<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
A Farewell from the Chairman..................... 1
Portfolio of Investments......................... 2
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 18
Report of Independent Accountants................ 25
Dividend Reinvestment Plan....................... 26
</TABLE>
VKQ ANR 12/98
<PAGE> 2
A FAREWELL FROM THE CHAIRMAN
------------------------ - ------------------------
Dear Shareholder,
Since I became president and chief executive officer in 1987, much has
changed in our business. However, one thing has remained constant through these
years--my commitment to you, the trust shareholder. Through the many events at
Van Kampen that have marked the passage of time--including several mergers,
company name changes, and leadership changes--we have always focused on
providing superior investments and the highest level of customer service to help
you meet your investment objectives. I'm proud to say that during my tenure, Van
Kampen won eight consecutive awards for high-quality customer service--more
consecutive service awards than any other firm in the financial services
industry.(1) My successor, Dick Powers, shares this commitment to meeting your
needs and providing innovative and efficient ways to help you work with your
investment adviser to reach your financial goals.
Although my official retirement begins on January 1, 1999, I will remain
active in the industry and the community. I plan to continue my service as a
member of the board of directors of the Investment Company Institute, the
leading mutual fund industry association, and I will remain a trustee of your
Trust.
In closing, I want to say farewell to all of you. Thank you for your support
of Van Kampen over the years and for giving me the opportunity to serve you.
Best wishes,
[SIG]
Don G. Powell
------------------------ - ------------------------
(1)American Capital, which merged with Van Kampen in 1995, received the DALBAR
Service Award annually from 1990 to 1994. The award was called the Quality
Tested Service Seal until 1997.
1
<PAGE> 3
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 101.8%
ALASKA 3.3%
$ 30,000 Alaska Indl Dev & Expt Auth Pwr Rev
Snettisham Hydroelec First Ser (AMBAC
Insd)...................................... 5.375% 01/01/34 $ 30,372,300
------------
CALIFORNIA 4.9%
3,000 California Hlth Fac Fin Rev Ser A (CA Mtg
Insd)...................................... 5.250 08/01/17 3,042,060
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................ * 09/01/17 1,975,950
1,500 Davis, CA Pub Fac Fin Auth Local Agy Rev... 6.600 09/01/25 1,607,625
2,000 Del Mar, CA Race Track Auth Rev Rfdg....... 6.000 08/15/06 2,142,900
7,310 Delano, CA Ctfs Partn Ser A (Prerefunded @
01/01/03).................................. 9.250 01/01/22 9,067,324
2,240 Huntington Park, CA Redev Agy Rev Tax Alloc
Santa Fe Redev............................. 6.200 10/01/27 2,338,314
3,000 Los Angeles, CA Unified Sch Dist Ctfs Partn
(FSA Insd)................................. 5.500 10/01/16 3,194,550
10,000 Orange Cnty, CA Recovery Ctfs Ser A Rfdg
(MBIA Insd) (b)............................ 6.000 06/01/09 11,557,600
5,695 Sacramento, CA City Fin Auth Rev Comb Proj
B (MBIA Insd).............................. * 11/01/14 2,651,307
1,375 San Bernardino, CA Jt Pwrs Fin Auth Alloc
Rev Central City Merged Proj A Rfdg (AMBAC
Insd)...................................... 5.750 07/01/20 1,536,755
4,000 San Francisco, CA City & Cnty Arpts Comm
Intl Arpt Rev Second Ser Issue 13B (MBIA
Insd)...................................... 5.625 05/01/21 4,178,480
7,000 San Joaquin Hills, CA Trns Corridor Agy
Toll Rd Rev Cap Apprec Ser A Rfdg (MBIA
Insd)...................................... * 01/15/30 1,447,250
1,000 Stockton, CA Comnty Fac Dist Spl Tax....... 5.800 09/01/14 1,031,290
------------
45,771,405
------------
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 3,078,855
5,000 Boulder Cnty, CO Rev Natl Cent Atmosphere
Impt & Rfdg................................ 6.900 12/01/07 5,473,750
8,500 Boulder Cnty, CO Rev Natl Cent Atmosphere
Impt & Rfdg................................ 7.000 12/01/13 9,314,725
1,635 Colorado Hsg Fin Auth Single Family Pgm Sr
Gtd Mtg Ln D3 (FHA Gtd).................... 7.200 08/01/23 1,765,130
9,135 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.250 11/15/12 9,999,354
11,695 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.500 11/15/23 12,858,185
7,795 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.000 11/15/25 8,478,855
1,105 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)................... 8.500 11/15/23 1,233,987
740 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)................... 8.000 11/15/25 819,150
</TABLE>
See Notes to Financial Statements
2
<PAGE> 4
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 865 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)................... 8.250% 11/15/12 $ 961,741
8,790 Denver, CO City & Cnty Arpt Rev Ser D
(b)........................................ 7.000 11/15/25 9,432,461
2,310 Denver, CO City & Cnty Arpt Rev Ser D
(Prerefunded @ 11/15/01)................... 7.000 11/15/25 2,530,836
22,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig Co Rfdg (b)........... 7.500 12/01/11 24,156,000
------------
90,103,029
------------
CONNECTICUT 2.5%
7,140 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Proj AHF/Hartford............. 7.125 11/01/24 8,264,550
