<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
A Farewell from the Chairman..................... 6
Glossary of Terms................................ 7
Performance Results.............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 20
Statement of Operations.......................... 21
Statement of Changes in Net Assets............... 22
Financial Highlights............................. 23
Notes to Financial Statements.................... 24
Report of Independent Accountants................ 29
Dividend Reinvestment Plan....................... 30
</TABLE>
VGM ANR 12/98
<PAGE> 2
LETTER TO SHAREHOLDERS
November 20, 1998
Dear Shareholder,
The past decade has been a
remarkable time for investors.
Together, we've witnessed one of the
greatest bull markets in investment
history, unprecedented growth in mutual
fund investing, and a surge in personal [PHOTO]
retirement planning. The coming
millennium promises to hold even more
challenges and opportunities.
To lead us into this new era of DENNIS J. MCDONNELL AND DON G. POWELL
investing, we are proud to announce
that Richard F. Powers III has joined
Van Kampen as President and Chief Executive Officer, and will assume the
additional role of Chairman of Van Kampen in 1999. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. Dick Powers brings 27 years of
experience in the financial services industry, including vast expertise in
product management, strategic planning and brand development. While at Morgan
Stanley Dean Witter, he developed many of the firm's core products and services.
You'll hear more from Dick Powers in the coming months as he becomes
increasingly involved in matters related to your Trust and joins Dennis
McDonnell in addressing shareholders in future reports. (See Don Powell's
farewell to shareholders on page 6.)
ECONOMIC OVERVIEW
After two years of solid gains, the U.S. economy began to lose some of its
luster during the reporting period. No longer immune to the global economic
turmoil, the economy retreated from a 5.5 percent annual growth rate in the
first quarter to a tepid 1.8 percent in the second quarter (as measured by gross
domestic product). By the third quarter, however, growth rebounded to a 3.3
percent annual rate.
A strong dollar was largely responsible for moderating economic growth. As
the Asian financial crisis worsened and spread to other regions, foreign
investors amassed dollar-denominated U.S. Treasury bonds. These purchases sent
the dollar sharply higher, which increased the price of U.S. exports and slashed
the price of imports--resulting in reduced demand for U.S. goods and services
abroad. In light of the reduced demand and global economic problems, corporate
earnings fell, business investment declined, and stock prices plummeted. By the
end of August, the Dow Jones Industrial Average was down 19 percent from its
record high, set in mid-July. Although the stock market has since recovered much
of its losses, consumer confidence has declined and growth in consumer spending
has slowed.
Concerns about further economic deterioration, weakness in the stock market,
and a potential credit crunch prompted the Federal Reserve Board to cut
short-term interest rates
Continued on page 2
1
<PAGE> 3
0.25 percent in late September. It was the first rate cut in almost three years
and was followed by additional cuts of 0.25 percent in October and November.
Despite these rate cuts, the Fed took care to note that inflation was well
contained.
MARKET OVERVIEW
The volatility in overseas markets and U.S. stocks was a boon to bonds.
Foreign investors bought U.S. Treasury bonds in an attempt to escape the global
turmoil, while domestic investors purchased them to avoid further losses in U.S.
stocks. Because these purchases occurred at a time when the supply of new
Treasury issues was declining, Treasury bond prices soared.
The Fed rate cuts propelled bond prices even higher. Following the Fed's
first rate cut, the yield on the 30-year Treasury bond, which moves in the
opposite direction of its price, dropped to a record low of 4.72 percent on
October 5. However, subsequent sales of Treasuries by Asian and institutional
investors dampened the rally. As of October 31, the 30-year Treasury bond had a
5.15 percent yield, down 1 percent from a year ago.
Municipal bond prices followed Treasuries higher, but, as usual, they didn't
gain nearly as much in price. The yield on a typical AAA-rated general
obligation municipal bond fell only 32 basis points to 4.80 percent as of
October 31, from 5.12 percent a year earlier. Earlier in October, municipal bond
yields topped comparable Treasury bond yields, which is a rare event. Municipal
bonds generally yield less than Treasury securities because their interest
payments are exempt from federal and sometimes state and local income taxes.
During the past year, municipal bonds were burdened by an excess of supply
relative to demand. State and local governments, taking advantage of the
market's low interest rates, issued $230.9 billion worth of long-term bonds
during the first 10 months of the year--34 percent more than they had issued
during the same period last year. Approximately 44 percent of the new issues
were refinancings of older, higher-yielding bonds. However, new issuance slowed
recently as the number of bonds eligible for refinancing shrank.
Despite an abundant supply, many investors were reluctant to purchase
municipal bonds because of their generally low yields. Compounding the situation
was the abundance of insured issues, which accounted for almost 60 percent of
the new supply. The dominance of insured bonds reduced the supply of
lower-rated, higher-yielding bonds and narrowed the yield spread between higher-
and lower-rated bonds. (The insurance relates to the timely payment of principal
and interest, when due, on the bonds. The insurance does not protect the bonds
from market risk.)
Continued on page 3
2
<PAGE> 4
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
As of October 31, 1998
<TABLE>
<S> <C>
AAA............... 51.7%
AA................ 10.0%
A................. 12.9%
BBB............... 23.0%
BB................ 0.2%
Non-Rated......... 2.2%
</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
We used the following strategies to manage the Trust during the period:
We maintained a mix of higher-quality and lower-quality bonds to moderate
the portfolio's volatility. Slightly more than 51 percent of the Trust's
long-term investments were in AAA-rated insured securities, while nearly all of
the remainder of the portfolio was divided among the classes of investment-grade
bonds (rated BBB- or above). Higher-quality bonds generally have performed
better than lower-rated securities during times of declining interest rates,
which was the environment we experienced during most of the reporting period.
Lower-quality securities, meanwhile, generally outperform when interest rates
are rising, and the bonds usually pay higher yields.
During the reporting period, the yield spread between higher-quality and
lower-quality bonds was not significant enough to compensate the investor for
the additional credit risk associated with the lower-rated securities. As a
result, we upgraded the quality of the portfolio by replacing some BBB-rated
bonds with securities rated A and higher.
