UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-6471
Van Kampen Trust for Investment Grade Municipals
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas NY NY 10020
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(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas
New York, NY 10020
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
-----------------------------
Date of fiscal year end: 10/31/03
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Date of reporting period: 04/30/03
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Item 1. Report to Shareholders
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of April 30, 2003)
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NYSE Ticker Symbol - VGM
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<Table>
<Caption>
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Six-month total return(1) 8.04%
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One-year total return(1) 17.95%
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Five-year average annual total return(1) 8.30%
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Ten-year average annual total return(1) 7.19%
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Life-of-Trust average annual total return(1) 7.99%
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Commencement date 01/24/92
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Distribution rate as a % of closing common share market
price(2) 6.83%
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Taxable-equivalent distribution rate as a % of closing
common share market price(3) 11.12%
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Preferred share (Series A) rate(4) 1.200%
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Preferred share (Series B) rate(4) 1.080%
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Preferred share (Series C) rate(4) 0.980%
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Preferred share (Series D) rate(4) 0.970%
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Net asset value $17.54
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Closing common share market price $16.16
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Six-month high common share market price (4/30/03) $16.16
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Six-month low common share market price (12/12/02) $15.15
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</Table>
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
1
(1) Total return assumes an investment at the common share 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 share market price at the end of the
period indicated.
(2) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(3) The taxable-equivalent distribution rate is calculated assuming the maximum
38.6% federal income tax rate effective for calendar year 2003.
(4) 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 is no guarantee of future results. Investment return,
common share market price and net asset value will fluctuate and Trust
shares, when sold, may be worth more or less than their original cost. An
investment in the Trust is subject to investment risks, and you could lose
money on your investment in the Trust. As a result of recent market
activity, current performance may vary from the figures shown. For more
up-to-date information, please visit vankampen.com or speak with your
financial advisor.
2
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
AAA/Aaa........................... 75.7%
AA/Aa............................. 8.7%
A/A............................... 12.6%
BBB/Baa........................... 2.6%
BB/Ba............................. 0.2%
Non-Rated......................... 0.2%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
General Purpose................... 21.6%
Public Education.................. 11.7%
Transportation.................... 9.0%
Higher Education.................. 8.9%
Health Care....................... 8.5%
</Table>
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--April 1993 through April 2003)
[LINE GRAPH]
<Table>
<Caption>
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
4/93 $17.0600 $16.5000
$17.3900 $16.5000
$18.0900 $17.2500
$17.9100 $16.8750
$16.1100 $15.2500
6/94 $15.8400 $15.6250
$15.5700 $14.2500
$14.8500 $13.7500
$16.0800 $15.3750
6/95 $16.1600 $15.3750
$16.3200 $15.2500
$17.1300 $15.7500
$16.3800 $15.8750
6/96 $16.1400 $15.0625
$16.4400 $15.8750
$16.6900 $15.3750
$16.3100 $15.0000
6/97 $16.8500 $15.8125
$17.2600 $16.3750
$17.5300 $16.3750
$17.4600 $16.3750
6/98 $17.4600 $16.2500
$17.8700 $17.1875
$17.4800 $17.3750
$17.3000 $16.6875
6/99 $16.5700 $15.5620
$16.0000 $14.5000
$15.4200 $13.0000
$15.8200 $13.3125
6/00 $15.7700 $13.4375
$16.0200 $13.6875
$17.0000 $14.1600
$17.1200 $14.8000
6/01 $16.9000 $14.6100
$17.2600 $14.7500
$16.5400 $14.5600
$16.4100 $14.7500
6/02 $17.0700 $15.7000
$18.2100 $16.8700
$17.3900 $15.8300
$17.3800 $15.7700
4/03 $17.5400 $16.1600
</Table>
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's common share market price is represented by the dashed line, which
indicates the price the market is willing to pay for shares of the trust at a
given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions.