3,540 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A-Private Placement (c)...... 6.400 09/01/11 3,922,922
3,460 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A-Private Placement
(Prerefunded @ 09/01/07) (c)............... 6.400 09/01/11 4,053,390
7,000 Mashantucket Western Pequot Tribe CT Spl
Rev Ser B, 144A-Private Placement (c)...... 5.750 09/01/27 7,294,700
------------
23,535,562
------------
DELAWARE 0.5%
2,000 Delaware St Econ Dev Auth Rev Exempt Fac
Delmarva Pwr & Lt Co....................... 7.500 10/01/17 2,066,820
2,460 Delaware St Hsg Auth Rev Sr Home Mtg Ser B
Subser B2.................................. 7.200 12/01/21 2,613,627
------------
4,680,447
------------
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 1,074,630
2,000 District of Columbia Rev Carnegie
Endowment.................................. 5.750 11/15/26 2,095,500
------------
3,170,130
------------
FLORIDA 1.4%
2,600 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)............................... 5.400 07/01/10 2,824,016
1,000 Hillsborough Cnty, FL Indl Dev Auth Indl
Dev Rev Univ Cmnty Hosp (MBIA Insd)........ 5.750 08/15/14 1,090,010
7,615 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Kobernick/Meadow Pk (Prerefunded @
07/01/02).................................. 10.000 07/01/22 9,310,327
------------
13,224,353
------------
GEORGIA 3.7%
1,500 Atlanta, GA Wtr & Swr Rev (FGIC Insd)...... 4.500 01/01/18 1,416,060
30,000 Georgia Local Govt Ctfs Partn Grantor Trust
Ser A (MBIA Insd).......................... 4.750 06/01/28 28,810,800
4,000 Muni Elec Auth GA Proj One Subser A (AMBAC
Insd)...................................... 6.250 01/01/14 4,504,520
------------
34,731,380
------------
</TABLE>
See Notes to Financial Statements
3
<PAGE> 5
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS 10.4%
$ 4,795 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj....................... 9.250% 02/01/12 $ 5,492,529
3,650 Carol Stream, IL First Mtg Rev 1st Mtg
Windsor Pk Mnr Proj........................ 7.000 12/01/13 3,982,880
5,000 Chicago, IL Midway Arpt Rev Ser B (MBIA
Insd)...................................... 5.000 01/01/35 4,889,200
2,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Rfdg............... 8.200 12/01/24 2,971,100
7,475 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc........................... 8.400 05/01/04 7,968,724
10,600 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc (b)....................... 8.500 05/01/18 11,372,422
4,380 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser A..................... 8.400 05/01/18 4,592,912
4,415 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B..................... 8.950 05/01/18 4,889,480
1,000 Hodgkins, IL Tax Increment................. 9.500 12/01/09 1,174,240
3,200 Hodgkins, IL Tax Increment (Prerefunded @
12/01/01).................................. 9.500 12/01/09 3,760,000
4,000 Hodgkins, IL Tax Increment Ser A Rfdg...... 7.625 12/01/13 4,469,320
2,500 Illinois Dev Fin Auth Rev Catholic
Charities Hsg Dev.......................... 6.350 01/01/25 2,622,200
4,000 Illinois Edl Fac Auth Rev.................. 6.000 10/01/24 4,135,880
1,740 Illinois Edl Fac Auth Rev Riverside Hlth
Sys Ser A Rfdg............................. 5.900 10/01/14 1,801,596
2,500 Illinois Hlth Fac Auth Rev Evangelical Hosp
Ser C Rfdg (FSA Insd)...................... 6.750 04/15/12 2,855,975
7,750 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj A (Prerefunded @ 10/01/02)...... 9.500 10/01/22 9,457,247
4,455 Illinois Hlth Fac Auth Rev Hinsdale Hosp
Ser B Rfdg................................. 9.000 11/15/15 5,021,097
1,500 Illinois Hlth Fac Auth Rev Sarah Bush
Lincoln Hlth Cent (Prerefunded @
05/15/02).................................. 7.250 05/15/12 1,700,745
10,000 Illinois Hlth Fac Auth Rev Servantcor Ser A
(Prerefunded @ 08/15/01) (b)............... 8.000 08/15/21 11,293,100
1,015 Illinois Hsg Dev Auth Rev Homeowner Mtg
Subser A2.................................. 7.125 08/01/26 1,107,152
1,510 Roselle, IL Multi-Family Hsg Rev Waterbury
Apts Ser A Rfdg (GNMA Collateralized)...... 7.000 01/01/25 1,662,449
------------
97,220,248
------------
INDIANA 1.1%
2,500 Indiana Bond Bank Spl Pgm Ser F............ 7.150 08/01/15 2,704,225
2,874 Indiana Dev Fin Auth Indl Dev Rev Unr-Rohn
Inc Proj................................... 7.500 03/01/11 3,142,202
2,000 Indiana Hlth Fac Fin Auth Rev Marquette
Manor Proj Rfdg............................ 5.000 08/15/18 1,896,300
2,000 Plymouth, IN Multi Sch Bldg Corp First Mtg
(Prerefunded @ 01/01/02) (AMBAC Insd)...... 6.750 01/01/13 2,214,100
------------
9,956,827
------------
</TABLE>
See Notes to Financial Statements
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 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 $ 21,848,400
------------
KENTUCKY 1.3%
2,000 Ashland, KY Solid Waste Rev Ashland Oil Inc
Proj....................................... 7.200 10/01/20 2,169,160
4,000 Elsmere, KY Indl Dev Rev Rfdg.............. 6.750 04/01/10 4,325,400
4,880 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac
Delta Airls Proj Ser A..................... 7.125 02/01/21 5,276,500
------------
11,771,060
------------
LOUISIANA 0.7%
785 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Pur Ser A Rfdg (GNMA
Collateralized) (b)........................ 7.100 10/01/24 832,367
4,945 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Pur Ser C Rfdg (GNMA
Collateralized) (b)........................ 7.000 04/01/32 5,228,200