In general, we did not attempt to acquire many new bonds because current
market yields were below the average yields of most bonds in the Trust. The
purchases we did make--including some zero-coupon bonds, which are purchased at
deep discounts and are particularly sensitive to changing interest rates--were
intended primarily to extend the Trust's duration. The Trust's duration had been
declining as bonds were prerefunded, or became priced to their first call date
rather than maturity. Other actions we took to increase the Trust's duration
included selling some prerefunded bonds and purchasing some noncallable bonds.
Because of record issuance for much of the reporting period, there was a
substantial supply of new securities from which to choose. Consequently, we had
little trouble finding replacement bonds when needed. Since the yields of these
bonds were lower than those of the bonds that were replaced, the Trust's income
obtained from coupon payments was reduced during the reporting period.
Early in the period we favored bonds issued by high-tax states such as
California and New York. These so-called "specialty state" bonds tend to benefit
from strong in-state
Continued on page 4
3
<PAGE> 5
demand because of their relatively high after-tax yields. We bought fewer of
these bonds in recent months, however, because they became relatively expensive
compared to their counterparts in other states. We financed new purchases with
sales of bonds that had already appreciated in value, including housing bonds,
which can be easily called when interest rates are low. Our research analysts
were instrumental in determining which housing bonds they believed were most
vulnerable to being called.
As of October 31, 1998, the duration of the trust was 6.65 years, compared
with 7.72 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 SECTORS AS OF OCTOBER 31, 1998*
General Purpose................... 17.3%
Industrial Revenue................ 16.6%
Health Care....................... 13.5%
Single-Family Housing............. 8.7%
Transportation.................... 6.9%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1998, the Trust generated a total
return of 12.40 percent.(1) This reflects a gain in market price per common
share from $16.125 on October 31, 1997, to $17.000 on October 31, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
5.82 percent,(3) based on the closing price of its common shares. Because income
from the Trust is exempt from federal income taxes, this distribution rate is
equivalent to a yield of 9.09 percent(4) on a taxable investment (for investors
in the 36 percent federal income tax bracket). Please refer to the chart on page
9 for additional performance numbers.
Continued on page 5
4
<PAGE> 6
[DISTRIBUTION HISTORY GRAPH]
Twelve-Month Distribution History
For The Period Ended October 31, 1998
<TABLE>
<CAPTION>
Distribution per Common Share
Dividends Capital Gains
<S> <C> <C>
Nov 1997 ........................ $ 0.0850
Dec 1997 ........................ 0.0850 $ 0.0607
Jan 1998 ........................ 0.0850
Feb 1998 ........................ 0.0850
Mar 1998 ........................ 0.0850
Apr 1998 ........................ 0.0825
May 1998 ........................ 0.0825
Jun 1998 ........................ 0.0825
Jul 1998 ........................ 0.0825
Aug 1998 ........................ 0.0825
Sep 1998 ........................ 0.0825
Oct 1998 ........................ 0.0825
</TABLE>
The distribution history represents past performance of the Trust and does
not predict the Trust's future distributions.
ECONOMIC OUTLOOK
We believe the economy will continue to grow at a moderate rate for the
remainder of the year, supported by low interest rates. The housing industry has
already benefited from the sharp decline in interest rates, and other sectors
could follow if consumer and business spending picks up.
Looking ahead into next year, we see the potential for stronger economic
growth as long as domestic interest rates remain low and the global financial
crisis stabilizes. We believe the current low inflationary environment in the
United States paves the way for further Fed rate cuts if the economy resumes its
slowdown.
Overseas, we see some promising signs of recovery, including Japan's new
bank reform package, which includes a willingness to let problem banks fail, and
approval of an International Monetary Fund rescue package for Brazil.
We will closely monitor these global and domestic events and their effects
on the performance of the Trust, adjusting the portfolio when appropriate. We
remain committed to the goal of providing a high level of tax-exempt income
while preserving shareholders' capital. Thank you for your continued support and
confidence in Van Kampen and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Please see footnotes on page 9
5
<PAGE> 7
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.
6
<PAGE> 8
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's call price is usually higher than the face value of the
bond. Bonds are usually called when interest rates drop so significantly
that the issuer can save money by issuing new bonds at lower rates.
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
expressed as a percentage of the face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has
more potential to appreciate in price than a par bond does.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations are
expected to perform better in rising rate environments, while funds with
longer durations are expected to perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INSURED BOND: A bond that is insured against default by the bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA.
7
<PAGE> 9
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
potentially, from state and local income taxes.
