<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 6
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 19
Report of Independent Accountants................ 23
Dividend Reinvestment Plan....................... 24
</TABLE>
VGM ANR 12/97
<PAGE> 2
LETTER TO SHAREHOLDERS
December 4, 1997
Dear Shareholder,
In the past year, we have been
participants in and witnesses to two
mergers that we believe have positioned
our company at the forefront of the
financial industry's evolution. Our
latest announcement continues our
forward progress. I am pleased to [PHOTO]
announce that Philip N. Duff, formerly
the chief financial officer of Morgan
Stanley, has joined Van Kampen American
Capital as president and chief DENNIS J. MCDONNELL AND DON G. POWELL
executive officer. I will continue as
chairman of the firm. Together, we will continue to work to the benefit of our
fund shareholders as Van Kampen American Capital advances toward the next
century.
ECONOMIC REVIEW
The last quarter of 1996 brought renewed strength and rumblings of
inflation, which continued to feed investors' uncertainties about the direction
of interest rates. This was reflected in the volatility of taxable yields, with
the 30-year Treasury ranging from a high of 6.70 percent to a low of 6.35
percent, and ending the period at 6.64 percent.
The economy grew at a brisk 3.9 percent annual rate during the first three
quarters of 1997. At the same time, the federal budget deficit fell to its
lowest level in 23 years, while consumer prices rose less than 2.0 percent on an
annual basis and producer prices declined 1.4 percent.
The bond market advanced in price during the first 10 months of 1997, but
its ascension was not a smooth ride. Bond prices fell early in the period as
economic growth soared, fueling concerns about rising inflation and a potential
interest rate hike by the Federal Reserve Board. When the Fed did raise interest
rates by a modest 0.25 percent in late March, bond prices fell further, sending
the yield of the 30-year U.S. Treasury bond above 7.0 percent for the first time
in six months. By mid-April, however, the market's mood had changed, reflecting
few signs of price pressures despite the economy's strength. Bonds also
benefited from continued heavy purchases by foreign investors and concerns that
the stock market rally was nearing an end. The 7.0 percent slump in the Dow
Jones Industrial Average on October 27 reinforced the benefit of owning bonds
for diversification. By the end of October, the yield on the 30-year Treasury
bond was near its lowest level in 20 months, at 6.15 percent.
Throughout 1997, municipal bond prices moved in the same direction as the
Treasury bond market, but gained less when Treasury prices rallied and lost less
when Treasuries fell. Between December 31, 1996 and October 31, 1997, the yield
on the long-term
Continued on page two
1
<PAGE> 3
municipal revenue bond index fell 36 basis points as the yield on the 30-year
Treasury bond fell 48 basis points. Because yields move in the opposite
direction of prices, the smaller yield decline of municipal bonds indicates that
their prices did not rise as much as Treasuries.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of October 31, 1997
<TABLE>
<S> <C>
AAA................... 50.5%
AA.................... 11.6%
A..................... 9.3%
BBB................... 26.1%
BB.................... 0.2%
Non-Rated............. 2.3%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings
as issued by Standard & Poor's or Moody's.
TRUST STRATEGY
In managing the Trust, we used the following strategies:
We continued to maintain a heavy weighting in high-quality bonds. As of
October 31, 50.5 percent of long-term investments were rated AAA, the highest
credit rating assigned to bonds by the Standard & Poor's Ratings Group. Though
little changed from six months earlier, the level of AAA-rated debt was up
sharply from the 40 percent level that prevailed at the end of the previous
fiscal year. The increase in AAA-rated bonds in the portfolio reflects the
proliferation of insured bonds that currently comprise well over half of new
issues in the municipal bond market. AAA-rated bonds are extremely liquid and
carry minimal credit risk. When interest rates fall, as they did for most of the
second half of the fiscal year, AAA-rated bonds tend to outperform lower-rated
securities.
Of the Trust's remaining long-term investments, 26.1 percent were rated BBB,
the lowest investment-grade credit rating assigned by Standard & Poor's, and 2.5
percent were rated BB or were not rated. Bonds rated BBB and below tend to
perform better when rates are rising and have the potential to provide
additional income.
Portfolio turnover during the fiscal year was moderate due to market
conditions that afforded few opportunities to add value to existing holdings.
The average yield of bonds in the Trust's portfolio was higher than average
market yields. As a result, there was little incentive to replace bonds in the
portfolio, because such trades would have reduced the Trust's dividend-paying
ability.
Trading was also restrained by tight spreads between yields of AAA-rated
bonds and lower-rated securities. These spreads compressed to historically
narrow levels as a result of the increasing number of insured bonds in the
municipal market. For example, when a new long-term California transportation
issue was sold in September, its BBB-rated portion yielded only 20 basis points
more than the AAA-rated insured component in the same
Continued on page three
2
<PAGE> 4
maturity. Because of the narrow yield spreads, there was often not enough
incentive to purchase lower-rated securities and assume the additional credit
risk.
During the period, we focused on enhancing the Trust's call protection as
well as its potential for price appreciation. Because we hope to limit the
number of bonds that could be "called" at any one time, we purchased long-term
discount bonds that will not be callable for many years, and sold bonds that we
expect will be called in the near term. Purchases favored AAA-rated bonds, while
sales emphasized lower-rated securities because of the tight credit spreads.
These sales included the bulk of the Trust's holdings in a New Hampshire utility
company that was stable, but was experiencing some credit problems, and some
single-family housing bonds that had appreciated in price. Throughout these
adjustments, we maintained a portfolio that was well-diversified in both market
sectors and state issuers. Currently, the portfolio represents 39 states,
Washington, D.C., and Puerto Rico.