------------
6,060,567
------------
MAINE 0.1%
1,000 Maine Vets Homes ME Rev.................... 7.750 10/01/20 1,137,990
------------
MARYLAND 2.0%
2,300 Baltimore, MD Cap Apprec Cons Pub Impt &
Rfdg (FGIC Insd)........................... * 10/15/06 1,592,957
1,845 Baltimore, MD Cap Apprec Ser A (FGIC
Insd)...................................... * 10/15/07 1,220,394
2,075 Baltimore, MD Cap Apprec Ser A (Prerefunded
@ 10/15/05) (FGIC Insd).................... * 10/15/07 1,391,370
139,445 Maryland St Cmnty Dev Admin Dept Hsg &
Cmnty Dev Single Family Rev Pgm 6.......... * 04/01/30 14,371,202
------------
18,575,923
------------
MASSACHUSETTS 1.2%
2,600 Massachusetts St Hlth & Edl Fac Auth Rev
Med Cent of Central MA..................... 7.100 07/01/21 2,808,390
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 4,957,400
1,375 Massachusetts St Hlth & Edl Fac Auth Rev
Winchester Hosp Ser D Rfdg (Connie Lee
Insd)...................................... 5.750 07/01/14 1,500,620
1,805 Massachusetts St Hsg Fin Agy Hsg Rev Rental
Mtg Ser C (AMBAC Insd)..................... 5.450 07/01/18 1,853,356
------------
11,119,766
------------
MICHIGAN 1.5%
4,000 Detroit, MI Local Dev Fin Auth Tax
Increment Sr Ser B......................... 6.700 05/01/21 4,168,040
1,000 Detroit, MI Local Dev Fin Auth Ser C....... 6.850 05/01/21 1,044,840
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Cent.................. 5.750 05/15/18 1,242,929
2,000 Michigan Muni Bond Auth Rev Local Govt Ln
Ser C-A (FSA Insd)......................... * 06/15/13 1,002,300
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <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 $ 1,017,620
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys
Regl Med Rfdg (ACA Insd)................... 5.500 10/01/27 2,028,600
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys
Regl Med Ser A Rfdg........................ 5.375 10/01/13 1,026,980
1,720 Michigan St Hosp Fin Auth Rev Saratoga
Cmnty Hosp Rfdg (Prerefunded 06/01/02)..... 8.750 06/01/10 1,999,793
------------
13,531,102
------------
MINNESOTA 0.4%
4,100 Minnesota St Higher Ed Fac Auth Rev Adj
Bethel 4S (LOC: Allied Irish Bank PLC)..... 5.100 04/01/28 4,121,156
------------
MISSISSIPPI 0.7%
3,750 Claiborne Cnty, MS Pollutn Ctl Rev Sys
Energy Res Inc Rfdg........................ 7.300 05/01/25 3,937,313
1,985 Mississippi Home Corp Single Family Rev Mtg
Ser F (GNMA Collateralized)................ 7.550 12/01/27 2,273,559
------------
6,210,872
------------
MISSOURI 1.2%
1,740 Good Shepherd Nursing Home Dist MO Nursing
Home Fac Rev (Prerefunded @ 08/15/05)...... 7.625 08/15/15 2,137,747
3,750 Hannibal, MO Indl Dev Auth Hlth Fac Rev
Hannibal Regl Hlthcare Sys Inc (Prerefunded
@ 09/01/01)................................ 9.500 03/01/22 4,468,387
2,810 Perry Cnty, MO Nursing Home Rev Rfdg....... 5.900 03/01/28 2,780,720
2,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)..... 5.000 06/01/11 2,079,880
------------
11,466,734
------------
MONTANA 0.5%
3,900 Montana St Coal Severance Tax Broadwater
Pwr Proj Ser A Rfdg........................ 6.875 12/01/17 4,208,100
------------
NEBRASKA 0.1%
1,000 Nebraska Invt Fin Auth Single Family Hsg
Rev Ser D (GNMA Collateralized)............ 5.850 09/01/28 1,045,660
------------
NEVADA 1.7%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj
Ser B Rfdg................................. 5.900 10/01/30 2,034,900
4,260 Clark Cnty, NV Pollutn Ctrl Rev NV Pwr Co
Proj Ser D................................. 5.450 10/01/23 4,232,225
835 Henderson, NV Local Impt Dist No T-4 Ser
A.......................................... 8.500 11/01/12 863,774
1,445 Reno, NV Redev Agy Tax Alloc Downtown Redev
Sr Lien F Rfdg (MBIA Insd)................. 5.000 09/01/13 1,465,649
1,000 Reno, NV Redev Agy Tax Alloc Downtown Redev
Sr Lien F Rfdg (MBIA Insd)................. 5.000 09/01/14 1,009,610
6,075 Washoe Cnty, NV Gas & Wtr Fac Rev Sierra
Pacific (AMBAC Insd)....................... 6.300 12/01/14 6,620,353
------------
16,226,511
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW HAMPSHIRE 0.6%
$ 2,000 New Hampshire High Edl & Hlth Riverwoods At
Exeter Ser A............................... 6.500% 03/01/23 $ 2,146,920
3,955 New Hampshire High Edl & Hlth Fac Auth Rev
Cheshire Med Ctr........................... 4.875 07/01/28 3,663,081
------------
5,810,001
------------
NEW JERSEY 5.4%
4,000 Camden Cnty, NJ Impt Auth Lease Rev........ 8.000 06/01/27 4,521,520
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/00 954,820
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/02 883,720
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/03 847,950
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/04 812,050
1,460 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/05 1,133,164
1,465 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/06 1,088,539
1,615 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/07 1,147,684
1,555 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/08 1,051,024
5,000 New Jersey Econ Dev Auth Wtr Fac Rev (FGIC
Insd)...................................... 6.500 04/01/22 5,461,900
25,000 New Jersey Econ Dev Auth Contract Econ
Recovery
(Embedded Cap) (MBIA Insd) (b)............. 5.900 03/15/21 28,502,750
3,500 New Jersey St Turnpike Auth Turnpike Rev
Ser C (FSA Insd)........................... 6.500 01/01/16 4,206,335
------------
50,611,456
------------
NEW MEXICO 0.1%
