286,790
------------
NORTH CAROLINA 2.0%
3,750 North Carolina Med Care Comm Hlthcare Fac
Rev Novant Hlth Proj Ser A (MBIA Insd)..... 5.000 10/01/18 3,754,912
13,300 North Carolina Muni Pwr Agy No 1 Catawba
Elec Rev (MBIA Insd) (b)................... 6.000 01/01/12 15,160,936
------------
18,915,848
------------
OHIO 5.3%
3,245 Cleveland Cuyahoga Cnty OH Dev Port Auth
Rev Cleveland Bond Fd Ser B................ 5.375 05/15/18 3,191,295
5,375 Franklin Cnty, OH Hosp Rev Holy Cross Hlth
Sys Ser B Rfdg (MBIA Insd)................. 5.250 06/01/10 5,646,330
20,000 Hamilton Cnty, OH Hosp Fac Rev Childrens
Hosp Med Ctr Ser G C (MBIA Insd)........... 4.750 05/15/28 19,080,600
1,905 Jefferson Cnty, OH Rfdg & Impr............. 5.700 12/01/13 2,158,975
3,970 Jefferson Cnty, OH Rfdg & Impr............. 5.000 12/01/17 3,997,552
2,270 Montgomery Cnty, OH Hosp Rev Kettering Med
Cent Rfdg & Impt (MBIA Insd)............... 6.250 04/01/20 2,692,220
1,000 Ohio St Air Qual Dev Auth Rev JMG Funding
Ltd Partnership Proj Rfdg (AMBAC Insd)..... 6.375 04/01/29 1,108,100
2,750 Ohio St Infrastructure Impr Ser B.......... 5.000 02/01/16 2,801,425
3,000 Parma, OH Hosp Impr Rev Parma Cmnty Gen
Hosp Assoc Rfdg............................ 5.375 11/01/29 3,035,880
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO (CONTINUED)
$ 5,000 Reynoldsburg, OH Hlth Care Fac Rev Wesley
Ridge Proj (GNMA Collateralized)........... 6.150% 10/20/38 $ 5,467,600
------------
49,179,977
------------
OKLAHOMA 1.7%
2,775 Cleveland Cnty, OK Home Ln Auth Single
Family Mtg Rev Rfdg........................ 8.000 08/01/12 2,962,590
1,240 Kay Cnty, OK Home Fin Auth Rev Single
Family Mtg Ser A Rfdg (AMBAC Insd)......... 7.000 11/01/11 1,539,038
8,265 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized).............. 7.997 08/01/18 9,696,829
1,500 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc........................................ 7.600 12/01/30 1,638,045
------------
15,836,502
------------
PENNSYLVANIA 3.7%
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Rfdg
Hosp OH Vly Genl Hosp...................... 5.875 04/01/11 2,576,625
11,000 Beaver Cnty, PA Hosp Auth Rev Vly Hlth Sys
Inc (AMBAC Insd)........................... 5.000 05/15/28 10,823,560
1,150 Butler Cnty, PA Hosp Auth Hosp Rev Butler
Mem Hosp Ser A (FSA Insd).................. 5.250 07/01/12 1,184,833
2,165 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj (Prerefunded @ 07/01/01)......... 8.500 07/01/21 2,468,013
10,000 Geisinger Auth PA Hlth Sys Ser A
(Prerefunded @ 07/01/02)................... 6.400 07/01/22 11,052,300
2,475 Harrisburg, PA Cap Apprec Notes Ser F Rfdg
(AMBAC Insd)............................... * 03/15/14 1,145,480
2,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev Adult Cmntys Total
Svcs Ser B................................. 5.625 11/15/12 2,097,980
2,700 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D...................... 7.125 12/01/15 3,027,051
------------
34,375,842
------------
RHODE ISLAND 1.4%
2,420 Providence, RI Redev Agy Ctfs Partn Ser
A.......................................... 8.000 09/01/24 2,677,658
4,750 Rhode Island Hsg & Mtg Fin Corp Ser 8
(Inverse Fltg)............................. 10.367 04/01/24 5,391,250
2,575 Rhode Island St Econ Dev Corp Arpt Rev Ser
B (FSA Insd)............................... 5.000 07/01/28 2,529,757
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 2,384,580
------------
12,983,245
------------
TENNESSEE 0.5%
4,168 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
Multi-Family Mtg Rock Creek Plaza Rfdg
(GNMA Collateralized)...................... 7.375 01/20/27 4,466,643
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS 7.8%
$ 6,500 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc Proj.................... 7.500% 12/01/29 $ 7,013,760
10,000 Brazos River Auth TX Pollutn Ctl Rev Adj
Colll Util Elec Co Proj C Rfdg............. 5.550 06/01/30 10,088,800
6,000 Brazos River Auth TX Pollutn Ctl Rev Coll
TX Util Elec Co Proj A (AMBAC Insd)........ 6.750 04/01/22 6,576,660
5,000 Brazos River Auth TX Rev Houston Inds Inc
Proj D Rfdg (a)............................ 4.900 10/01/15 5,063,450
420 Brazos, TX Higher Edl Auth Inc Student Ln
Rev Subser C2 Rfdg......................... 7.100 11/01/04 474,461
2,500 Coastal Bend Hlth Fac Dev TX Yield Curve
Note Ser C (Inverse Fltg) (AMBAC Insd)..... 7.828 11/15/13 2,875,000
15,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc (b)............ 7.500 11/01/25 16,161,000