When searching for new securities for the Trust's portfolio, we try to
identify bonds that we believe will outperform within a particular sector and
that can be purchased at an attractive price. We believe this "bottom-up"
approach, supported by our research, provides significant added value to the
portfolio.
We maintained the Trust's duration in line with the benchmark during the
fiscal year in order to limit its price volatility in response to changing
interest rates. We believe the leveraged structure of the portfolio, which
involves borrowing short-term funds in order to purchase long-term municipal
securities, exposes the portfolio to a sufficient amount of price volatility.
Duration, which is expressed in years, is a measure of a portfolio's sensitivity
to interest rate movements. Portfolios with long durations tend to perform
better when interest rates are falling; portfolios with short durations tend to
do better when rates are rising. During the second half of the fiscal year, when
rates were declining, the Trust's relatively short duration hindered
performance, but its leveraged structure enhanced gains. At the end of the
fiscal year, the Trust duration stood at 7.07 years, compared to 7.34 years for
the Lehman Brothers Municipal Bond Index. Because of the longer-term nature of
the Trust, the calculation of this index's duration has been adjusted to
eliminate bonds with maturities of five years or less.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR AS OF OCTOBER 31, 1997*
General Purpose................... 16.4%
Industrial Revenue................ 16.1%
Health Care....................... 12.7%
Single-Family Housing............. 11.7%
Transportion....................... 6.4%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Trust for Investment Grade Municipals generated a total return at market
price of 8.92 percent(1). The Trust offered a tax-exempt distribution rate of
6.33 percent(3), based on the closing common stock price on October 31, 1997. At
the end of the reporting period, the closing share price of the Trust traded at
$16.125, a 6.74 percent discount to its net
Continued on page four
3
<PAGE> 5
asset value of $17.29. Because income from the Trust is exempt from federal
income taxes, this distribution rate represents a yield equivalent to a taxable
investment earning 9.89 percent(4) (for investors in the 36 percent federal
income tax bracket).
Due to declining interest rates and a number of positions that were called
from the Trust, the earnings power of the Trust declined. As a result, the Board
of Trustees approved a decrease in its monthly dividend from $0.0950 to $0.0875
per common share, paid December 31, 1996, and from $0.0875 to $0.0850, payable
June 30, 1997.
TWELVE-MONTH DIVIDEND HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT
1996 1996 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Per
Common Share $.0950 $.0875 $.0875 $.0875 $.0875 $.0875 $.0875 $.0850 $.0850 $.0850 $.0850 $.0850
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the trust's future distributions.
OUTLOOK
We expect the economy to remain strong in the coming months, although the
growth rate might slow to a more moderate pace. The weakness in the Far East,
which was the impetus for the recent volatility in world stock markets, will
most likely reduce U.S. exports to the region. In turn, this could trim U.S.
economic growth as well as the earnings of many U.S. companies. As a result, we
believe there is little chance that the Fed will raise interest rates in the
coming months. A rate hike reemerges as a possibility if inflation picks up, or
if growth continues at its current brisk pace.
As a result of this outlook, we expect that the yield on the 30-year
Treasury bond will trade within a range of 5.75 percent and 6.50 percent for the
next six months, possibly falling further in mid-1998. A decline in rates would
not only boost the prices of long-term investments in the portfolio, but could
also positively affect the Trust as a result of its leveraged structure. That
structure, which involves borrowing short-term funds to purchase long-term
municipal bonds, provides common shareholders with above-market levels of
dividend income. It should be noted, however, that if short-term rates rise,
borrowing costs would increase; this would negatively impact the income and
performance of common shares.
Continued on page five
4
<PAGE> 6
We will continue to seek a balance between the Trust's total return and its
dividend income, and to add value through our investment strategies and bond
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's portfolio manager.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page six
5
<PAGE> 7
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
(NYSE TICKER SYMBOL--VGM)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)........... 8.92%
One-year total return based on NAV(2).................... 10.94%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 6.33%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.89%
SHARE VALUATIONS
Net asset value.......................................... $ 17.29
Closing common stock price............................... $16.1250
One-year high common stock price (10/03/97).............. $16.4375
One-year low common stock price (12/17/96)............... $14.7500
Preferred share (Series A) rate(5)....................... 3.592%
Preferred share (Series B) rate(5)....................... 3.530%
Preferred share (Series C) rate(5)....................... 3.550%
Preferred share (Series D) rate(5)....................... 3.500%
</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 common 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.