548 Santa Fe, NM Single Family Mtg Rev Rfdg.... 8.450 12/01/11 587,050
------------
NEW YORK 11.9%
5,000 Long Island Pwr Auth NY Elec Sys Rev Genl
(FSA Insd) (a)............................. 4.000 04/01/05 4,984,450
15,000 Long Island Pwr Auth NY Elec Sys Rev Genl
(MBIA Insd) (a)............................ 4.100 04/01/07 14,920,350
5,550 Metro Tran Auth NY Svcs Contract Commuter
Fac Ser N Rfdg............................. 6.000 07/01/11 5,791,092
1,900 Metro Tran Auth NY Svcs Contract Tran Fac
Ser N Rfdg................................. 6.000 07/01/11 1,982,536
2,000 New York City Hlth & Hosp Corp Rev Ser A
Rfdg (AMBAC Insd).......................... 5.750 02/15/22 2,110,300
7,000 New York City Ser A........................ 6.250 08/01/08 7,951,860
25 New York City Ser A........................ 7.750 08/15/12 27,875
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,475 New York City Ser A (Prerefunded @
08/15/01).................................. 7.750% 08/15/12 $ 1,656,528
665 New York City Ser C........................ 7.100 08/15/01 720,993
835 New York City Ser C (Prerefunded @
08/15/01).................................. 7.100 08/15/10 912,271
5,000 New York City Subser A1 (Embedded Swap).... 6.710 08/01/12 5,276,200
1,250 New York St Dorm Auth Rev FHA-Sarah Neuman
Nursing Home (AMBAC Insd).................. 5.500 08/01/37 1,307,213
5,000 New York St Dorm Auth Rev City Univ Ser
F.......................................... 5.500 07/01/12 5,239,500
6,800 New York St Dorm Auth Rev Cons City Univ
Sys Ser A.................................. 5.625 07/01/16 7,348,488
1,400 New York St Dorm Auth Rev Hosp Spl Surgery
(MBIA Insd)................................ 5.000 02/01/18 1,400,490
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 4,317,533
4,425 New York St Environmental Fac Corp Pollutn
Ctl Rev (Prerefunded 06/15/04)............. 6.700 06/15/10 5,097,334
2,950 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fd Ser E.......... 6.700 06/15/10 3,357,277
2,920 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser D........................ 7.400 02/15/18 3,251,800
6,150 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser A Rfdg (FSA Insd).............. 5.250 01/01/14 6,544,522
5,420 New York, NY Ser B......................... 7.500 02/01/05 6,067,202
1,580 New York, NY Ser B (Prerefunded
02/01/02).................................. 7.500 02/01/05 1,782,904
420 New York, NY Ser F......................... 8.250 11/15/02 477,023
2,165 New York, NY Ser F (Prerefunded
11/15/01).................................. 8.250 11/15/02 2,480,332
5,535 New York, NY Ser J......................... 5.200 08/01/16 5,619,741
3,000 Onondaga Cnty, NY Indl Dev Agy Swr Fac Rev
Bristol-Meyers Squibb Co Proj (MBIA
Insd)...................................... 5.750 03/01/24 3,332,550
6,449 Plainedge, NY Union Free Sch Dist #2063.... 6.000 06/01/12 6,892,147
------------
110,850,511
------------
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 3,758,213
13,300 North Carolina Muni Pwr Agy No 1 Catawba
Elec Rev (MBIA Insd) (b)................... 6.000 01/01/12 15,258,026
------------
19,016,239
------------
OHIO 5.3%
3,245 Cleveland Cuyahoga Cnty OH Dev Port Auth
Rev Cleveland Bond Fd Ser B................ 5.375 05/15/18 3,226,276
5,375 Franklin Cnty, OH Hosp Rev Holy Cross Hlth
Sys Ser B Rfdg (MBIA Insd)................. 5.250 06/01/10 5,668,529
20,000 Hamilton Cnty, OH Hosp Fac Rev Childrens
Hosp Med Ctr Ser G C (MBIA Insd)........... 4.750 05/15/28 18,980,800
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 1,905 Jefferson Cnty, OH Impt & Rfdg (FSA
Insd)...................................... 5.700% 12/01/13 $ 2,174,272
3,970 Jefferson Cnty, OH Impt & Rfdg (FSA
Insd)...................................... 5.000 12/01/17 4,011,129
2,270 Montgomery Cnty, OH Hosp Rev Kettering Med
Cent Impt & Rfdg (MBIA Insd)............... 6.250 04/01/20 2,675,240
1,000 Ohio St Air Qual Dev Auth Rev JMG Funding
Ltd Partnership Proj Rfdg (AMBAC Insd)..... 6.375 04/01/29 1,113,750
2,750 Ohio St Infrastructure Impt Ser B.......... 5.000 02/01/16 2,807,200
3,000 Parma, OH Hosp Impt Rev Parma Cmnty Gen
Hosp Assoc Rfdg............................ 5.375 11/01/29 3,023,760
5,000 Reynoldsburg, OH Hlth Care Fac Rev Wesley
Ridge Proj (GNMA Collateralized)........... 6.150 10/20/38 5,453,900
------------
49,134,856
------------
OKLAHOMA 1.7%
2,775 Cleveland Cnty, OK Home Ln Auth Single
Family Mtg Rev Rfdg........................ 8.000 08/01/12 2,959,205
1,240 Kay Cnty, OK Home Fin Auth Rev Single
Family Mtg Ser A Rfdg (AMBAC Insd)......... 7.000 11/01/11 1,547,532
7,990 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized).............. 7.997 08/01/18 9,408,624
1,500 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc........................................ 7.600 12/01/30 1,627,065
------------
15,542,426
------------
PENNSYLVANIA 4.0%
2,500 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp
OH Vly Genl Hosp Rfdg...................... 5.875 04/01/11 2,575,675
11,000 Beaver Cnty, PA Hosp Auth Rev Vly Hlth Sys
Inc (AMBAC Insd)........................... 5.000 05/15/28 10,758,880
2,000 Berks Cnty, PA Muni Auth Rev Phoebe Devitt
Homes Proj A1 Rfdg......................... 5.700 05/15/18 1,981,340
1,000 Berks Cnty, PA Muni Auth Rev Phoebe Devitt
Homes Proj A1 Rfdg......................... 5.750 05/15/22 992,320
1,150 Butler Cnty, PA Hosp Auth Hosp Rev Butler
Mem Hosp Ser A (FSA Insd).................. 5.250 07/01/12 1,198,806