3
Q&A WITH YOUR PORTFOLIO MANAGER
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF VAN KAMPEN TRUST FOR INVESTMENT
GRADE MUNICIPALS ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE TRUST'S RETURN DURING THE SIX MONTHS ENDED APRIL 30,
2003. TOM BYRON, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 2000 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1981. THE FOLLOWING DISCUSSION REFLECTS
HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q WHAT WAS THE MARKET
ENVIRONMENT OF THE PAST SIX MONTHS, AND HOW DID THE TRUST PERFORM IN THAT
ENVIRONMENT?
A The environment over the past six
months has been defined by two major themes. The first of these was the level of
interest rates. The period began with interest rates at levels not seen in over
three decades and, surprisingly for many, ended with rates slightly lower. The
Federal Reserve Board (the Fed) helped keep rates low with a widely anticipated
rate cut in November, driven by economic uncertainty and geopolitical risk. The
low level of rates led to a boom in issuance by municipalities seeking to lock
in low financing costs. As a result, issuance reached a record level of $354
billion in 2002 and continued to be exceptional in the first quarter of 2003.
The other theme in the market during the period was the relative
attractiveness of municipal bonds, which produced enough demand to absorb the
record issuance. Investors, wary of volatility in the equity market and in the
geopolitical arena, flocked to perceived safe haven investments. Their risk
aversion counteracted growing expectations for economic recovery and rising
interest rates, and was a key factor in keeping interest rates at historically
low levels. In their ongoing preference for low-risk assets, investors bid
Treasury prices up to such high levels that municipal bonds became as
attractively valued as they have ever been relative to Treasuries. Insurance
companies also moved heavily into municipal bonds as their mainstay corporate
bond holdings became less attractive. At the same time, issuers recognized
investor concerns over economic weakness by insuring roughly 50 percent of all
issuance. This credit enhancement feature made municipal bonds even more
attractive to risk-averse investors.
While lower financing costs were a boon to municipal issuers, the continuing
weakness in the economy had a negative impact on municipal credit quality,
particularly in the first quarter of 2003. Moody's upgrades barely exceeded the
number of downgrades in the first quarter, with
4
credit quality facing continued pressure from rising social service costs and
weak national and regional economic conditions. As a result, municipalities face
enormous deficits in 2003, when their combined shortfall is expected to reach
$90 billion.
Performance along the yield curve was varied. The Fed's November rate cut
fueled a rally in short-term bonds that helped pull yields lower at the front
end of the curve. Despite that rally, the best performing segment of the curve
was the long-intermediate portion where performance was largely driven by buying
activity among institutional investors drawn to the bonds' attractive total
return potential.
The trust's monthly dividend of $0.0920 per share translated to a
distribution rate of 6.83 percent based on the trust's closing common share
market price on April 30, 2003. Based on these figures, investors would have to
earn a distribution rate of 11.12 percent on a taxable investment (for an
investor in the 38.60 percent federal income tax bracket) to match the
tax-exempt yield provided by the trust.
For the six months ended April 30, 2003, the trust produced a total return
of 8.04 percent based on common share market price. By comparison, the Lehman
Brothers Municipal Bond Index posted a total return of 3.59 percent for the same
period. Of course, past performance is no guarantee of future results.
Investment return, common share market price and net asset value will fluctuate
and trust shares, when sold, may be worth more or less than their original cost.
As a result of recent market activity, current performance may vary from the
figures shown. For more up-to-date information, please visit vankampen.com or
speak with your financial advisor.
The Lehman Brothers Municipal Bond Index is an unmanaged, broad-based
statistical composite of municipal bonds. Index returns do not include any sales
charges or fees that would be paid by an investor purchasing the securities the
index represents. Such costs would lower performance. It is not possible to
invest directly in an index. For additional information, please refer to the
performance summary section.
Q WHAT STRATEGIES DID YOU PURSUE
IN MANAGING THE TRUST?
A While interest rates fell somewhat
during the period, they remained largely confined to a relatively tight trading
range at historically low levels. As a result, there were fewer compelling
opportunities for reinvesting the proceeds of sales from the portfolio than
we've seen in some time. This kept the portfolio's turnover relatively low as we
attempted to protect the dividend by limiting the likelihood of having to
reinvest in lower-yielding securities.