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 100.2%
ALABAMA 3.5%
$ 6,500 Birmingham, AL North Med Clinic Brd Rev Ser A
Carraway Methodist Hosp (Prerefunded @
01/01/01)........................................ 7.500% 07/01/15 $ 7,225,790
8,600 Birmingham, AL North Med Clinic Brd Rev Ser B
Carraway Methodist Hosp (Prerefunded @
01/01/01)........................................ 8.000 07/01/15 9,686,352
4,000 Courtland, AL Indl Dev Brd Solid Waste Disp Rev
Champion Intl Corp Proj.......................... 7.750 01/01/20 4,279,320
4,250 Courtland, AL Indl Dev Brd Solid Waste Disp Rev
Champion Intl Corp Proj Ser A.................... 6.500 09/01/25 4,569,090
------------
25,760,552
------------
ARKANSAS 1.9%
12,500 Blytheville, AR Solid Waste Recycling & Swr
Treatment Rev Nucor Corp Proj.................... 6.900 12/01/21 13,565,000
------------
CALIFORNIA 5.4%
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub Impt Proj
Ser C (FSA Insd)................................. 6.000 09/01/16 1,436,266
635 California Edl Fac Auth Rev Univ of La Verne..... 5.400 04/01/99 640,823
670 California Edl Fac Auth Rev Univ of La Verne..... 5.600 04/01/00 680,840
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (AMBAC Insd)............... 6.000 07/01/27 2,068,540
5,000 Desert Hosp Dist CA Hosp Rev Com Partn
(Prerefunded @ 07/23/02) (FSA Insd).............. 6.392 07/28/20 5,557,150
25,750 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev
Sr Lien Ser A.................................... * 01/01/23 6,220,685
13,765 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)(b)......................................... 6.000 07/01/06 15,190,779
2,000 Orange Cnty, CA Recovery Ctfs Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/09 2,230,120
2,000 Pajaro Vly, CA Uni Sch Dist Ctfs Partn Sch Fac
Brdg Fdg Pgm (FSA Insd).......................... 5.850 09/01/32 2,081,320
7,080 San Joaquin Hills, CA Tran Toll Cap Apprec Ser A
Rfdg (MBIA Insd)................................. * 01/15/26 1,549,458
2,000 Southern CA Pub Pwr Auth (FSA Insd).............. 6.000 07/01/12 2,122,420
------------
39,778,401
------------
COLORADO 5.1%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05)........ 6.950 08/31/20 1,182,420
1,500 Colorado Hsg Fin Auth Multi-Family Hsg Ins Mtg
Ser B2........................................... 5.800 10/01/28 1,509,150
1,000 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................... 7.650 11/01/26 1,135,530
2,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B2............................................... 7.450 11/01/27 2,858,525
7,000 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 7,892,010
3,675 Denver, CO City & Cnty Arpt Rev Ser A............ 8.750 11/15/23 4,258,574
1,325 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)......................... 8.750 11/15/23 1,565,276
7,230 Denver, CO City & Cnty Arpt Rev Ser A............ 8.000 11/15/25 8,006,285
685 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)......................... 8.000 11/15/25 772,166
2,000 Denver, CO City & Cnty Arpt Rev Ser D Rfdg (MBIA
Insd)............................................ 5.500 11/15/25 2,011,460
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO (CONTINUED)
$ 2,000 E-470 Pub Hwy Auth CO Rev Cap Apprec Rfdg Sr Ser
B (MBIA Insd).................................... * 09/01/22 $ 528,700
1,685 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg.............................. 7.000% 12/01/00 1,802,933
3,250 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg.............................. 7.500 12/01/11 3,574,643
------------
37,097,672
------------
CONNECTICUT 0.3%
2,000 Connecticut St Dev Auth Wtr Fac Rev Brdgeport
Hydraulic........................................ 6.150 04/01/35 2,118,440
------------
DISTRICT OF COLUMBIA 0.2%
1,600 District of Columbia Ser E (FSA Insd)............ 6.000 06/01/13 1,680,320
------------
FLORIDA 2.3%
1,000 Broward Cnty, FL Hsg Fin Auth Multi-Family Hsg
Rev Pompano Oaks Apts Proj Rfdg (GNMA
Collateralized).................................. 6.000 12/01/27 1,031,980
16,490 Dade Cnty, FL Spl Oblig Cap Apprec Ser B Rfdg
(AMBAC Insd)..................................... * 10/01/26 2,999,036
1,200 Florida Hsg Fin Agy Homeowner Mtg Ser 2 (MBIA
Insd)............................................ 5.900 07/01/29 1,236,648
1,400 Florida St Dept Corrections Ctfs Partn Okeechobee
Correctional (AMBAC Insd)........................ 6.250 03/01/15 1,522,108
1,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 1,159,900
2,000 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj A Rfdg.............. 7.875 12/15/25 2,325,320
3,050 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/17 3,084,252
3,465 Reedy Creek Impt Dist FL Ser C (AMBAC Insd)...... 4.750 06/01/15 3,275,118
------------
16,634,362
------------
GEORGIA 1.4%
3,150 Burke Cnty, GA Dev Auth Pollutn Ctl Rev GA Pwr Co
Plant Vogtle Proj (MBIA Insd).................... 6.350 05/01/19 3,296,349
5,900 Municipal Elec Auth GA Spl Oblig Fifth Crossover
Proj One (MBIA Insd)............................. 6.500 01/01/17 6,834,855
------------
10,131,204
------------
HAWAII 0.9%
6,000 Hawaii St Arpt Sys Rev Ser 2 (MBIA Insd)......... 6.750 07/01/21 6,485,220
------------
ILLINOIS 10.0%
2,000 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd)............................................ 5.750 12/01/20 2,070,420
4,865 Chicago, IL Cap Apprec (AMBAC Insd).............. * 07/01/16 1,593,142
1,600 Chicago, IL Cent Pub Lib Ser A (AMBAC Insd)...... 6.650 01/01/05 1,759,904
1,800 Chicago, IL Cent Pub Lib Ser A (AMBAC Insd)...... 6.700 01/01/06 1,994,922
1,600 Chicago, IL Cent Pub Lib Ser B (AMBAC Insd)...... 6.650 01/01/05 1,759,904
1,400 Chicago, IL Cent Pub Lib Ser C (AMBAC Insd)...... 6.650 01/01/05 1,539,916
1,500 Chicago, IL Cent Pub Lib Ser C (AMBAC Insd)...... 6.700 01/01/06 1,662,435
7,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt Second