NET ASSET VALUE (NAV): The value of a trust share, calculated by deducting a
trust's liabilities from the total assets applicable to common shareholders
in its portfolio and dividing this amount by the number of common shares
outstanding.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond does.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 10
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1998
VAN KAMPEN 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)........... 12.40%
One-year total return based on NAV(2).................... 8.39%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.82%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.09%
SHARE VALUATIONS
Net asset value.......................................... $ 17.64
Closing common stock price............................... $17.0000
One-year high common stock price (10/06/98).............. $17.5625
One-year low common stock price (04/28/98)............... $15.3125
Preferred share (Series A) rate(5)....................... 3.420%
Preferred share (Series B) rate(5)....................... 3.350%
Preferred share (Series C) rate(5)....................... 3.350%
Preferred share (Series D) rate(5)....................... 3.330%
</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.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 100.9%
ALABAMA 3.4%
$ 6,500 Birmingham, AL North Med Clinic Brd Rev Ser A
Carraway Methodist Hosp (Prerefunded @
01/01/01)........................................ 7.500% 07/01/15 $ 7,124,910
8,600 Birmingham, AL North Med Clinic Brd Rev Ser B
Carraway Methodist Hosp (Prerefunded @
01/01/01)........................................ 8.000 07/01/15 9,515,556
4,000 Courtland, AL Indl Dev Brd Solid Waste Disp Rev
Champion Intl Corp Proj.......................... 7.750 01/01/20 4,201,600
4,250 Courtland, AL Indl Dev Brd Solid Waste Disp Rev
Champion Intl Corp Proj Ser A.................... 6.500 09/01/25 4,590,722
------------
25,432,788
------------
ARIZONA 0.1%
1,000 Maricopa Cnty, AZ Unified Sch Dist No 80 Chandler
Rfdg (MBIA Insd)................................. 4.700 07/01/12 1,022,760
------------
ARKANSAS 1.8%
12,500 Blytheville, AR Solid Waste Recycling & Swr
Treatment Rev Nucor Corp Proj.................... 6.900 12/01/21 13,538,125
------------
CALIFORNIA 6.2%
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub Impt Proj
Ser C (FSA Insd)................................. 6.000 09/01/16 1,496,989
670 California Edl Fac Auth Rev Univ of La Verne..... 5.600 04/01/00 684,908
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southn CA Edison Co (AMBAC Insd) (b)............. 6.000 07/01/27 2,151,600
5,000 Desert Hosp Dist CA Hosp Rev Com Partn
(Prerefunded @ 07/23/02) (FSA Insd).............. 6.392 07/28/20 5,545,550
25,750 Foothill/Eastern Corridor Agy CA Toll Rd Rev Sr
Lien Ser A....................................... * 01/01/23 7,204,592
1,800 Los Angeles Cnty, CA Metro Trans Auth Sales Tax
Rev (FSA Insd) (a)............................... 5.250 07/01/09 1,930,446
13,765 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/06 15,649,703
2,000 Orange Cnty, CA Recovery Ctfs Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/09 2,311,520
2,000 Pajaro Vly, CA Unified Sch Dist Ctfs Partn Sch
Fac Brdg Fdg Pgm (FSA Insd)...................... 5.850 09/01/32 2,183,060
7,080 San Joaquin Hills, CA Tran Toll Cap Apprec Ser A
Rfdg (MBIA Insd)................................. * 01/15/26 1,791,523
2,000 Santa Clara Cnty, CA Fin Auth Lease Rev Multi
Facs Projs Ser B (AMBAC Insd) (a)................ 5.500 05/15/08 2,104,400
625 South Whittier, CA Elem Sch Dist Cap Apprec Ser A
(FGIC Insd)...................................... * 08/01/14 294,469
445 South Whittier, CA Elem Sch Dist Cap Apprec Ser A
(FGIC Insd)...................................... * 08/01/17 175,455
2,000 Southern CA Pub Pwr Auth (FSA Insd).............. 6.000 07/01/12 2,165,080
------------
45,689,295
------------
</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>
COLORADO 4.2%
$ 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 $ 1,200,150
1,000 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B1............................................... 7.650 11/01/26 1,149,020
2,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
B2............................................... 7.450 11/01/27 2,884,675
6,395 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 7,031,047
3,675 Denver, CO City & Cnty Arpt Rev Ser A............ 8.750 11/15/23 4,190,308
7,230 Denver, CO City & Cnty Arpt Rev Ser A............ 8.000 11/15/25 7,864,288
1,325 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)......................... 8.750 11/15/23 1,541,161
1,685 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg (LOC: Meridian Assoc East)... 7.000 12/01/00 1,790,582
3,250 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg (LOC: Meridian Assoc East)... 7.500 12/01/11 3,568,500
------------
31,219,731
------------
CONNECTICUT 0.3%
2,000 Connecticut St Dev Auth Wtr Fac Rev Brdgeport
Hydraulic........................................ 6.150 04/01/35 2,183,500
------------
DISTRICT OF COLUMBIA 0.2%
1,600 District of Columbia Ser E (FSA Insd)............ 6.000 06/01/13 1,757,008
------------
FLORIDA 2.1%
1,000 Broward Cnty, FL Hsg Fin Auth Multi-Family Hsg
Rev Pompano Oaks Apts Proj Rfdg (GNMA Insd)...... 6.000 12/01/27 1,067,810
16,490 Dade Cnty, FL Spl Oblig Cap Apprec Ser B Rfdg
(Prerefunded @ 10/01/08) (AMBAC Insd)............ * 10/01/26 3,590,368
1,400 Florida St Dept Corrections Ctfs Partn Okeechobee
Correctional (AMBAC Insd)........................ 6.250 03/01/15 1,569,218
1,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 1,152,970
2,000 Martin Cnty, FL Indl Dev Auth Indl Dev Rev
Indiantown Cogeneration Proj Ser A Rfdg.......... 7.875 12/15/25 2,312,880
2,300 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/17 2,395,496
3,465 Reedy Creek Impt Dist FL Ser C (AMBAC Insd)...... 4.750 06/01/15 3,462,886
------------
15,551,628
------------
GEORGIA 1.9%
3,150 Burke Cnty, GA Dev Auth Pollutn Ctl Rev GA Pwr Co
Plant Vogtle Proj (MBIA Insd).................... 6.350 05/01/19 3,259,147
1,500 George L Smith II GA World Congress Cent Auth Rev
Domed Stadium Proj Rfdg (MBIA Insd) (a).......... 5.500 07/01/20 1,496,310
5,900 Georgia Muni Elec Auth Pwr Rev Ser Y (MBIA
Insd)............................................ 6.500 01/01/17 7,030,558
2,000 Municipal Elec Auth GA Proj One Sub Ser A (MBIA
Insd)............................................ 5.250 01/01/15 2,103,740