Overall, our focus over the period was on positioning the portfolio to
perform well in the event of rising interest rates, while also maintaining an
attractive yield. One of our primary methods for doing this was to purchase
premium bonds with maturities of between 15 and 20 years and shorter call dates.
The yield of these bonds is competitive, yet their interest rate volatility is
more closely related to the 10-year call feature. Our quantitative
5
analysis showed that this segment of the yield curve offered the optimal
combination of total return potential and downside protection.
Our approach also continued to emphasize active trading of highly liquid
bonds to capture shifts in relative value between various sectors and state
markets. For example, California was a major issuer of debt during the period,
and issued so much that prices for the state's debt temporarily dropped due to
the influx of supply. We took advantage of this issuance by purchasing several
well-structured deals for the portfolio. We anticipate that these bonds should
return to fair value, and when they do we may consider selling them.
The portfolio also enjoyed the fruits of a long-running strategy during the
period. Several years ago, we purchased some securities that were at the time
deeply discounted, with coupons well below the market rate. They were so out of
favor that we were able to purchase them at extremely attractive prices. As
interest rates have fallen over the intervening years, however, the bonds have
come closer and closer to being current coupons. Their falling yields have given
the portfolio a substantial boost in terms of price performance, and once the
bonds met their performance objectives we sold them into strong retail demand
and reinvested the proceeds into premium intermediate and other securities with
better total return prospects. The troubled economy led us to trim some of the
portfolio's holdings, and to avoid some sectors altogether. In the course of
their credit monitoring, our analysts came to the conclusion that one of the
portfolio's healthcare holdings was likely to experience credit--and thus
price--performance difficulties. We sold the position in order to protect the
trust from any deterioration in the issuer's financial health.
One of the sectors we avoided during the period was tobacco bonds. These
bonds were issued by states seeking to securitize their future income streams
resulting from settlements from class action suits against the major tobacco
companies. Recent litigation in Illinois resulted in a judge awarding billions
more in a suit alleging that the companies misled smokers about the amount of
nicotine in "light" cigarettes. In order to appeal, the law required the
companies to put up such substantial amounts of money that some began talking
about potential bankruptcy, and the tobacco bonds' credit ratings and price
performance suffered accordingly. Our decision not to invest in these securities
was a benefit to shareholders during the period.
6
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MUNICIPAL BONDS 152.1%
ALABAMA 1.3%
$ 750 Birmingham Baptist Med Ctr AL Baptist
Hlth Sys Ser A........................ 5.875% 11/15/24 $ 791,722
2,000 Jefferson Cnty, AL Swr Rev Cap Impt
Wts Ser A (FGIC Insd)................. 5.000 02/01/41 2,021,760
3,000 Jefferson Cnty, AL Wts Ser A (AMBAC
Insd)................................. 5.000 04/01/09 3,352,980
-------------
6,166,462
-------------
ARIZONA 1.8%
2,800 Phoenix, AZ Civic Impt Corp Arpt Rev