Lien Ser A Rfdg (MBIA Insd)...................... 6.375 01/01/12 7,681,660
13,645 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc........................................ 8.500 05/01/18 15,022,736
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,600 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84A........................... 8.850% 05/01/18 $ 4,042,872
4,505 East Peoria, IL Ser C Rfdg....................... 7.000 05/01/17 5,026,634
3,285 Illinois Dev Fin Auth Rev Presbyterian Home Lake
Proj B........................................... 6.300 09/01/22 3,533,182
2,000 Illinois Edl Fac Auth Rev Lewis Univ............. 6.100 10/01/16 2,077,420
2,000 Illinois Hlth Fac Auth Rev Edward Hosp Assn Proj
(Prerefunded @ 02/15/02)......................... 7.000 02/15/12 2,241,340
1,900 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
C (FSA Insd)..................................... 6.750 04/15/17 2,203,962
1,000 Illinois Hlth Fac Auth Rev Highland Park Hosp
Proj Ser A (MBIA Insd)........................... 5.750 10/01/17 1,033,080
2,000 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg............................................. 6.000 11/15/10 2,082,660
2,400 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln
Hlth Cent (Prerefunded @ 05/15/02)............... 7.250 05/15/22 2,729,160
2,275 Illinois Hlth Fac Auth Rev South Suburban Hosp... 7.000 02/15/18 2,636,429
1,475 Illinois Hlth Fac Auth Rev South Suburban Hosp
(Prerefunded @ 02/15/02)......................... 7.000 02/15/18 1,651,764
3,185 Illinois Hsg Dev Auth Multi-Family Hsg Ser C..... 7.400 07/01/23 3,349,537
8,845 Metropolitan Pier & Expo Auth IL Dedicated St Tax
Rev McCormick Pl Expansion Ser A (FGIC Insd)..... * 06/15/16 3,285,121
1,105 Saint Clair Cnty, IL Pub Bldg Comm Bldg Rev Cap
Apprec Ser B (FGIC Insd)......................... * 12/01/15 417,900
1,400 Southern IL Univ Rev Hsg & Aux Fac Ser A Rfdg.... 6.750 04/01/12 1,539,538
------------
72,935,638
------------
INDIANA 1.0%
2,000 Indiana Hlth Fac Fin Auth Rev Ancilla Sys Inc
Oblig Group (MBIA Insd)(a)....................... 5.250 07/01/22 1,938,020
4,500 Indianapolis, IN Arpt Auth Rev Spl Fac Federal
Express Corp Proj................................ 7.100 01/15/17 5,053,590
------------
6,991,610
------------
IOWA 0.6%
1,865 Iowa Fin Auth Multi-Family Rev Hsg Hamlet Apts
Proj A Rfdg (GNMA Collateralized)................ 6.150 05/01/32 1,941,484
2,375 Iowa Student Ln Liquidity Corp Rev Ser C......... 6.950 03/01/06 2,578,965
------------
4,520,449
------------
KENTUCKY 4.1%
10,000 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/20 11,067,000
11,000 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.125 02/01/21 12,017,940
1,500 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (MBIA Insd)(a).............. 5.800 03/01/03 1,586,865
1,000 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (MBIA Insd)(a).............. 6.200 03/01/08 1,103,490
1,500 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (MBIA Insd)(a).............. 6.250 03/01/09 1,660,905
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
KENTUCKY (CONTINUED)
$ 1,000 Kentucky Econ Dev Fin Hosp Sys Rev Rfdg & Impt
Appalachian Regl(a).............................. 5.875% 10/01/22 $ 994,100
1,315 Kentucky Hsg Corp Hsg Rev Ser B.................. 6.250 07/01/28 1,380,185
------------
29,810,485
------------
MAINE 2.1%
2,650 Maine Muni Bd Bank Ser A Rfdg (MBIA Insd)........ 5.800 11/01/20 2,728,387
5,250 Maine St Hsg Auth Mtg Purch Ser D6............... 7.250 11/15/19 5,531,925
6,755 Maine St Hsg Auth Mtg Purch Ser D6............... 7.250 11/15/22 7,120,243
------------
15,380,555
------------
MARYLAND 0.7%
4,925 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Seventh Ser................ 7.300 04/01/25 5,269,011
------------
MASSACHUSETTS 3.3%
2,975 Massachusetts Muni Wholesale Elec Co Pwr Supply
Sys Rev Ser A (AMBAC Insd)....................... 5.000 07/01/14 2,905,772
12,685 Massachusetts St Cons Ln Ser D (Prerefunded @
07/01/01)........................................ 6.875 07/01/10 14,059,927
2,410 Massachusetts St Hsg Fin Agy Residential Dev Ser
C (FNMA Collateralized).......................... 6.875 11/15/11 2,622,731
4,000 Massachusetts St Tpk Auth Ser A (MBIA Insd)...... 5.000 01/01/37 3,777,360
1,000 Massachusetts St Wtr Res Auth Ser B (MBIA
Insd)............................................ 4.750 12/01/21 912,940
------------
24,278,730
------------
MICHIGAN 4.7%
3,015 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/17 979,362
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/18 926,346
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/19 874,435
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/22 733,769
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/23 692,594
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/24 653,737
8,015 Detroit, MI Econ Dev Corp Res Recovery Rev Ser A
(FSA Insd)....................................... 6.875 05/01/09 8,702,447
3,500 Grand Rapids, MI Downtown Dev Cap Apprec (MBIA
Insd)............................................ * 06/01/15 1,383,235
2,765 Grand Rapids, MI Downtown Dev Cap Apprec (MBIA
Insd)............................................ * 06/01/16 1,027,225
2,500 Kalamazoo, MI Hosp Fin Auth Hosp Fac Rev Bronson
Methodist Rfdg & Impt (MBIA Insd)................ 5.875 05/15/26 2,592,375
12,995 Michigan St Hosp Fin Auth Rev Sisters of Mercy
Hlth Corp Ser J (Prerefunded @ 02/15/01)......... 7.000 02/15/21 14,329,587
1,400 Portage Lake, MI Wtr & Swr Auth Ser 3
(Prerefunded @ 10/01/02)......................... 7.750 10/01/20 1,638,392
------------
34,533,504
------------
MINNESOTA 0.4%
2,800 Minnesota Agricultural & Econ Dev Brd Rev
Hlthcare Sys Fairview Hosp Ser A (MBIA Insd)..... 5.750 11/15/26 2,898,392
------------
MISSISSIPPI 0.4%
3,000 Medical Cent Edl Bldg Corp MS Rev Univ MS Med
Cent Proj (MBIA Insd)............................ 5.900 12/01/23 3,091,230