------------
13,889,755
------------
HAWAII 0.9%
6,000 Hawaii St Arpt Sys Rev Ser 2 (MBIA Insd) (b)..... 6.750 07/01/21 6,505,380
------------
</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>
ILLINOIS 10.1%
$ 2,000 Chicago, IL Brd of Ed Chicago Sch Reform (AMBAC
Insd)............................................ 5.750% 12/01/20 $ 2,166,620
4,865 Chicago, IL Cap Apprec (Prerefunded @ 07/01/05)
(AMBAC Insd)..................................... * 07/01/16 1,845,343
1,600 Chicago, IL Cent Pub Lib Ser A (Prerefunded @
04/01/02) (AMBAC Insd)........................... 6.650 01/01/05 1,779,840
1,800 Chicago, IL Cent Pub Lib Ser A (Prerefunded @
04/01/02) (AMBAC Insd)........................... 6.700 01/01/06 2,005,182
1,600 Chicago, IL Cent Pub Lib Ser B (Prerefunded @
04/01/02) (AMBAC Insd)........................... 6.650 01/01/05 1,779,840
1,400 Chicago, IL Cent Pub Lib Ser C (Prerefunded @
04/01/02) (AMBAC Insd)........................... 6.650 01/01/05 1,557,360
1,500 Chicago, IL Cent Pub Lib Ser C (Prerefunded @
04/01/02) (AMBAC Insd)........................... 6.700 01/01/06 1,670,985
7,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt Second
Lien Ser A Rfdg (MBIA Insd) (b).................. 6.375 01/01/12 7,832,230
13,645 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc........................................ 8.500 05/01/18 14,639,311
3,525 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84A........................... 8.850 05/01/18 3,902,915
4,505 East Peoria, IL Ser C Rfdg....................... 7.000 05/01/17 5,031,094
3,285 Illinois Dev Fin Auth Rev Presbyterian Home Lake
Proj Ser B....................................... 6.300 09/01/22 3,672,762
2,000 Illinois Edl Fac Auth Rev Lewis Univ............. 6.100 10/01/16 2,129,240
2,000 Illinois Hlth Fac Auth Rev Edward Hosp Assn Proj
(Prerefunded @ 02/15/02)......................... 7.000 02/15/12 2,235,420
1,900 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
C (FSA Insd)..................................... 6.750 04/15/17 2,207,059
1,000 Illinois Hlth Fac Auth Rev Highland Park Hosp
Proj Ser A (MBIA Insd)........................... 5.750 10/01/17 1,081,290
1,000 Illinois Hlth Fac Auth Rev Midwest Physician Grp
Ltd Rfdg......................................... 5.500 11/15/19 988,310
2,000 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg............................................. 6.000 11/15/10 2,186,120
2,400 Illinois Hlth Fac Auth Rev Sarah Bush Lincoln
Hlth Cent (Prerefunded @ 05/15/02) (b)........... 7.250 05/15/22 2,721,192
2,275 Illinois Hlth Fac Auth Rev South Suburban Hosp... 7.000 02/15/18 2,798,614
1,475 Illinois Hlth Fac Auth Rev South Suburban Hosp
(Prerefunded @ 02/15/02)......................... 7.000 02/15/18 1,646,675
3,185 Illinois Hsg Dev Auth Multi-Family Hsg Ser C..... 7.400 07/01/23 3,356,385
8,845 Metropolitan Pier & Expo Auth IL Dedicated St Tax
Rev McCormick Pl Expansion Ser A (FGIC Insd)..... * 06/15/16 3,659,796
1,105 Saint Clair Cnty, IL Pub Bldg Comm Bldg Rev Cap
Apprec Ser B (FGIC Insd)......................... * 12/01/15 473,647
1,400 Southern IL Univ Rev Hsg & Aux Fac Ser A Rfdg.... 6.750 04/01/12 1,545,110
------------
74,912,340
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
INDIANA 0.7%
$ 4,500 Indianapolis, IN Arpt Auth Rev Spl Fac Federal
Express Corp Proj................................ 7.100% 01/15/17 $ 5,024,565
1,000 Marion Cnty, IN Convention & Rec Fac Auth Excise
Tax Rev (MBIA Insd).............................. * 06/01/14 466,680
------------
5,491,245
------------
IOWA 0.6%
1,865 Iowa Fin Auth Multi-Family Rev Hsg Hamlet Apts
Proj A Rfdg (GNMA Collateralized)................ 6.150 05/01/32 1,982,160
2,375 Iowa Student Ln Liquidity Corp Rev Ser C......... 6.950 03/01/06 2,545,501
------------
4,527,661
------------
KENTUCKY 3.7%
10,000 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/20 10,971,400
11,000 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.125 02/01/21 11,893,750
1,000 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (MBIA Insd)................. 6.200 03/01/08 1,137,760
1,500 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY
Intl Arpt Ser A Rfdg (MBIA Insd)................. 6.250 03/01/09 1,723,665
1,315 Kentucky Hsg Corp Hsg Rev Ser B.................. 6.250 07/01/28 1,416,255
------------
27,142,830
------------
MAINE 2.1%
2,650 Maine Muni Bd Bank Ser A Rfdg (MBIA Insd)........ 5.800 11/01/20 2,845,517
5,250 Maine St Hsg Auth Mtg Purch Ser D6............... 7.250 11/15/19 5,552,085
6,755 Maine St Hsg Auth Mtg Purch Ser D6............... 7.250 11/15/22 7,133,955
------------
15,531,557
------------
MARYLAND 0.9%
1,270 Baltimore, MD Ctfs Partn Brd of Edl Admin Proj
Ser A Rfdg (MBIA Insd) (a)....................... 5.000 04/01/15 1,255,674
4,925 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Ser 7...................... 7.300 04/01/25 5,312,401
------------
6,568,075
------------
MASSACHUSETTS 2.9%
2,975 Massachusetts Muni Wholesale Elec Co Pwr Supply
Sys Rev Ser A (AMBAC Insd)....................... 5.000 07/01/14 3,007,844
12,685 Massachusetts St Cons Ln Ser D (Prerefunded @
07/01/01)........................................ 6.875 07/01/10 13,969,990
2,410 Massachusetts St Hsg Fin Agy Residential Dev Ser
C (FNMA Collateralized).......................... 6.875 11/15/11 2,639,071
1,000 Massachusetts St Indl Fin Agy Rev Wentworth
Institute Tech................................... 5.650 10/01/18 1,033,720
1,000 Massachusetts St Wtr Res Auth Ser B (MBIA
Insd)............................................ 4.750 12/01/21 958,020
------------
21,608,645
------------
MICHIGAN 5.4%
3,015 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/17 1,119,017
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/18 1,073,478
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MICHIGAN (CONTINUED)
$ 3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/19 $ 1,007,781
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/22 858,148
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/23 813,374
3,050 Detroit, MI Downtown Dev Auth Tax Increment Rev
Ser C1........................................... * 07/01/24 770,948
7,355 Detroit, MI Econ Dev Corp Res Recovery Rev Ser A
(FSA Insd)....................................... 6.875% 05/01/09 7,961,346
3,500 Grand Rapids, MI Downtown Dev Cap Apprec (MBIA
Insd)............................................ * 06/01/15 1,565,515
2,765 Grand Rapids, MI Downtown Dev Cap Apprec (MBIA