2,165 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj (Prerefunded @ 07/01/01)......... 8.500 07/01/21 2,463,250
10,000 Geisinger Auth PA Hlth Sys Ser A
(Prerefunded @ 07/01/02)................... 6.400 07/01/22 11,080,300
2,475 Harrisburg, PA Cap Apprec Notes Ser F Rfdg
(AMBAC Insd)............................... * 03/15/14 1,167,012
2,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev Adult Cmntys Total
Svcs Ser B................................. 5.625 11/15/12 2,108,200
2,700 Pennsylvania Econ Dev Fin Auth Res Recovery
Rev Colver Proj Ser D...................... 7.125 12/01/15 3,006,045
------------
37,331,828
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RHODE ISLAND 1.1%
$ 2,420 Providence, RI Redev Agy Ctfs Partn Ser
A.......................................... 8.000% 09/01/24 $ 2,668,195
4,750 Rhode Island Hsg & Mtg Fin Corp Ser 8
(Inverse Fltg)............................. 10.367 04/01/24 5,379,375
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 2,387,380
------------
10,434,950
------------
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 4,463,893
------------
TEXAS 6.7%
6,500 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc Proj.................... 7.500 12/01/29 6,969,885
10,000 Brazos River Auth TX Pollutn Ctl Rev Coll
Util Elec Co Proj C Rfdg................... 5.550 06/01/30 9,882,000
6,000 Brazos River Auth TX Pollutn Ctl Rev Coll
TX Util Elec Co Proj A (AMBAC Insd)........ 6.750 04/01/22 6,589,500
1,000 Brazos River Auth TX Rev Houston Inds Inc
Proj D Rfdg (MBIA Insd).................... 4.900 10/01/15 1,013,200
420 Brazos, TX Higher Edl Auth Inc Student Ln
Rev Subser C2 Rfdg......................... 7.100 11/01/04 474,180
2,500 Coastal Bend Hlth Fac Dev TX Ser C (Inverse
Fltg) (AMBAC Insd)......................... 8.028 11/15/13 2,868,750
15,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc (b)............ 7.500 11/01/25 16,061,250
3,600 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev Delta Airls Inc................... 7.625 11/01/21 3,946,896
3,180 Harris Cnty, TX Hlth Fac Hosp Memorial
Hermann Hosp Sys Proj (FSA Insd)........... 5.125 06/01/22 3,141,268
3,885 Houston, TX Indpt Sch Dist Pub Cap Apprec
Cesar E Chavez Ser A (AMBAC Insd).......... * 09/15/18 1,419,618
3,885 Houston, TX Indpt Sch Dist Pub Cap Apprec
Cesar E Chavez Ser A (AMBAC Insd).......... * 09/15/20 1,274,668
3,885 Houston, TX Indpt Sch Dist Pub Cap Apprec
Cesar E Chavez Ser A (AMBAC Insd).......... * 09/15/21 1,208,390
4,913 Region One Education Service Center
Sub-Tech Fac Proj.......................... 6.590 12/15/17 5,277,341
2,200 Rockwall, TX Indpt Sch Dist Cap Apprec Rfdg
(PSF Gtd).................................. * 08/15/17 820,336
1,740 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs....................................... 7.250 08/15/11 1,779,292
------------
62,726,574
------------
UTAH 0.7%
3,875 Bountiful, UT Hosp Rev South Davis Cmnty
Hosp Proj.................................. 9.500 12/15/18 5,000,881
1,035 Utah St Hsg Fin Agy Single Family Mtg Insd
Ser E2 (FHA Gtd)........................... 7.150 07/01/24 1,093,002
------------
6,093,883
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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 $ 1,719,735
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac
Lease Rev Henrico Cnty Regl Jail Proj...... 7.125 08/01/21 1,766,025
2,000 Henrico Cnty, VA Indl Dev Auth Rev......... 5.875 03/01/17 2,139,140
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 5,290,250
------------
10,915,150
------------
WASHINGTON 2.7%
5,000 Bellevue, WA Convention Cent Auth Spl Oblig
Rev Rfdg (MBIA Insd)....................... * 02/01/24 1,375,750
3,400 Seattle, WA Ser F (a)...................... 5.250 12/15/16 3,520,122
3,765 Seattle, WA Ser F (a)...................... 5.250 12/15/17 3,881,640
1,750 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev (MBIA Insd).................. 5.750 07/01/12 1,911,140
10,495 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser B Rfdg (MBIA Insd)....... 5.600 07/01/15 10,982,597
9,000 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev (MBIA Insd).................. * 07/01/16 3,702,870
------------
25,374,119
------------
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 7,095,943
------------
WISCONSIN 2.8%
1,115 Hartford, WI Wtr & Elec Sys Rev (AMBAC
Insd)...................................... 5.000 07/01/16 1,117,208
1,000 Madison, WI Indl Dev Rev Madison Gas & Elec
Co Proj A.................................. 6.750 04/01/27 1,084,880
5,250 Wisconsin Hsg & Econ Dev Auth Hsg Rev Ser
B.......................................... 7.050 11/01/22 5,643,592
2,000 Wisconsin St Hlth & Edl Fac Auth Rev
Agnesian Hlthcare Inc (MBIA Insd).......... 5.125 07/01/23 1,977,760
7,280 Wisconsin St Hlth & Edl Fac Auth Rev
Children's Hosp (FGIC Insd)................ 5.000 08/15/10 7,475,468
4,275 Wisconsin St Hlth & Edl Fac Auth Rev
Marquette Univ (MBIA Insd) (a)............. 4.750 06/01/23 4,069,373
1,115 Wisconsin St Hlth & Edl Fac Auth Rev
Middleton Glen Inc Proj (LOC: Great Western
Bank)...................................... 5.750 10/01/18 1,098,052
2,485 Wisconsin St Hlth & Edl Fac Auth Rev
Middleton Glen Inc Proj (LOC: Great Western
Bank)...................................... 5.750 10/01/28 2,422,552
1,200 Wisconsin St Hlth & Edl Fac Auth Rev Spl
Term Middleton Glen Inc Proj............... 5.900 10/01/28 1,194,912
------------
26,083,797