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MISSOURI 0.9%
$ 6,800 Saint Louis, MO Indl Dev Auth Sewage & Solid
Waste Disp Fac Rev Anheuser-Busch Proj........... 5.750% 12/01/27 $ 6,951,028
------------
NEVADA 0.5%
3,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser C
Rfdg (AMBAC Insd)................................ 7.200 10/01/22 3,366,390
------------
NEW HAMPSHIRE 0.6%
1,000 New Hampshire St Business Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMBAC Insd)............... 6.300 05/01/22 1,071,040
1,500 New Hampshire St Hsg Fin Auth Single Family Rev
Mtg Acquisition Ser B Rfdg....................... 6.100 07/01/28 1,551,780
1,500 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co of NH Proj Ser C..................... 7.650 05/01/21 1,593,915
------------
4,216,735
------------
NEW JERSEY 5.5%
25,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (MBIA Insd)............................. 5.900 03/15/21 27,421,500
2,000 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.000 07/01/06 2,213,940
10,000 New Jersey St Hsg & Mtg Fin Agy Rev Hsg Ser A
Rfdg............................................. 6.950 05/01/15 10,819,400
------------
40,454,840
------------
NEW YORK 17.2%
3,000 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 3,075,900
12,155 Metropolitan Tran Auth NY Svcs Contract Commuter
Fac Ser 5 Rfdg................................... 6.500 07/01/16 13,007,308
2,000 Metropolitan Tran Auth NY Tran Fac Rev Svcs
Contract Ser R Rfdg(a)........................... 5.500 07/01/17 1,931,580
1,740 New York City Ser A (Prerefunded @ 08/15/01)..... 8.000 08/15/20 1,997,120
2,500 New York City Ser A Rfdg......................... 7.000 08/01/05 2,838,350
3,000 New York City Ser A Rfdg......................... 7.000 08/01/06 3,425,280
5,000 New York City Ser A Rfdg......................... 6.500 08/01/14 5,370,250
2,900 New York City Ser C Rfdg......................... 6.500 08/01/04 3,162,305
745 New York City Ser C Subser C1.................... 7.500 08/01/19 842,789
7,755 New York City Ser C Subser C1 (Prerefunded @
08/01/02)........................................ 7.500 08/01/19 8,943,221
1,850 New York City Ser G.............................. 5.875 10/15/14 1,910,143
5,000 New York City Ser I.............................. 6.000 04/15/12 5,253,700
10,000 New York City Tran Auth Tran Fac Livingston Plaza
Proj Rfdg (FSA Insd)............................. 5.400 01/01/18 10,249,800
2,500 New York St Dorm Auth Lease Rev Muni Hlth Fac
Impt Pgm Ser A (FSA Insd)........................ 5.500 05/15/25 2,514,800
13,500 New York St Dorm Auth Rev City Univ Sys Ser C.... 7.500 07/01/10 16,367,400
1,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.625 05/15/13 1,014,380
2,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.375 05/15/16 1,966,560
2,170 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A............................................ 5.750 08/15/10 2,284,967
3,750 New York St Dorm Auth Rev St Univ Edl Fac........ 5.000 05/15/17 3,585,450
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 5,725 New York St Environmental Fac Corp Spl Oblig
Riverbank State Park (Prerefunded @ 04/01/02).... 7.375% 04/01/22 $ 6,547,053
5,000 New York St Hsg Fin Agy Svcs Contract Oblig Rev
Ser A (Prerefunded @ 03/15/02)................... 7.375 09/15/21 5,712,200
2,840 New York St Loc Govt Assistance Corp Ser E
Rfdg............................................. 6.000 04/01/14 3,116,786
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (AMBAC Insd)............................... 6.750 08/15/14 3,372,720
5,875 New York St Med Care Fac Fin Agy Rev Saint
Peter's Hosp Proj Ser A (AMBAC Insd)............. 5.375 11/01/20 5,749,804
2,500 New York St Mtg Agy Rev Homeowner Mtg Ser 54
Rfdg............................................. 6.200 10/01/26 2,625,075
1,500 New York St Urban Dev Corp Rev Proj Cent for Indl
Innovation Rfdg.................................. 5.500 01/01/13 1,533,240
3,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/22 3,094,830
4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 4,095,040
------------
125,588,051
------------
NORTH CAROLINA 3.0%
15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
(MBIA Insd)...................................... 6.000 01/01/12 16,564,800
5,150 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
Rfdg (FSA Insd).................................. 6.200 01/01/18 5,549,279
------------
22,114,079
------------
OHIO 0.5%
1,500 Lorain Cnty, OH Hosp Rev Catholic Hlthcare
Partners Ser B Rfdg (MBIA Insd).................. 5.625 09/01/14 1,555,695
1,000 Ohio Hsg Fin Agy Mtg Rev Residential Ser A1 (GNMA
Collateralized).................................. 6.150 03/01/29 1,050,570
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd
Partnership Proj Rfdg (AMBAC Insd)............... 6.375 04/01/29 1,079,680
------------
3,685,945
------------
OKLAHOMA 3.7%
17,475 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc.............................................. 7.375 12/01/20 18,988,335
7,500 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc.............................................. 7.600 12/01/30 8,278,575
------------
27,266,910
------------
OREGON 1.6%
7,670 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single
Family Mtg Proj Ser B............................ 6.875 07/01/28 8,194,321
3,300 Oregon St Vets Welfare Ser 76A................... 6.050 10/01/28 3,462,459
------------
11,656,780
------------
PENNSYLVANIA 5.7%
2,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)............................ 6.625 01/01/22 2,698,450
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj............................ 5.750 05/15/17 1,018,550
5,650 Butler, PA Area Sch Dist Cap Apprec (FGIC
Insd)............................................ * 11/15/24 1,204,128
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,900 Dauphin Cnty, PA Genl Auth Hlth Sys Rev Pinnacle