3,600 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev Delta Airls Inc................... 7.625 11/01/21 3,975,012
3,180 Harris Cnty, TX Hlth Fac Hosp Memorial
Hermann Hosp Sys Proj Memorial Hermann
Hospital Systems Project (FSA Insd)........ 5.125 06/01/22 3,162,446
3,885 Houston, TX Indpt Sch Dist Pub Cap Apprec
Cesar E Chavez Ser A (AMBAC Insd).......... * 09/15/18 1,441,296
3,885 Houston, TX Indpt Sch Dist Pub Cap Apprec
Cesar E Chavez Ser A (AMBAC Insd).......... * 09/15/20 1,305,477
3,885 Houston, TX Indpt Sch Distt Pub Cap Apprec
Cesar E Chavez Ser A (AMBAC Insd).......... * 09/15/21 1,239,393
4,913 Region One Education Service Center
Sub-Tech Fac Proj.......................... 6.590 12/15/17 5,255,427
2,200 Rockwall, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Gtd).................................. * 08/15/17 818,686
1,754 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs....................................... 7.250 08/15/11 1,794,951
5,500 Texas Wtr Dev Brd Rev Str Revolving Fd
Senior Lien Ser A.......................... 4.750 07/15/20 5,321,635
------------
72,567,454
------------
UTAH 0.6%
3,875 Bountiful, UT Hosp Rev South Davis Cmnty
Hosp Proj.................................. 9.500 12/15/18 4,690,843
1,035 Utah St Hsg Fin Agy Single Family Mtg Insd
Ser E2 (FHA Gtd)........................... 7.150 07/01/24 1,093,146
------------
5,783,989
------------
VIRGINIA 1.2%
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac
Lease Rev Henrico Cnty Regl Jail Proj...... 6.500 08/01/10 1,714,035
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac
Lease Rev Henrico Cnty Regl Jail Proj...... 7.125 08/01/21 1,764,105
2,000 Henrico Cnty, VA Indl Dev Auth Rev......... 5.875 03/01/17 2,124,080
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke
Mem Hosp Carilion Hlth Sys Ser B Rfdg (MBIA
Insd)...................................... 4.700 07/01/20 5,286,100
------------
10,888,320
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WASHINGTON 1.9%
$ 5,000 Bellevue, WA Convention Cent Auth Spl Oblig
Rev Rfdg (MBIA Insd)....................... * 02/01/24 $ 1,395,000
1,750 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev (MBIA Insd).................. 5.750% 07/01/12 1,900,063
10,495 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser B Rfdg (MBIA Insd)....... 5.600 07/01/15 10,960,453
9,000 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev (MBIA Insd).................. * 07/01/16 3,640,680
------------
17,896,196
------------
WEST VIRGINIA 0.8%
6,550 Harrison Cnty, WV Cnty Cmnty Solid Waste
Disp Rev Potomac Edison Co Ser A........... 6.875 04/15/22 7,131,968
------------
WISCONSIN 2.1%
1,115 Hartford, WI Wtr & Elec Sys Rev (AMBAC
Insd)...................................... 5.000 07/01/16 1,114,275
1,000 Madison, WI Indl Dev Rev Madison Gas & Elec
Co Proj A.................................. 6.750 04/01/27 1,082,210
5,250 Wisconsin Hsg & Econ Dev Auth Hsg Rev Ser
B.......................................... 7.050 11/01/22 5,647,268
4,000 Wisconsin St Hlth & Edl Fac Auth Rev
Agnesian Hlthcare Inc (MBIA Insd).......... 5.125 07/01/23 3,971,920
7,280 Wisconsin St Hlth & Edl Fac Auth Rev
Children's Hosp (Embedded Cap) (FGIC
Insd)...................................... 5.000 08/15/10 7,434,554
------------
19,250,227
------------
WYOMING 0.9%
4,000 Wyoming Cmnty Dev Auth Single Family Ser G
(FHA Gtd).................................. 7.250 06/01/21 4,290,280
4,000 Wyoming Cmnty Dev Auth Single Family Ser H
(FHA Gtd).................................. 7.100 06/01/12 4,313,120
------------
8,603,400
------------
PUERTO RICO 2.1%
17,380 Puerto Rico Comwlth Hwy & Tran Auth Tran
Rev Ser A.................................. 4.750 07/01/38 16,850,258
2,000 Puerto Rico Elec Pwr Auth Pwr Rev Ser P
(Prerefunded @ 07/01/01)................... 7.000 07/01/21 2,213,900
------------
19,064,158
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Market Value
- -----------------------------------------------------------------------------------------------
<S> <C>
TOTAL INVESTMENTS 99.9%
(Cost $853,006,452)........................................................... $927,649,891
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%..................................... 523,809
------------
NET ASSETS 100.0%.............................................................. $928,173,700
------------
</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.
(c) 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.