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WYOMING 0.9%
$ 4,000 Wyoming Cmnty Dev Auth Single Family Ser G
(FHA Gtd).................................. 7.250% 06/01/21 $ 4,288,480
4,000 Wyoming Cmnty Dev Auth Single Family Ser H
(FHA Gtd).................................. 7.100 06/01/12 4,312,440
------------
8,600,920
------------
PUERTO RICO 1.8%
17,380 Puerto Rico Comwlth Hwy & Tran Auth Tran
Rev Ser A.................................. 4.750 07/01/38 16,646,738
------------
TOTAL LONG-TERM INVESTMENTS 101.8%
(Cost $876,174,143)........................................................... 947,409,856
LIABILITIES IN EXCESS OF OTHER ASSETS (1.8%)................................... (16,783,949)
------------
NET ASSETS 100.0%.............................................................. $930,625,907
============
</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) 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.
PORTFOLIO COMPOSITION BY CREDIT QUALITY*
The following table summarizes the portfolio composition at October 31, 1998,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
<TABLE>
<S> <C>
AAA....................... 46.5%
AA........................ 9.2
A......................... 13.7
BBB....................... 19.0
BB........................ 0.6
Non-rated................. 11.0
-----
100.0%
=====
</TABLE>
* As a percentage of Long-Term Investments.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $876,174,143)....................... $947,409,856
Receivables:
Interest.................................................. 16,745,334
Investments Sold.......................................... 8,361,081
Variation Margin on Futures............................... 12,656
Options at Market Value (Net premiums received of
$498,615)................................................. 89,062
Other....................................................... 4,935
------------
Total Assets.......................................... 972,622,924
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 36,663,553
Custodian Bank............................................ 3,502,876
Income and Capital Gain Distributions - Common and
Preferred Shares........................................ 747,859
Investment Advisory Fee................................... 555,190
Administrative Fee........................................ 158,626
Affiliates................................................ 29,919
Accrued Expenses............................................ 236,977
Trustees' Deferred Compensation and Retirement Plans........ 102,017
------------
Total Liabilities..................................... 41,997,017
------------
NET ASSETS.................................................. $930,625,907
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 72,656,123
Accumulated Net Realized Gain............................... 16,217,411
Accumulated Undistributed Net Investment Income............. 4,571,670
------------
Net Assets Applicable to Common Shares................ 630,625,907
------------
NET ASSETS.................................................. $930,625,907
============
NET ASSET VALUE PER COMMON SHARE ($630,625,907 divided
by 36,270,469 shares outstanding)......................... $ 17.39
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Two Months Ended October 31, 1998 and
the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Two Months Ended Year Ended
October 31, 1998 August 31, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest................................................ $ 9,244,761 $55,377,420
----------- -----------
EXPENSES:
Investment Advisory Fee................................. 1,089,100 6,409,333
Administrative Fee...................................... 311,171 1,831,238
Preferred Share Maintenance............................. 135,485 805,646
Trustees' Fees and Expenses............................. 13,240 42,166
Legal................................................... 7,648 32,571
Custody................................................. 4,698 42,632
Other................................................... 98,002 507,524
----------- -----------
Total Expenses...................................... 1,659,344 9,671,110
----------- -----------
NET INVESTMENT INCOME................................... $ 7,585,417 $45,706,310
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments........................................... $ 2,621,006 $13,970,978
Options............................................... -0- 972,521
Futures............................................... 2,202,003 (1,306,581)
----------- -----------
Net Realized Gain....................................... 4,823,009 13,636,918
----------- -----------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................... 74,571,449 62,025,039
----------- -----------
End of the Period:
Investments......................................... 71,235,713 74,643,439
Futures............................................. 832,733 (71,990)
Options............................................. 587,677 -0-
----------- -----------
72,656,123 74,571,449
----------- -----------
Net Unrealized Appreciation/Depreciation During the
Period................................................ (1,915,326) 12,546,410
----------- ------------
NET REALIZED AND UNREALIZED GAIN........................ $ 2,907,683 $26,183,328
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.............. $10,493,100 $71,889,638
=========== ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Two Months Ended October 31, 1998 and