Insd)............................................ * 06/01/16 1,168,130
1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale
Cmty Hlth Cent................................... 5.250 05/15/26 1,362,214
2,500 Kalamazoo, MI Hosp Fin Auth Hosp Fac Rev Bronson
Methodist Impt Rfdg (MBIA Insd).................. 5.875 05/15/26 2,692,825
600 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Ser A Rfdg................................... 5.375 10/01/13 616,188
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
12,995 Michigan St Hosp Fin Auth Rev Sisters of Mercy
Hlth Corp Ser J (Prerefunded @ 02/15/01)......... 7.000 02/15/21 14,198,597
1,400 Portage Lake, MI Wtr & Swr Auth Ser 3
(Prerefunded @ 10/01/02)......................... 7.750 10/01/20 1,629,292
------------
39,883,073
------------
MINNESOTA 0.4%
2,800 Minnesota Agricultural & Econ Dev Brd Rev
Hlthcare Sys Fairview Hosp Ser A (MBIA Insd)..... 5.750 11/15/26 3,009,692
------------
MISSISSIPPI 0.7%
3,000 Medical Cent Edl Bldg Corp MS Rev Univ MS Med
Cent Proj (Prerefunded @ 12/01/04) (MBIA Insd)... 5.900 12/01/23 3,365,250
1,500 Mississippi Business Fin Corp MS Pollutn Ctl Rev
Sys Energy Res Inc Proj (a)...................... 5.875 04/01/22 1,500,840
------------
4,866,090
------------
MISSOURI 1.5%
4,000 Missouri St Hlth & Edl Fac Auth Rev BJC Hlth
Sys.............................................. 5.000 05/15/28 3,888,640
6,800 Saint Louis, MO Indl Dev Auth Swg & Solid Waste
Disp Fac Rev Anheuser-Busch Proj................. 5.750 12/01/27 7,247,712
------------
11,136,352
------------
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 3,380,550
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
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%
$ 1,000 New Hampshire St Business Fin Auth Wtr Fac Rev
Pennichuck Wtrwks Inc (AMBAC Insd)............... 6.300% 05/01/22 $ 1,112,250
1,500 New Hampshire St Hsg Fin Auth Single Family Rev
Mtg Acquisition Ser B Rfdg....................... 6.100 07/01/28 1,590,435
1,500 New Hampshire St Indl Dev Auth Rev Pollutn Ctl
Pub Svcs Co of NH Proj Ser C..................... 7.650 05/01/21 1,603,005
------------
4,305,690
------------
NEW JERSEY 5.6%
25,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (MBIA Insd)............................. 5.900 03/15/21 28,502,750
2,000 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.000 07/01/06 2,259,700
10,000 New Jersey St Hsg & Mtg Fin Agy Rev Hsg Ser A
Rfdg............................................. 6.950 05/01/15 10,784,400
------------
41,546,850
------------
NEW MEXICO 0.4%
3,000 New Mexico St Hosp Equip Ln Council Hosp Rev Mem
Med Ctr Inc Proj (a)............................. 5.500 06/01/28 2,935,620
------------
NEW YORK 17.6%
1,000 Long Island Pwr Auth NY Elec Sys Rev Genl (MBIA
Insd) (a)........................................ 5.000 04/01/07 1,058,030
1,875 Long Island Pwr Auth NY Elec Sys Rev Genl (MBIA
Insd) (a)........................................ 5.000 04/01/08 1,979,438
3,000 Metropolitan Tran Auth NY Commuter Fac Rev Ser A
(MBIA Insd)...................................... 5.625 07/01/27 3,211,170
12,155 Metropolitan Tran Auth NY Svcs Contract Commuter
Fac Ser 5 Rfdg................................... 6.500 07/01/16 12,989,319
2,000 Metropolitan Tran Auth NY Tran Fac Rev Svcs
Contract Ser R Rfdg.............................. 5.500 07/01/17 2,096,820
3,000 New York City Indl Dev Agy Spl Fac United Airls
Inc Proj......................................... 5.650 10/01/32 3,026,610
3,410 New York City Ser A.............................. 6.500 08/01/14 3,745,032
1,590 New York City Ser A (Prerefunded @ 08/01/02)..... 6.500 08/01/14 1,766,697
1,740 New York City Ser A (Prerefunded @ 08/15/01)..... 8.000 08/15/20 1,965,591
2,500 New York City Ser A Rfdg......................... 7.000 08/01/05 2,903,675
3,000 New York City Ser A Rfdg......................... 7.000 08/01/06 3,530,040
2,355 New York City Ser C.............................. 6.500 08/01/04 2,589,228
545 New York City Ser C (Prerefunded @ 08/01/02)..... 6.500 08/01/04 605,157
210 New York City Ser C Subser C1.................... 7.500 08/01/19 237,405
8,290 New York City Ser C Subser C1 (Prerefunded @
08/01/02)........................................ 7.500 08/01/19 9,492,962
1,850 New York City Ser G.............................. 5.875 10/15/14 2,014,650
5,000 New York City Ser I.............................. 6.000 04/15/12 5,529,100
10,000 New York City Tran Auth Tran Fac Livingston Plaza
Proj Rfdg (FSA Insd)............................. 5.400 01/01/18 10,622,700
2,500 New York St Dorm Auth Lease Rev Muni Hlth Fac
Impt Pgm Ser A (FSA Insd)........................ 5.500 05/15/25 2,621,250
13,500 New York St Dorm Auth Rev City Univ Sys Ser C.... 7.500 07/01/10 16,648,740
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
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)
$ 1,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.625% 05/15/13 $ 1,042,980
2,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.375 05/15/16 2,033,560
2,170 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A............................................ 5.750 08/15/10 2,383,463
5,725 New York St Environmental Fac Corp Spl Oblig
Riverbank State Park (Prerefunded @ 04/01/02).... 7.375 04/01/22 6,496,730
5,000 New York St Hsg Fin Agy Svcs Contract Oblig Rev
Ser A (Prerefunded @ 03/15/02)................... 7.375 09/15/21 5,667,250
2,840 New York St Loc Govt Assistance Corp Ser E
Rfdg............................................. 6.000 04/01/14 3,256,827
3,000 New York St Med Care Fac Fin Agy Rev NY Hosp Mtg
Ser A (Prerefunded @ 02/15/05) (AMBAC Insd)...... 6.750 08/15/14 3,506,010
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 6,012,534
2,500 New York St Mtg Agy Rev Homeowner Mtg Ser 54
Rfdg............................................. 6.200 10/01/26 2,705,625
1,500 New York St Urban Dev Corp Rev Proj Cent for Indl
Innovation Rfdg.................................. 5.500 01/01/13 1,609,335
3,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/22 3,190,890
4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 4,242,200
------------
130,781,018
------------
NORTH CAROLINA 3.1%
15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
(MBIA Insd)...................................... 6.000 01/01/12 17,208,300
5,150 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
Rfdg (FSA Insd).................................. 6.200 01/01/18 5,650,374
------------
22,858,674
------------
OHIO 0.3%
1,000 Ohio Hsg Fin Agy Mtg Rev Residential Ser A1 (GNMA