Jr Lien (FGIC Insd)................... 5.375 07/01/29 2,847,712
4,375 Salt River Proj AZ Agric Impt Salt
River Proj Ser A Rfdg................. 5.250 01/01/06 4,791,194
1,000 Scottsdale, AZ Indl Dev Auth Hosp Rev
Scottsdale Hlthcare................... 5.800 12/01/31 1,034,640
-------------
8,673,546
-------------
CALIFORNIA 10.8%
2,895 ABC CA Uni Sch Dist Cap Apprec Ser B
(FGIC Insd)........................... * 08/01/20 1,246,326
1,300 Anaheim, CA Pub Fin Auth Lease Rev Pub
Impt Proj Ser C (FSA Insd)............ 6.000 09/01/16 1,579,435
1,000 California St Dept Wtr Res Pwr Ser
A..................................... 6.000 05/01/15 1,154,090
2,000 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd).......................... 5.500 05/01/16 2,259,180
4,000 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd).......................... 5.375 05/01/18 4,422,800
1,320 California St Dept Wtr Res Pwr Ser A
(MBIA Insd)........................... 5.125 05/01/19 1,416,096
1,000 California St Pub Wks Brd UCLA
Replacement Hosp Ser A (FSA Insd)..... 5.375 10/01/20 1,091,000
3,000 Florin, CA Res Consv Dist Cap Impt Elk
Grove Wtr Svc B (MBIA Insd)........... 5.000 03/01/33 3,084,840
2,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Apprec Rfdg (MBIA Insd).... * 01/15/17 1,001,200
</Table>
See Notes to Financial Statements
7
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CALIFORNIA (CONTINUED)
$20,750 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Sr Lien Ser A (Escrowed to
Maturity) (a)......................... * 01/01/23 $ 7,984,392
3,000 Fremont, CA Uni Sch Dist Ser A (FGIC
Insd)................................. 5.000% 08/01/25 3,113,160
2,500 Los Angeles, CA Uni Sch Dist Ser A
(FSA Insd)............................ 5.250 07/01/20 2,725,025
4,020 Oakland, CA Uni Sch Dist (FGIC
Insd)................................. 5.250 08/01/18 4,387,307
3,000 Port Oakland, CA Ser M (FGIC Insd).... 5.250 11/01/18 3,295,290
2,000 Salinas, CA Uni High Sch Dist Ser A
(MBIA Insd)........................... 5.000 06/01/27 2,066,020
3,000 San Francisco, CA City & Cnty Second
Ser Issue 29 B Rfdg (FGIC Insd)....... 5.125 05/01/20 3,218,400
3,745 Santa Clarita, CA Cmnty College (FGIC
Insd)................................. 5.000 08/01/23 3,912,589
3,000 Temecula, CA Redev Agy Tax Temecula
Redev Proj No 1 (MBIA Insd)........... 5.250 08/01/36 3,148,680
-------------
51,105,830
-------------
COLORADO 2.6%
4,000 Adams & Arapahoe Cntys CO Sch Dist 28
Ser A (FSA Insd)...................... 5.250 12/01/20 4,339,800
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy
Rev E-470 Proj Ser B (Prerefunded @
08/31/05)............................. 6.950 08/31/20 1,155,530
2,000 Aurora, CO Ctfs Part (AMBAC Insd)..... 5.500 12/01/30 2,173,560
1,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A................ 5.500 03/01/32 1,029,890
1,125 Colorado Hlth Fac Auth Rev Hosp
Portercare Adventist Hlth............. 6.500 11/15/31 1,226,779
181 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser B1......................... 7.650 11/01/26 185,947
1,805 Lakewood, CO Ctfs Part (AMBAC Insd)... 5.300 12/01/16 1,999,615
-------------
12,111,121
-------------
CONNECTICUT 1.1%
3,000 Bridgeport, CT Ser A Rfdg (FGIC
Insd)................................. 5.375 08/15/14 3,382,590
1,830 Connecticut St Spl Oblig Pkg Rev
Bradley Intl Arpt Ser A (ACA Insd).... 6.600 07/01/24 1,981,066
-------------
5,363,656
-------------
</Table>
See Notes to Financial Statements
8
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