Hlth Sys Proj Rfdg (MBIA Insd)................... 5.500% 05/15/27 $ 2,914,703
4,000 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly Med
Rfdg (FHA Gtd)................................... 7.000 08/01/22 4,360,080
7,000 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Ser E Rfdg (MBIA Insd)........................... 6.700 12/01/21 7,652,050
1,000 Penn Hills, PA (FGIC Insd)....................... 5.900 12/01/17 1,055,470
1,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd).................................... 7.000 04/01/24 1,594,275
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
60A Rfdg......................................... 5.850 10/01/27 2,543,625
3,000 Pennsylvania Hsg Fin Agy Single Family Ser 56A... 6.150 10/01/27 3,122,220
1,000 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Bryn Mawr College (MBIA Insd)........... 5.625 12/01/27 1,024,330
6,000 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)............................................ 6.250 07/01/08 6,587,520
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A....................... 6.500 11/15/08 1,109,900
2,600 Philadelphia, PA Wtr & Wstwtr Ser A (AMBAC
Insd)(a)......................................... 5.000 08/01/17 2,520,466
2,500 Philadelphia, PA Wtr & Wstwtr Ser A (AMBAC
Insd)(a)......................................... 5.000 08/01/22 2,397,050
------------
41,802,817
------------
RHODE ISLAND 0.2%
1,500 Rhode Island Depositors Econ Protn Corp Spl Oblig
Ser A (Prerefunded @ 08/01/02)................... 6.950 08/01/22 1,697,325
------------
SOUTH CAROLINA 0.4%
2,700 Charleston Cnty, SC Solid Waste (MBIA Insd)...... 6.000 01/01/14 2,877,984
------------
SOUTH DAKOTA 0.3%
1,990 South Dakota Hsg Dev Auth Homeownership Mtg Ser
C................................................ 7.300 05/01/24 2,092,007
------------
TENNESSEE 1.0%
6,711 Memphis, TN Hlth Edl & Hsg Fac Brd Mtg Rev
Edgewater Terr Rfdg (FHA Gtd).................... 7.375 01/20/27 7,216,942
------------
TEXAS 3.1%
9,790 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc Proj................................... 7.500 12/01/29 10,672,471
2,000 Coastal Bend Hlth Fac Dev Corp TX Incarnate Word
Hlth Svcs Ser A (FSA Insd)....................... 6.000 11/15/22 2,082,500
1,500 North Cent TX Hlth Fac Dev Hlth Fac C C Young Mem
Proj............................................. 6.300 02/15/15 1,571,550
6,000 Plano, TX Hlth Fac Dev Corp TX Hlth Res Sys Ser C
(MBIA Insd)...................................... 5.000 02/15/22 5,684,640
2,615 Texas St Dept Hsg & Community Affairs Single
Family Rev Teams Mtg Ser A Class 3 (MBIA Insd)... 5.800 09/01/29 2,642,222
------------
22,653,383
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH 1.1%
$ 2,500 Murray City, UT Hosp Rev Inc Hlth Svc Inc Rfdg
(MBIA Insd)...................................... 4.750% 05/15/20 $ 2,259,400
1,095 Utah St Hsg Fin Agy Single Family Mtg Mezzanine
Issue H1 (AMBAC Insd)............................ 6.000 07/01/12 1,138,833
3,355 Utah St Hsg Fin Agy Single Family Mtg Ser A2 (FHA
Gtd)............................................. 7.150 07/01/25 3,546,302
1,015 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1
(FHA Gtd)........................................ 7.100 07/01/14 1,089,775
------------
8,034,310
------------
VIRGINIA 0.2%
1,000 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease Rev
Henrico Cnty Regl Jail Proj...................... 7.125 08/01/21 1,161,330
------------
WASHINGTON 0.9%
1,000 King Cnty, WA Ser B.............................. 6.625 12/01/15 1,137,860
5,000 Washington St Pub Pwr Supply (Prerefunded @
07/01/01) (FGIC Insd)............................ 6.875 07/01/17 5,529,300
------------
6,667,160
------------
WEST VIRGINIA 2.6%
3,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 3,308,760
15,000 West Virginia St Hsg Dev Fd Hsg Fin Ser B (FHA
Gtd)............................................. 7.200 11/01/20 16,053,300
------------
19,362,060
------------
WISCONSIN 1.5%
2,000 Southeast WI Professional Baseball Park Dist
Sales Tax Rev (MBIA Insd)........................ * 12/15/18 638,400
1,750 Southeast WI Professional Baseball Park Dist
Sales Tax Rev (MBIA Insd)........................ * 12/15/19 529,217
9,365 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 7.100 03/01/23 9,931,208
------------
11,098,825
------------
WYOMING 0.6%
1,500 Wyoming Cmnty Dev Auth Hsg Rev Ser 2............. 6.350 06/01/29 1,580,445
3,000 Wyoming Cmnty Dev Auth Hsg Rev Ser 4............. 6.550 06/01/28 3,183,240
------------
4,763,685
------------
PUERTO RICO 0.8%
4,485 Puerto Rico Comwlth Aqueduct & Swr Auth Rev
Rfdg............................................. 5.000 07/01/15 4,331,568
1,110 Puerto Rico Comwlth Ser A Rfdg................... 6.000 07/01/14 1,171,206
------------
5,502,774
------------
TOTAL INVESTMENTS 100.2%
(Cost $668,998,791).......................................................... 733,192,135
LIABILITIES IN EXCESS OF OTHER ASSETS (0.2%).................................. (1,175,420)
------------
NET ASSETS 100.0%............................................................. $732,016,715
============
</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.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $668,998,791)....................... $733,192,135
Interest Receivable......................................... 14,317,283
Other....................................................... 3,357
------------
Total Assets.......................................... 747,512,775
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 13,847,163
Income Distributions -- Common and Preferred Shares....... 679,838
Investment Advisory Fee................................... 402,603
Custodian Bank............................................ 174,760
Administrative Fee........................................ 123,878
Affiliates................................................ 20,097
Accrued Expenses............................................ 175,299