Collateralized).................................. 6.150 03/01/29 1,071,860
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd
Partn Proj Rfdg (AMBAC Insd)..................... 6.375 04/01/29 1,113,750
------------
2,185,610
------------
OKLAHOMA 3.6%
17,475 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc.............................................. 7.375 12/01/20 18,706,114
7,500 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc.............................................. 7.600 12/01/30 8,135,325
------------
26,841,439
------------
OREGON 1.6%
7,670 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single
Family Mtg Proj Ser B............................ 6.875 07/01/28 8,215,184
3,300 Oregon St Vets Welfare Ser 76A................... 6.050 10/01/28 3,530,406
------------
11,745,590
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA 5.6%
$ 2,500 Allegheny Cnty, PA Arpt Rev Gtr Pittsburgh Intl
Arpt Ser B (FSA Insd)............................ 6.625% 01/01/22 $ 2,722,975
1,000 Allegheny Cnty, PA Hosp Dev Auth Rev Hosp Saint
Francis Med Cent Proj............................ 5.750 05/15/17 1,048,730
2,900 Dauphin Cnty, PA Genl Auth Hlth Sys Rev Pinnacle
Hlth Sys Proj Rfdg (MBIA Insd)................... 5.500 05/15/27 3,040,389
4,780 Erie, PA Sch Dist Cap Apprec Rfdg (FSA Insd)..... * 09/01/19 1,673,860
4,000 Falls Twp, PA Hosp Auth Hosp Rev Delaware Vly Med
Rfdg (FHA Gtd)................................... 7.000 08/01/22 4,448,040
1,905 Harrisburg, PA Cap Apprec Rfdg Ser D (AMBAC
Insd)............................................ * 09/15/16 781,145
1,710 Harrisburg, PA Cap Apprec Rfdg Ser D (AMBAC
Insd)............................................ * 03/15/19 606,811
1,735 Harrisburg, PA Cap Apprec Rfdg Ser F (AMBAC
Insd)............................................ * 09/15/15 753,996
1,385 Harrisburg, PA Cap Apprec Rfdg Ser F (AMBAC
Insd)............................................ * 09/15/19 479,141
7,000 Montgomery Cnty, PA Indl Dev Auth Rev Pollutn Ctl
Ser E Rfdg (MBIA Insd)........................... 6.700 12/01/21 7,641,270
1,000 Penn Hills, PA (FGIC Insd)....................... 5.900 12/01/17 1,091,650
1,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
34B (FHA Gtd).................................... 7.000 04/01/24 1,571,670
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
60A Rfdg......................................... 5.850 10/01/27 2,602,775
3,000 Pennsylvania Hsg Fin Agy Single Family Ser 56A... 6.150 10/01/27 3,189,660
1,000 Pennsylvania St Higher Edl Fac Auth College &
Univ Rev Bryn Mawr College (MBIA Insd)........... 5.625 12/01/27 1,066,520
6,000 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)............................................ 6.250 07/01/08 6,674,580
1,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev Temple Univ Hosp Ser A....................... 6.500 11/15/08 1,118,270
1,000 State Pub Sch Bldg Auth PA Sch Rev Pittson Area
Sch Dist Ser P (FSA Insd)........................ 5.000 07/15/21 989,880
------------
41,501,362
------------
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 1,696,230
------------
SOUTH CAROLINA 0.4%
2,700 Charleston Cnty, SC Solid Waste (MBIA Insd)...... 6.000 01/01/14 2,971,512
------------
SOUTH DAKOTA 0.4%
1,890 South Dakota Hsg Dev Auth Homeownership Mtg Ser
C................................................ 7.300 05/01/24 1,984,765
1,000 South Dakota St Hlth & Edl Fac Auth Vocational Ed
Pgm Ser A (AMBAC Insd)........................... 5.400 08/01/13 1,076,970
------------
3,061,735
------------
TENNESSEE 1.0%
6,646 Memphis, TN Hlth Edl & Hsg Fac Brd Mtg Rev
Edgewater Terr Rfdg (FHA Gtd).................... 7.375 01/20/27 7,233,839
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS 3.5%
$ 9,790 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc Proj................................... 7.500% 12/01/29 $ 10,497,719
3,000 Brazos River Auth TX Rev Houston Inds Inc Proj
Ser D Rfdg (MBIA Insd)........................... 4.900 10/01/15 3,039,600
2,000 Coastal Bend Hlth Fac Dev Corp TX Incarnate Word
Hlth Svcs Ser A (FSA Insd)....................... 6.000 11/15/22 2,179,200
3,000 Houston, TX Arpt Sys Rev Sub Lien Ser B (FGIC
Insd) (a)........................................ 5.000 07/01/25 2,903,250
1,500 North Cent TX Hlth Fac Dev Hlth Fac C C Young Mem
Proj............................................. 6.300 02/15/15 1,616,715
6,000 Plano, TX Hlth Fac Dev Corp TX Hlth Res Sys Ser C
(MBIA Insd)...................................... 5.000 02/15/22 5,882,220
------------
26,118,704
------------
UTAH 1.2%
2,500 Intermountain Pwr Agy UT Pwr Supply Rev Ser A
Rfdg (MBIA Insd) (a)............................. 5.000 07/01/19 2,454,875
2,500 Murray City, UT Hosp Rev Inc Hlth Svc Inc Rfdg
(MBIA Insd)...................................... 4.750 05/15/20 2,356,725
965 Utah St Hsg Fin Agy Single Family Mtg Mezzanine
Issue H1 (AMBAC Insd)............................ 6.000 07/01/12 1,030,813
2,340 Utah St Hsg Fin Agy Single Family Mtg Ser A2 (FHA
Gtd)............................................. 7.150 07/01/25 2,490,345
670 Utah St Hsg Fin Agy Single Family Mtg Sr Ser A1
(FHA Gtd)........................................ 7.100 07/01/14 725,067
------------
9,057,825
------------
VIRGINIA 0.7%
3,000 Chesapeake Bay Brdg & Tunl VA Dist Rev Gen
Resolution Rfdg (MBIA Insd)...................... 5.500 07/01/25 3,277,950
1,000 Henrico Cnty, VA Indl Dev Auth Pub Fac Lease Rev
Henrico Cnty Regl Jail Proj...................... 7.125 08/01/21 1,177,350
1,000 Russell Cnty, VA Indl Dev Auth Pollutn Ctl Rev
Appalachian Pwr Co Proj Ser H (MBIA Insd)........ 5.000 11/01/21 988,550
------------
5,443,850
------------
WASHINGTON 0.2%
1,000 King Cnty, WA Ser B.............................. 6.625 12/01/15 1,181,480
------------
WEST VIRGINIA 1.7%
3,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 3,320,550
9,285 West Virginia St Hsg Dev Fd Hsg Fin Ser B (FHA
Gtd)............................................. 7.200 11/01/20 9,686,948
------------
13,007,498
------------
WISCONSIN 1.2%
2,000 Southeast WI Professional Baseball Park Dist
Sales Tax Rev (MBIA Insd)........................ * 12/15/18 728,740
1,750 Southeast WI Professional Baseball Park Dist
Sales Tax Rev (MBIA Insd)........................ * 12/15/19 603,960
2,000 Southeast WI Professional Baseball Park Dist
Sales Tax Rev Ser A Rfdg (MBIA Insd)............. 5.500 12/15/26 2,177,160
1,500 Wisconsin St Hlth & Edl Facs Auth Rev Franciscan