DISTRICT OF COLUMBIA 0.8%
$ 1,600 District of Columbia Ser E
(Prerefunded @ 06/01/03) (FSA Insd)... 6.000% 06/01/13 $ 1,637,952
2,000 Metropolitan Washington DC Arpt Auth
Sys Ser A (FGIC Insd)................. 5.250 10/01/32 2,043,900
-------------
3,681,852
-------------
FLORIDA 10.5%
10,950 Dade Cnty, FL Spl Oblig Cap Apprec Ser
B Rfdg (Prerefunded @ 10/01/08) (AMBAC
Insd)................................. * 10/01/26 3,135,094
3,000 Escambia Cnty, FL Hlth Fac Auth Hlth
Fac Rev FL Hlthcare Fac Ln (AMBAC
Insd)................................. 5.950 07/01/20 3,288,420
2,500 Florida St Brd Ed Cap Outlay Pub Ed
Ser C (FGIC Insd)..................... 5.750 06/01/29 2,806,175
1,000 Florida St Brd Ed Lottery Rev Ser A
(FGIC Insd)........................... 6.000 07/01/14 1,173,740
1,400 Florida St Dept Corrections Ctf Part
Okeechobee Correctional (AMBAC
Insd)................................. 6.250 03/01/15 1,538,530
1,200 Gulf Breeze, FL Rev Loc Govt Ln E
(FGIC Insd)........................... 5.050 12/01/20 1,310,280
2,000 Gulf Breeze, FL Rev Loc Govt Ln E
(FGIC Insd)........................... 5.150 12/01/20 2,231,820
4,550 Hillsborough Cnty, FL Sch Dist (AMBAC
Insd) (a)............................. 5.375 10/01/17 5,029,297
1,000 Hillsborough Cnty, FL Util Jr Lien
Rfdg (AMBAC Insd)..................... 5.000 08/01/06 1,104,140
2,000 Jacksonville, FL Sales Tax Rev Better
Jacksonville (MBIA Insd).............. 5.250 10/01/19 2,194,260
1,000 Jea, FL Elec Sys Rev Ser 3 Ser A...... 5.500 10/01/41 1,075,010
2,000 Miami-Dade Cnty, FL Aviation Miami
Intl Arpt (FGIC Insd)................. 5.375 10/01/27 2,067,400
1,500 Miami-Dade Cnty, FL Aviation Ser A
(FSA Insd)............................ 5.000 10/01/33 1,507,215
2,000 Miami-Dade Cnty, FL Aviation Ser A
(FSA Insd)............................ 5.125 10/01/35 2,020,320
2,000 Miami-Dade Cnty, FL Hlth Fac Miami
Children Hosp Ser A Rfdg (AMBAC
Insd)................................. 5.000 08/15/20 2,110,100
1,980 Miami-Dade, FL Sch Brd Ser C (FSA
Insd)................................. 5.500 10/01/13 2,246,013
</Table>
See Notes to Financial Statements
9
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FLORIDA (CONTINUED)
$ 2,000 Palm Beach Cnty, FL Sch Brd Ctf Ser E
Rfdg (AMBAC Insd)..................... 5.250% 08/01/11 $ 2,270,820
1,655 Reedy Creek Impt Dist FL Ser A Rfdg
(AMBAC Insd).......................... 5.500 06/01/11 1,907,321
3,465 Reedy Creek Impt Dist FL Ser C (AMBAC
Insd)................................. 4.750 06/01/15 3,573,697
1,210 Saint Lucie Cnty, FL Sch Brd Ctf Ser A
(FSA Insd)............................ 5.500 07/01/14 1,377,222
1,000 Tallahassee, FL Lease Rev FL St Univ
Proj Ser A (MBIA Insd)................ 5.500 08/01/17 1,121,320
1,250 Tampa, FL Hosp Rev Cap Impt H Lee
Moffitt Ser A......................... 5.750 07/01/19 1,311,750
2,880 Tampa, FL Occupational License Ser A
Rfdg (FGIC Insd)...................... 5.375 10/01/15 3,256,963
-------------
49,656,907
-------------
GEORGIA 2.8%
1,500 George L Smith ll GA World Congress
Cent Auth Rev Domed Stadium Proj Rfdg
(MBIA Insd)........................... 5.500 07/01/20 1,595,700
5,660 Georgia Muni Elec Auth Pwr Rev Ser Y
(MBIA Insd) (a)....................... 6.500 01/01/17 7,032,550
240 Georgia Muni Elec Auth Pwr Rev Ser Y
(Escrowed to Maturity) (MBIA Insd).... 6.500 01/01/17 300,838
4,000 Municipal Elec Auth GA Combustion
Turbine Proj Ser A (MBIA Insd) (a).... 5.250 11/01/16 4,420,360
-------------
13,349,448
-------------
HAWAII 0.3%