Trustees' Deferred Compensation and Retirement Plans........ 72,422
------------
Total Liabilities..................................... 15,496,060
------------
NET ASSETS.................................................. $732,016,715
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 5,300 issued with liquidation preference of
$50,000 per share)........................................ $265,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 27,013,149 shares issued and
outstanding).............................................. 270,131
Paid in Surplus............................................. 399,318,038
Net Unrealized Appreciation................................. 64,193,344
Accumulated Net Realized Gain............................... 2,136,665
Accumulated Undistributed Net Investment Income............. 1,098,537
------------
Net Assets Applicable to Common Shares................ 467,016,715
------------
NET ASSETS.................................................. $732,016,715
============
NET ASSET VALUE PER COMMON SHARE ($467,016,715 divided
by 27,013,149 shares outstanding)......................... $ 17.29
============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $44,254,854
-----------
EXPENSES:
Investment Advisory Fee..................................... 4,669,891
Administrative Fee.......................................... 1,436,889
Preferred Share Maintenance................................. 692,728
Custody..................................................... 54,230
Trustees' Fees and Expenses................................. 27,496
Legal....................................................... 9,286
Amortization of Organizational Costs........................ 1,793
Other....................................................... 369,634
-----------
Total Expenses.......................................... 7,261,947
-----------
NET INVESTMENT INCOME....................................... $36,992,907
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 2,380,526
Futures................................................... 26,452
-----------
Net Realized Gain........................................... $ 2,406,978
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 46,644,990
End of the Period......................................... 64,193,344
-----------
Net Unrealized Appreciation During the Period............... 17,548,354
-----------
NET REALIZED AND UNREALIZED GAIN............................ $19,955,332
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $56,948,239
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 36,992,907 $ 37,296,419
Net Realized Gain.................................... 2,406,978 6,088,164
Net Unrealized Appreciation/Depreciation During the
Period............................................. 17,548,354 (3,139,021)
----------- -----------
Change in Net Assets from Operations................. 56,948,239 40,245,562
----------- -----------
Distributions from Net Investment Income:
Common Shares...................................... (28,227,823) (30,794,252)
Preferred Shares................................... (9,506,511) (9,503,338)
----------- -----------
Total Distributions.................................. (37,734,334) (40,297,590)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 19,213,905 (52,028)
NET ASSETS:
Beginning of the Period.............................. 712,802,810 712,854,838
----------- -----------
End of the Period (Including accumulated
undistributed net investment income of $1,098,537
and $1,839,964, respectively)...................... $732,016,715 $712,802,810
============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 24, 1992
(Commencement
Year Ended October 31 of Investment
----------------------------------------------- Operations) to
1997 1996 1995 1994 1993 October 31, 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period (a)............... $16.577 $16.579 $15.032 $17.954 $15.557 $14.792
------- ------- ------- ------- ------- -------
Net Investment Income........ 1.370 1.381 1.415 1.432 1.454 1.010
Net Realized and Unrealized
Gain/Loss.................. .738 .109 1.652 (2.842) 2.424 .550
------- ------- ------- ------- ------- -------
Total from Investment
Operations................... 2.108 1.490 3.067 (1.410) 3.878 1.560
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............. 1.045 1.140 1.140 1.140 1.085 .595
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders... .352 .352 .380 .305 .287 .200
Distributions from Net
Realized Gain:
Paid to Common
Shareholders............. -0- -0- -0- .056 .083 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders... -0- -0- -0- .011 .026 -0-
------- ------- ------- ------- ------- -------
Total Distributions............ 1.397 1.492 1.520 1.512 1.481 .795
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $17.288 $16.577 $16.579 $15.032 $17.954 $15.557
======= ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period................ $16.125 $15.813 $15.750 $14.000 $17.375 $14.875
Total Investment Return at
Market Price (b)............. 8.92% 7.84% 21.15% (13.12%) 25.40% 3.08%*
Total Return at Net Asset Value
(c).......................... 10.94% 7.12% 18.51% (9.99%) 23.53% 7.68%*
Net Assets at End of the Period
(In millions)................ $ 732.0 $ 712.8 $ 712.9 $ 671.1 $ 750.0 $ 685.2
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares................ 1.60% 1.62% 1.68% 1.63% 1.59% 1.54%
Ratio of Expenses to Average
Net Assets................... 1.01% 1.02% 1.04% 1.03% 1.01% 1.01%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d).......................... 6.06% 6.24% 6.55% 6.79% 6.87% 6.71%
Portfolio Turnover............. 40% 30% 15% 20% 20% 37%*
</TABLE>
(a) Net Asset Value at January 24, 1992, is adjusted for common and preferred
share offering costs of $.208 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 the common share equivalent of
distributions paid to preferred shareholders.