the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Two Months Ended Year Ended Year Ended
October 31, 1998 August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................... $ 7,585,417 $ 45,706,310 $ 46,253,008
Net Realized Gain....................... 4,823,009 13,636,918 7,810,403
Net Unrealized Appreciation/Depreciation
During the Period..................... (1,915,326) 12,546,410 18,794,517
------------ ------------ ------------
Change in Net Assets from Operations.... 10,493,100 71,889,638 72,857,928
------------ ------------ ------------
Distributions from Net Investment
Income:
Common Shares......................... (5,803,033) (34,818,029) (34,818,328)
Preferred Shares...................... (758,421) (10,827,208) (10,696,162)
------------ ------------ ------------
(6,561,454) (45,645,237) (45,514,490)
------------ ------------ ------------
Distributions from Net Realized Gains:
Common Shares......................... -0- -0- -0-
Preferred Shares...................... (1,479,439) -0- -0-
------------ ------------ ------------
(1,479,439) -0- -0-
------------ ------------ ------------
Total Distributions..................... (8,040,893) (45,645,237) (45,514,490)
------------ ------------ -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................ 2,452,207 26,244,401 27,343,438
NET ASSETS:
Beginning of the Period................. 928,173,700 901,929,299 874,585,861
------------ ------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$4,571,670, $3,547,707 and $3,444,060,
respectively)......................... $930,625,907 $928,173,700 $901,929,299
============ ============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
Two Months Ended ------------------------
October 31, 1998 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period(a)....... $17.319 $16.596 $15.842
-------- -------- -------
Net Investment Income........................... .210 1.260 1.275
Net Realized and Unrealized Gain/Loss........... .080 .722 .734
-------- -------- -------
Total from Investment Operations.................. .290 1.982 2.009
-------- -------- -------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders................... .160 .960 .960
Common Share Equivalent of Distributions Paid
to Preferred Shareholders................... .021 .299 .295
Distributions from Net Realized Gain:
Paid to Common Shareholders................... -0- -0- -0-
Common Share Equivalent of Distributions Paid
to Preferred Shareholders................... .041 -0- -0-
-------- -------- -------
Total Distributions............................... .222 1.259 1.255
-------- -------- -------
Net Asset Value, End of the Period................ $17.387 $17.319 $16.596
======== ======== =======
Market Price Per Share at End of the Period....... $16.8125 $16.1875 $15.750
Total Investment Return at Market Price (b)....... 4.84%* 9.06% 15.87%
Total Return at Net Asset Value (c)............... 1.33%* 10.38% 11.14%
Net Assets at End of the Period (In millions)..... $930.6 $928.2 $901.9
Ratio of Expenses to Average Net Assets Applicable
to Common Shares**.............................. 1.57% 1.57% 1.61%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (d).......... 6.48% 5.66% 6.04%
Portfolio Turnover................................ 6%* 94% 54%
* Non-Annualized
** Ratio of Expenses to Average Net Assets
Including Preferred Shares...................... 1.07% 1.06% 1.07%
</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.
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
(Commencement
Year Ended August 31, of Investment
- ----------------------------------------- Operations) to
1996 1995 1994 1993 August 31, 1992
- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$15.734 $15.562 $17.035 $16.328 $14.808
------- ------- ------- ------- -------
1.295 1.311 1.347 1.410 1.166
.105 .266 (1.424) .780 1.370
------- ------- ------- ------- -------
1.400 1.577 (.077) 2.190 2.536
------- ------- ------- ------- -------
.990 1.084 1.116 1.100 .811
.302 .321 .280 .246 .205
-0- -0- -0- .111 -0-
-0- -0- -0- .026 -0-
------- ------- ------- ------- -------
1.292 1.405 1.396 1.483 1.016
------- ------- ------- ------- -------
$15.842 $15.734 $15.562 $17.035 $16.328
======= ======= ======= ======= =======
$14.500 $14.250 $15.000 $16.750 $16.125
8.98% 2.39% (3.94%) 11.90% 13.24%*
7.09% 8.55% (2.22%) 12.31% 14.64%*
$874.6 $870.7 $864.4 $917.9 $ 891.7
1.61% 1.65% 1.64% 1.59% 1.49%
6.20% 6.48% 6.52% 7.08% 6.85%
36% 49% 47% 48% 100%*
1.06% 1.07% 1.09% 1.06% 1.03%
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
October 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. In August 1998, the Trust's Board
of Trustees approved a change in the Trust's fiscal year end from August 31 to
October 31. As a result, this financial report reflects the two-month period
commencing on September 1, 1998, and ending on October 31, 1998.
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.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES--It is the 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 are marked to market
for tax purposes at October 31, 1998.
At October 31, 1998, for federal income tax purposes, cost of long-term
investments is $876,189,749; the aggregate gross unrealized appreciation is
$71,637,395 and the aggregate gross unrealized depreciation is $417,288,
resulting in net unrealized appreciation on long-term investments of
$71,220,107.