Sisters Christian Ser A.......................... 5.500 02/15/18 1,518,120
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 2,000 Wisconsin St Hlth & Edl Facs Auth Rev Marquette
Univ (MBIA Insd) (a)............................. 4.750% 06/01/23 $ 1,903,800
2,000 Wisconsin St Hlth & Edl Facs Auth Rev Marquette
Univ (MBIA Insd) (a)............................. 4.750 06/01/28 1,892,140
------------
8,823,920
------------
WYOMING 0.6%
1,485 Wyoming Cmnty Dev Auth Hsg Rev Ser 2............. 6.350 06/01/29 1,600,028
2,690 Wyoming Cmnty Dev Auth Hsg Rev Ser 4............. 6.550 06/01/28 2,900,170
------------
4,500,198
------------
PUERTO RICO 0.8%
4,485 Puerto Rico Comwlth Aqueduct & Swr Auth Rev
Rfdg............................................. 5.000 07/01/15 4,506,887
1,110 Puerto Rico Comwlth Ser A Rfdg................... 6.000 07/01/14 1,192,095
------------
5,698,982
------------
TOTAL LONG-TERM INVESTMENTS 100.9%
(Cost $675,289,588).......................................................... 748,345,706
LIABILITIES IN EXCESS OF OTHER ASSETS (0.9%).................................. (6,705,311)
------------
NET ASSETS 100.0%............................................................. $741,640,395
============
</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
19
<PAGE> 21
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $675,289,588)....................... $748,345,706
Receivables:
Interest.................................................. 13,556,820
Investments Sold.......................................... 9,180,441
Other....................................................... 3,712
------------
Total Assets.......................................... 771,086,679
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 25,640,480
Custodian Bank............................................ 2,338,771
Income Distributions -- Common and Preferred Shares....... 651,652
Investment Advisory Fee................................... 411,396
Administrative Fee........................................ 126,584
Affiliates................................................ 15,045
Accrued Expenses............................................ 163,156
Trustees' Deferred Compensation and Retirement Plans........ 99,200
------------
Total Liabilities..................................... 29,446,284
------------
NET ASSETS.................................................. $741,640,395
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 73,056,118
Accumulated Net Realized Gain............................... 2,568,463
Accumulated Undistributed Net Investment Income............. 1,427,645
------------
Net Assets Applicable to Common Shares................ 476,640,395
------------
NET ASSETS.................................................. $741,640,395
============
NET ASSET VALUE PER COMMON SHARE ($476,640,395 divided
by 27,013,149 shares outstanding)......................... $ 17.64
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $43,998,166
-----------
EXPENSES:
Investment Advisory Fee..................................... 4,794,769
Administrative Fee.......................................... 1,475,314
Preferred Share Maintenance................................. 702,716
Custody..................................................... 46,226
Trustees' Fees and Expenses................................. 42,609
Legal....................................................... 16,232
Other....................................................... 391,452
-----------
Total Expenses.......................................... 7,469,318
-----------
NET INVESTMENT INCOME....................................... $36,528,848
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 2,635,814
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 64,193,344
End of the Period......................................... 73,056,118
-----------
Net Unrealized Appreciation During the Period............... 8,862,774
-----------
NET REALIZED AND UNREALIZED GAIN............................ $11,498,588
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $48,027,436
===========
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 36,528,848 $ 36,992,907
Net Realized Gain.................................... 2,635,814 2,406,978
Net Unrealized Appreciation During the Period........ 8,862,774 17,548,354
------------ ------------
Change in Net Assets from Operations................. 48,027,436 56,948,239
------------ ------------
Distributions from Net Investment Income:
Common Shares...................................... (27,077,989) (28,227,823)
Preferred Shares................................... (9,121,751) (9,506,511)
------------ ------------
(36,199,740) (37,734,334)
------------ ------------
Distributions from Net Realized Gain on Investments:
Common Shares...................................... (1,638,685) -0-
Preferred Shares................................... (565,331) -0-
------------ ------------
(2,204,016) -0-
------------ ------------
Total Distributions.................................. (38,403,756) (37,734,334)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 9,623,680 19,213,905
NET ASSETS:
Beginning of the Period.............................. 732,016,715 712,802,810
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $1,427,645
and $1,098,537, respectively)...................... $741,640,395 $732,016,715
============ ============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
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
1998 1997 1996 1995 1994 1993 October 31, 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period (a)........ $17.288 $16.577 $16.579 $15.032 $17.954 $15.557 $14.792
-------- ------- ------- ------- ------- ------- -------
Net Investment Income.... 1.352 1.370 1.381 1.415 1.432 1.454 1.010
Net Realized and
Unrealized Gain/Loss... .426 .738 .109 1.652 (2.842) 2.424 .550
-------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations............... 1.778 2.108 1.490 3.067 (1.410) 3.878 1.560
-------- ------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders......... 1.003 1.045 1.140 1.140 1.140 1.085 .595
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders......... .337 .352 .352 .380 .305 .287 .200
Distributions from Net
Realized Gain:
Paid to Common
Shareholders......... .061 -0- -0- -0- .056 .083 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders......... .021 -0- -0- -0- .011 .026 -0-
-------- ------- ------- ------- ------- ------- -------
Total Distributions....... 1.422 1.397 1.492 1.520 1.512 1.481 .795