* Non-annualized
See Notes to Financial Statements
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Trust for Investment Grade Municipals (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 substantially all
of its assets in municipal securities rated investment grade at the time of
investment. The Trust commenced investment operations on January 24, 1992.
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.
D. ORGANIZATIONAL COSTS--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
the Trust's organization in the amount of $40,000. These costs were amortized on
a straight line basis over the 60 month period ended January 23, 1997.
E. 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 and tax reporting
purposes primarily as a result of losses from wash sales.
At October 31, 1997, for federal income tax purposes cost of long-term
investments is $669,066,203, the aggregate gross unrealized appreciation is
$64,193,344 and the aggregate gross unrealized depreciation is $67,412,
resulting in a net unrealized appreciation of $64,125,932.
F. 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.
For the year ended October 31, 1997, 99.8% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1998, the Trust
will provide tax information to shareholders for the 1997 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .65% of the average net assets of the Trust. In addition, the Trust will pay
a monthly administrative fee to VKAC, 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 year ended October 31, 1997, the Trust recognized expenses of
approximately $7,200 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.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
For the year ended October 31, 1997 the Trust recognized expenses of
approximately $158,800 representing VKAC's cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust has implemented deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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 under the plan is equal to the trustees' annual retainer fee, which is
currently $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $296,958,790 and $282,741,547,
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 these instances the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
During the period, the Trust invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The 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
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
contracts. During the period the futures contract is open, payments are received
from or made to the broker based upon changes in the value of the contract (the
variation margin).
Transactions in futures contracts for the year ended October 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996............................. -0-
Futures Opened.............................................. 185
Futures Closed.............................................. (185)
-----
Outstanding at October 31, 1997............................. -0-
=====
</TABLE>
5. PREFERRED SHARES
The Trust has outstanding 5,300 Auction Preferred Shares ("APS") in four series.
Series A, B, and C contain 1,500 shares each while Series D contains 800 shares.
Dividends are cumulative and the dividend rate is currently reset through an
auction process. The dividend period is 28 days for Series A, B, C and D. The
average rate in effect on October 31, 1997, was 3.549%. During the year ended
October 31, 1997, the rates ranged from 3.350% to 4.065%.
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 1, 1997, the Trust declared a capital gain of $0.0606 per common
share, of which 70.8% is long-term and 29.2% is short-term, to common
shareholders of record on December 15, 1997 which will be payable on December
31, 1997.
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Trust for Investment Grade Municipals:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Trust for Investment Grade Municipals (the "Trust"),
including the portfolio of investments, as of October 31, 1997, 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
October 31, 1997, 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 American Capital Trust for Investment Grade Municipals as of October 31,
1997, 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
December 4, 1997
23
<PAGE> 25
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
pro rata 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 American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
24
<PAGE> 26
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley funds.
25
<PAGE> 27
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
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 AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
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 American Capital Distributors, Inc., 1997
All rights reserved.
(SM) denotes a service mark of Van Kampen American
Capital Distributors, Inc.
26
<PAGE> 28
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on May 28, 1997,
where shareholders voted on a new investment advisory agreement, the election of
Trustees whose terms expired in 1997 and independent public accountants.
1) With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Trust,
23,133,685 shares voted for the proposal, 475,423 shares voted against, 513,245
shares abstained, and 0 shares represented broker non-votes.
2) With regard to the election of Rod Dammeyer as elected trustee by the
preferred shareholders of the Trust, 4,033 shares voted in his favor, 0 shares
withheld.
3) With regard to the election of Wayne W. Whalen as elected trustee by the
common shareholders of the Trust, 23,639,117 shares voted in his favor, 469,213
shares withheld.
4) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for its current fiscal year, 23,654,332 shares voted for the
proposal, 206,021 shares voted against, 252,010 shares abstained, and 0 shares
represented broker non-votes.
27
<PAGE> 29
VAN KAMPEN AMERICAN CAPITAL TRUST FOR INVESTMENT GRADE MUNICIPALS
THIS PAGE INTENTIONALLY LEFT BLANK
28
<TABLE> <S> <C>
<ARTICLE> 6
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 668,998,791
<INVESTMENTS-AT-VALUE> 733,192,135
<RECEIVABLES> 14,317,283
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 3,357
<TOTAL-ASSETS> 747,512,775
<PAYABLE-FOR-SECURITIES> 13,847,163
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,648,897
<TOTAL-LIABILITIES> 15,496,060
<SENIOR-EQUITY> 265,000,000
<PAID-IN-CAPITAL-COMMON> 399,588,169
<SHARES-COMMON-STOCK> 27,013,149
<SHARES-COMMON-PRIOR> 27,013,149
<ACCUMULATED-NII-CURRENT> 1,098,537
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,136,665
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 64,193,344
<NET-ASSETS> 732,016,715
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 44,254,854
<OTHER-INCOME> 0
<EXPENSES-NET> (7,261,947)
<NET-INVESTMENT-INCOME> 36,992,907
<REALIZED-GAINS-CURRENT> 2,406,978
<APPREC-INCREASE-CURRENT> 17,548,354
<NET-CHANGE-FROM-OPS> 56,948,239
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (37,734,334)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 19,213,905
<ACCUMULATED-NII-PRIOR> 1,839,964
<ACCUMULATED-GAINS-PRIOR> (270,313)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,669,891
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,261,947
<AVERAGE-NET-ASSETS> 718,477,178
<PER-SHARE-NAV-BEGIN> 16.577
<PER-SHARE-NII> 1.370
<PER-SHARE-GAIN-APPREC> 0.738
<PER-SHARE-DIVIDEND> (1.397)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 17.288
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