(d) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, (Cost $853,006,452)...................... $927,649,891
Receivables:
Interest.................................................. 12,934,496
Investments Sold.......................................... 5,110,483
Variation Margin on Futures............................... 25,000
Other....................................................... 8,338
------------
Total Assets.......................................... 945,728,208
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 10,918,083
Investments Purchased..................................... 5,006,125
Income Distributions - Common and Preferred Shares........ 563,986
Investment Advisory Fee................................... 546,795
Administrative Fee........................................ 156,227
Affiliates................................................ 36,112
Accrued Expenses............................................ 235,484
Trustees' Deferred Compensation and Retirement Plans........ 91,696
------------
Total Liabilities..................................... 17,554,508
------------
NET ASSETS.................................................. $928,173,700
------------
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 6,000 issued
with liquidation preference of $50,000 per share)......... $300,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized,
36,270,469 shares issued and outstanding)................. 362,705
Paid in Surplus............................................. 536,817,998
Net Unrealized Appreciation................................. 74,571,449
Accumulated Undistributed Net Investment Income............. 3,547,707
Accumulated Net Realized Gain............................... 12,873,841
------------
Net Assets Applicable to Common Shares................ 628,173,700
------------
NET ASSETS.................................................. $928,173,700
------------
NET ASSET VALUE PER COMMON SHARE ($628,173,700 divided
by 36,270,469 shares outstanding)......................... $ 17.32
------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $55,377,420
-----------
EXPENSES:
Investment Advisory Fee..................................... 6,409,333
Administrative Fee.......................................... 1,831,238
Preferred Share Maintenance................................. 805,646
Custody..................................................... 42,632
Trustees' Fees and Expenses................................. 42,166
Legal....................................................... 32,571
Other....................................................... 507,524
-----------
Total Expenses.......................................... 9,671,110
-----------
NET INVESTMENT INCOME....................................... $45,706,310
-----------
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $13,970,978
Options................................................... 972,521
Futures................................................... (1,306,581)
-----------
Net Realized Gain........................................... 13,636,918
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 62,025,039
-----------
End of the Period:
Investments............................................. 74,643,439
Futures................................................. (71,990)
-----------
74,571,449
-----------
Net Unrealized Appreciation During the Period............... 12,546,410
-----------
NET REALIZED AND UNREALIZED GAIN............................ $26,183,328
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $71,889,638
-----------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 45,706,310 $ 46,253,008
Net Realized Gain........................................ 13,636,918 7,810,403
Net Unrealized Appreciation During the Period............ 12,546,410 18,794,517
------------ ------------
Change in Net Assets from Operations..................... 71,889,638 72,857,928
------------ ------------
Distributions from Net Investment Income:
Common Shares.......................................... (34,818,029) (34,818,328)
Preferred Shares....................................... (10,827,208) (10,696,162)
------------ ------------
Total Distributions...................................... (45,645,237) (45,514,490)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 26,244,401 27,343,438
NET ASSETS:
Beginning of the Period.................................. 901,929,299 874,585,861
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $3,547,707 and $3,444,060,