-------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............... $17.644 $17.288 $16.577 $16.579 $15.032 $17.954 $15.557
======== ======= ======= ======= ======= ======= =======
Market Price Per Share at
End of the Period........ $17.000 $16.125 $15.813 $15.750 $14.000 $17.375 $14.875
Total Investment Return at
Market Price (b)......... 12.40% 8.92% 7.84% 21.15% (13.12%) 25.40% 3.08%*
Total Return at Net Asset
Value (c)................ 8.39% 10.94% 7.12% 18.51% (9.99%) 23.53% 7.68%*
Net Assets at End of the
Period (In millions)..... $ 741.6 $ 732.0 $ 712.8 $ 712.9 $ 671.1 $ 750.0 $ 685.2
Ratio of Expenses to
Average Net Assets
Applicable to Common
Shares**................. 1.58% 1.60% 1.62% 1.68% 1.63% 1.59% 1.54%
Ratio of Net Investment
Income to Average Net
Assets Applicable to
Common Shares (d)........ 5.80% 6.06% 6.24% 6.55% 6.79% 6.87% 6.71%
Portfolio Turnover........ 29% 40% 30% 15% 20% 20% 37%*
* Non-annualized
** Ratio of Expenses to
Average Net Assets
Including Preferred
Shares................... 1.01% 1.01% 1.02% 1.04% 1.03% 1.01% 1.01%
</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.
See Notes to Financial Statements
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Trust for Investment Grade Municipals, formerly known as 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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of losses from wash sales.
At October 31, 1998, for federal income tax purposes cost of long-term
investments is $675,357,000, the aggregate gross unrealized appreciation is
$73,036,952 and the aggregate gross unrealized depreciation is $48,246,
resulting in a net unrealized appreciation on long-term investments of
$72,988,706.
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.
For the year ended October 31, 1998, 99.82% of the income distributions made
by the Trust were exempt from federal income taxes. Additionally, during the
period, the Trust designated and paid a 28% rate gain distribution of $999,145
and a 20% rate gain distribution of $561,277. In January, 1999, the Trust will
provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. (the "Adviser") will provide investment advice and
facilities to the Trust for an annual fee payable monthly of .65% 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 year ended October 31, 1998, the Trust recognized expenses of
approximately $10,200 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.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
For the year ended October 31, 1998, the Trust recognized expenses of
approximately $183,100 representing Van Kampen's cost of providing accounting
and legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust has implemented deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $215,323,163 and $212,916,894,
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.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. FUTURES CONTRACTS--The Trust may invest in 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
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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).
B. INDEXED SECURITIES--These instruments, if held, 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 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 the preferred shares.
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, 1998, was 3.367%. During the year ended
October 31, 1998, the rates ranged from 3.330% to 4.850%.
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 $0.0733 per common
share, of which $0.0298 is long-term and $0.0435 is short-term, to common
shareholders of record on December 15, 1998. The gain will be payable on
December 31, 1998.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 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 our 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 we do not
anticipate that the move to Year 2000 will have a material impact on our ability
to continue to provide the Trust with service at current levels. In addition, it
is possible that the securities markets in which the Trust invests may be
detrimentally affected by computer failures throughout the financial services
industry beginning January 1, 2000. Improperly functioning trading systems may
result in settlement problems and liquidity issues.
28
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Trust for Investment Grade Municipals:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Trust for Investment Grade Municipals (the "Trust"), including the
portfolio of investments, as of October 31, 1998, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
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 Trust for Investment Grade Municipals as of October 31, 1998, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
December 1, 1998
29
<PAGE> 31
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change 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 Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
30
<PAGE> 32
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
31
<PAGE> 33
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
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
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in
the Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
32
<PAGE> 34
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on July 28, 1998, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) With regard to the election of the following trustee by the preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
-------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------
<S> <C> <C>
Theodore A. Myers................................... 4,734 2
</TABLE>
2) With regard to the election of the following trustees by common shareholders
of the trust:
<TABLE>
<CAPTION>
# OF SHARES
---------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
Don G. Powell.................................. 24,907,647 304,230
Hugo F. Sonnenschein........................... 24,888,608 323,269
</TABLE>
The other trustees of the Trust whose terms did not expire in 1998 are David C.
Arch, Rod Dammeyer, Howard J Kerr, Dennis J. McDonnell, Steven Muller and Wayne
W. Whalen.
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the Trust, 24,878,806 shares voted in favor of the
proposal, 105,860 shares voted against, and 231,948 shares abstained.
33
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> TFIG MUNICIPALS
<MULTIPLIER> 1
<S> <C>
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