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 year ended August 31, 1998 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 two months ended October 31, 1998, 99.88% of the income
distributions made by the Trust were exempt from federal income taxes.
Additionally, during the period, the Trust designated and paid to preferred
shareholders $768,719 as a 20% rate gain distribution. In January 1999, the
Trust will provide tax information to shareholders for the 1998 calendar year.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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 include record keeping and reporting responsibilities with respect
to the Trust's portfolio and preferred shares and providing certain services to
shareholders.
For the two months ended October 31, 1998 and the year ended August 31,
1998, the Trust recognized expenses of approximately $3,800 and $16,200,
respectively, 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 two months ended October 31, 1998 and the year ended August 31,
1998, the Trust recognized expenses of approximately $38,400 and $204,100,
respectively, 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
For the two months ended October 31, 1998, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $74,192,631
and $54,087,541, respectively. For the year ended August 31, 1998, 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
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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.
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 two months ended October 31, 1998 and 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-
Options Written and Purchased (Net).............. 2,100 498,615
Options Terminated in Closing Transactions
(Net).......................................... -0- -0-
Options Expired (Net)............................ -0- -0-
------- ---------
Outstanding at October 31, 1998.................. 2,100 $ 498,615
======= =========
</TABLE>
21
<PAGE> 23
\ NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
The related futures contracts of the outstanding option transactions as of
October 31, 1998, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
EXPIRATION MARKET
MONTH/ VALUE OF
DESCRIPTION CONTRACTS EXERCISE PRICE OPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond Futures
Dec 1998--Purchased Put.............. 500 Dec/125 $ 765,625
Dec 1998--Written Put................ 300 Dec/120 (70,313)
Dec 1998--Written Put................ 600 Dec/121 (234,375)
Dec 1998--Written Put................ 700 Dec/122 (371,875)
----- ---------
2,100 $ 89,062
===== =========
</TABLE>
The current notional value of each December 1998 Municipal Bond future is
$125,469.
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 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 two months ended October 31, 1998
and 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
Futures Opened............................................. 2,300
Futures Closed............................................. (1,961)
------
Outstanding at October 31,1998............................. 739
======
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
The futures contracts outstanding as of October 31, 1998, and the
descriptions and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- -----------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- Dec. 1998 US Treasury Bond
Future (Current notional value of $128,906
per contract)............................... 327 $ 646,071
Short Contracts -- Dec. 1998 Municipal Bond
Future (Current notional value of $125,469
per contract)............................... 412 186,662
--- ----------
739 $ 832,733
=== ==========
</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 October 31, 1998, was 4.882%. During the two months ended
October 31, 1998, the rates ranged from 3.19% to 5.75%.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 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. CAPITAL GAIN DISTRIBUTION
On December 3, 1998, the Trust declared a capital gain of $.4264 per common
share, of which $.2443 is long-term and $.1821 is short-term, to common
shareholders of record on December 15, 1998. The gain will be payable on
December 31, 1998.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996, Van Kampen initiated a CountDown 2000
Project to review both the internal systems and external vendor connections. The
goal of this project is to position its business to continue unaffected as a
result of the century change. At this time, there can be no assurance that the
steps taken will be sufficient to avoid any adverse impact to the 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.
24
<PAGE> 26
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 October 31, 1998, and the related statement of operations for the two-month
period ended October 31, 1998 and the year ended August 31, 1998, the statement
of changes in net assets for the two-month period ended October 31, 1998 and for
each of the two years in the period ended August 31, 1998, 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
October 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 October 31, 1998, the results of its operations for
the two-month period ended October 31, 1998 and the year ended August 31, 1998,
the changes in its net assets for the two-month period ended October 31, 1998
and for each of the two years in the period ended August 31, 1998, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 15, 1998
25
<PAGE> 27
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 Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
26
<PAGE> 28
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
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*
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
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.
27
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MUNICIPAL TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> SEP-01-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 876,174,143
<INVESTMENTS-AT-VALUE> 947,409,856
<RECEIVABLES> 25,119,071
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,935
<TOTAL-ASSETS> 972,622,924
<PAYABLE-FOR-SECURITIES> 36,663,553
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,333,464
<TOTAL-LIABILITIES> 41,997,017
<SENIOR-EQUITY> 300,000,000
<PAID-IN-CAPITAL-COMMON> 537,180,703
<SHARES-COMMON-STOCK> 36,270,469
<SHARES-COMMON-PRIOR> 36,270,469
<ACCUMULATED-NII-CURRENT> 4,571,670
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,217,411
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,656,123
<NET-ASSETS> 930,625,907
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,244,761
<OTHER-INCOME> 0
<EXPENSES-NET> (1,659,344)
<NET-INVESTMENT-INCOME> 7,585,417
<REALIZED-GAINS-CURRENT> 4,823,009
<APPREC-INCREASE-CURRENT> (1,915,326)
<NET-CHANGE-FROM-OPS> 10,493,100
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,561,454)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,452,207
<ACCUMULATED-NII-PRIOR> 3,547,707
<ACCUMULATED-GAINS-PRIOR> 12,873,841
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,089,100
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,659,344
<AVERAGE-NET-ASSETS> 630,830,488
<PER-SHARE-NAV-BEGIN> 17.319
<PER-SHARE-NII> 0.210
<PER-SHARE-GAIN-APPREC> 0.080
<PER-SHARE-DIVIDEND> (0.181)
<PER-SHARE-DISTRIBUTIONS> (0.041)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.387
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