respectively).......................................... $928,173,700 $901,929,299
------------ ------------
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
(Commencement
Year Ended August 31 of Investment
---------------------------------------------------------- Operations) to
1998 1997 1996 1995 1994 1993 August 31, 1992
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the Period (a)..... $16.596 $15.842 $15.734 $15.562 $17.035 $16.328 $14.808
------- ------- ------- ------- ------- ------- -------
Net Investment Income........... 1.260 1.275 1.295 1.311 1.347 1.410 1.166
Net Realized and Unrealized
Gain/Loss..................... .722 .734 .105 .266 (1.424) .780 1.370
------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations...................... 1.982 2.009 1.400 1.577 (.077) 2.190 2.536
------- ------- ------- ------- ------- ------- -------
LESS:
Disbributions from Net
Investment Income:
Paid to Common Shareholders... .960 .960 .990 1.084 1.116 1.100 .811
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... .299 .295 .302 .321 .280 .246 .205
Distributions from Net Realized
Gain:
Paid to Common Shareholders... -0- -0- -0- -0- -0- .111 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders...... -0- -0- -0- -0- -0- .026 -0-
------- ------- ------- ------- ------- ------- -------
Total Distributions.............. 1.259 1.255 1.292 1.405 1.396 1.483 1.016
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $17.319 $16.596 $15.842 $15.734 $15.562 $17.035 $16.328
------- ------- ------- ------- ------- ------- -------
Market Price Per Share at End of
the Period...................... $16.188 $15.750 $14.500 $14.250 $15.000 $16.750 $16.125
Total Investment Return at Market
Price (b)....................... 9.06% 15.87% 8.98% 2.39% (3.94%) 11.90% 13.24%*
Total Return at Net Asset Value
(c)............................. 10.38% 11.14% 7.09% 8.55% (2.22%) 12.31% 14.64%*
Net Assets at End of the Period
(In millions)................... $928.2 $901.9 $874.6 $870.7 $864.4 $917.9 $891.7
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares**........................ 1.57% 1.61% 1.61% 1.65% 1.64% 1.59% 1.49%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)............... 5.66% 6.04% 6.20% 6.48% 6.52% 7.08% 6.85%
Portfolio Turnover............... 94% 54% 36% 49% 47% 48% 100%*
* Non-Annualized
** Ratio of Expenses to Average
Net Assets Including Preferred
Shares.......................... 1.06% 1.07% 1.06% 1.07% 1.09% 1.06% 1.03%
</TABLE>
(a) Net Asset Value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.192 per common share.
(b) Total Investment Return at Market Price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(c) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net Investment Income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
See Notes to Financial Statements
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Trust (the "Trust") is registered as a diversified
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide a high level of
current income exempt from federal income tax, consistent with preservation of
capital. The Trust will invest in a portfolio consisting substantially of
municipal obligations rated investment grade at the time of investment, but may
invest up to 20% of its assets in unrated securities which are believed to be of
comparable quality to those rated investment grade. The Trust commenced
investment operations on September 27, 1991.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust 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 Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES--It is the Trust'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 and open futures positions, which for tax purposes are
marked to market at August 31, 1998.
At August 31, 1998, for federal income tax purposes, cost of long-term
investments is $853,022,058; the aggregate gross unrealized appreciation is
$74,639,846 and the aggregate gross unrealized depreciation is $12,013,
resulting in net unrealized appreciation of $74,627,833.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. 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 income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1998 fiscal year have been identified and appropriately
reclassified. Permanent book and tax basis differences relating to the
recognition of certain expenses which are not deductible for tax purposes
totaling $42,574 were reclassified from accumulated undistributed net investment
income to capital.
For the year ended August 31,1998, 99.92% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1999, the Trust
will provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .70% of the average
net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Funds Inc. or its affiliates (collectively "Van
Kampen") , the Trust's Administrator, at an annual rate of .20% of the average
net assets of the Trust. The administrative services provided by the
Administrator
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
include record keeping and reporting responsibilities with respect to the
Trust's portfolio and preferred shares and providing certain services to
shareholders.
For the year ended August 31, 1998, the Trust recognized expenses of
approximately $16,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended August 31, 1998, the Trust recognized expenses of
approximately $204,100 representing Van Kampen's cost of providing accounting
and legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust 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 Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $869,941,859 and $860,035,223,
respectively.
4. 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 Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or taking
delivery of a security underlying a futures contract. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
Summarized below are the specific types of derivative financial instruments
used by the Trust.
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 Trust
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended August 31, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at August 31, 1997................... 2,605 $ 158,071
Options Written and Purchased (Net).............. 6,350 904,986
Options Terminated in Closing Transactions
(Net).......................................... (2,863) (202,813)
Options Expired (Net)............................ (6,092) (860,244)
------- ---------
Outstanding at August 31, 1998................... -0- $ -0-
------- ---------
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust 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 Trust 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 year ended August 31, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at August 31, 1997............................. 456
Futures Opened............................................. 9,470
Futures Closed............................................. (9,526)
------
Outstanding at August 31, 1998............................. 400
------
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
The futures contracts outstanding as of August 31, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- Sep. 1998 US Treasury Bond
Future (Current notional value of $127,125
per contract)............................... 200 $ 554,630
Short Contracts -- Sep. 1998 Municipal Bond
Future (Current notional value of $126,625
per contract)............................... 200 (626,620)
--- ----------
400 $ (71,990)
--- ----------
</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
Trust 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.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. As the floating rate
rises, the coupon is reduced. Conversely, as the floating rate declines, the
coupon is increased. The Trust invests in these instruments as a hedge against a
rise in the short-term interest rates which it pays on its preferred shares.
5. PREFERRED SHARES
The Trust has outstanding 6,000 Auction Preferred Shares ("APS") in four series
of 1,500 shares each. Dividends are cumulative and the dividend rate is
periodically reset through an auction process. The dividend periods for Series A
and Series C are 7 days, while Series B and Series D are 28 days. The average
rate in effect on August 31, 1998, was 3.44%. During the year ended August 31,
1998, the rates ranged from 3.19% to 4.75%.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests, and the APS are subject to
mandatory redemption if the tests are not met.
6. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996, Van Kampen initiated a CountDown 2000
Project to review both the internal systems and external vendor connections. The
goal of this project is to position its business to continue unaffected as a
result of the century change. At this time, there can be no assurance that the
steps taken will be sufficient to avoid any adverse impact to the Trust, but Van
Kampen does not anticipate that the move to Year 2000 will have a material
impact on its ability to continue to provide the Trust with service at current
levels. In addition, it is possible that the securities markets in which the
Trust invests may be detrimentally affected by computer failures throughout the
financial services industry beginning January 1, 2000. Improperly functioning
trading systems may result in settlement problems and liquidity issues.
28
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Municipal Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Trust (the "Trust"), including the portfolio of investments, as
of August 31, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Trust as of August 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
October 6, 1998
29
<PAGE> 31
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be
re-registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
prorata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with the reinvestment of dividends and
distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
30
<PAGE> 32
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view prospectuses, click on Investors' Place, and
select Prospectuses and Reports
- - 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 Investors' Place
31
<PAGE> 33
VAN KAMPEN MUNICIPAL TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND
TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
32
<PAGE> 34
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on July 28, 1998,
where shareholders voted on the election of trustees and independent public
accountants.
1) With regard to the election of the following trustee by preferred
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR WITHHELD
- --------------------------------------------------------------------------
<S> <C> <C>
Rod Dammeyer.................................... 3,879 2
</TABLE>
2) With regard to the election of the following trustees by common
shareholders:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR WITHHELD
- --------------------------------------------------------------------------
<S> <C> <C>
Wayne W. Whalen................................. 18,906,514 231,049
Steven Muller................................... 18,896,526 241,036
</TABLE>
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the trust, 18,877,987 shares voted in favor of the
proposal, 64,314 shares voted against, and 199,143 shares abstained.
33
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<NAME> MUNICIPAL TRUST
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<S> <C>
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