1,385 Honolulu, HI City & Cnty Ser B (FGIC
Insd)................................. 5.500 10/01/11 1,595,257
-------------
ILLINOIS 15.7%
1,395 Bolingbrook, IL Cap Apprec Ser C Rfdg
(MBIA Insd)........................... * 01/01/23 507,250
2,000 Chicago, IL Brd of Ed (FGIC Insd)..... 5.500 12/01/31 2,160,180
2,000 Chicago, IL Brd of Ed Chicago Sch
Reform (AMBAC Insd)................... 5.750 12/01/20 2,261,480
4,865 Chicago, IL Cap Apprec (Prerefunded @
07/01/05) (AMBAC Insd)................ * 07/01/16 2,343,860
1,500 Chicago, IL Lakefront Millennium Pk
Facs (MBIA Insd)...................... 5.125 01/01/28 1,543,185
</Table>
See Notes to Financial Statements
10
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ILLINOIS (CONTINUED)
$ 7,000 Chicago, IL O'Hare Intl Arpt Rev Genl
Arpt Second Lien Ser A Rfdg (MBIA
Insd) (a)............................. 6.375% 01/01/12 $ 7,641,620
2,000 Chicago, IL O'Hare Intl Arpt Rev
Second Lien Passenger Fac B (AMBAC
Insd)................................. 5.500 01/01/17 2,220,200
3,500 Chicago, IL Proj Ser A Rfdg (MBIA
Insd) (a)............................. 5.000 01/01/31 3,560,130
2,000 Chicago, IL Wastewtr Transmission Rev
Second Lien (MBIA Insd)............... 5.750 01/01/25 2,227,800
1,000 Chicago, IL Wastewtr Transmission Rev
Second Lien (Prerefunded @ 01/01/10)
(MBIA Insd)........................... 6.000 01/01/30 1,185,270
2,870 Cook Cnty, IL Cap Impt Ser A (FGIC
Insd)................................. 5.000 11/15/28 2,925,735
3,500 Du Page Cnty, IL Fst Presv Dist....... * 11/01/10 2,660,875
2,545 Du Page Cnty, IL Trans Rev (FSA
Insd)................................. 5.750 01/01/15 2,903,056
845 East Peoria, IL Ser C Rfdg............ 7.000 05/01/17 888,805
1,310 Elgin, IL Ser B Rfdg.................. 5.750 12/15/13 1,548,525
1,600 Grundy, Kendall, & Will Cntys (AMBAC
Insd)................................. 5.500 05/01/15 1,791,456
1,250 Illinois Dev Fin Auth Rev Bradley Univ
Proj (AMBAC Insd)..................... 5.375 08/01/24 1,334,325
1,475 Illinois Dev Fin Auth Rev Loc Govt Pgm
Geneva Cmnty 304 B (FSA Insd)......... 5.750 01/01/15 1,671,529
1,145 Illinois Dev Fin Auth Rev Loc Govt Pgm
Geneva Cmnty 304 B (FSA Insd)......... 5.750 01/01/17 1,284,587
3,285 Illinois Dev Fin Auth Rev Presbyterian
Home Lake Proj Ser B (FSA Insd)....... 6.300 09/01/22 3,735,669
2,000 Illinois Edl Fac Auth Rev Lewis
Univ.................................. 6.100 10/01/16 2,047,300
1,250 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser C (FSA Insd)................. 6.750 04/15/17 1,277,687
700 Illinois Hlth Fac Auth Rev Highland
Park Hosp Proj Ser A (Prerefunded @
10/01/07) (MBIA Insd)................. 5.750 10/01/17 817,292
1,000 Illinois Hlth Fac Auth Rev Midwest
Physician Grp Ltd Rfdg................ 5.500 11/15/19 797,230
2,000 Illinois Hlth Fac Auth Rev OSF
Hlthcare Sys Rfdg..................... 6.000 11/15/10 2,059,880
2,275 Illinois Hlth Fac Auth Rev South
Suburban Hosp (Escrowed to
Maturity)............................. 7.000 02/15/18 2,896,848
1,000 Illinois St (FGIC Insd)............... 5.250 12/01/20 1,070,780
</Table>
See Notes to Financial Statements
11
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ILLINOIS (CONTINUED)
$ 2,000 Illinois St First Ser (FGIC Insd)..... 5.375% 11/01/14 $ 2,239,080
4,000 Illinois St First Ser (FSA Insd)...... 5.250 12/01/20 4,310,480
250 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expansion Proj (FGIC Insd)............ 5.375 12/15/18 274,945
8,845 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expansion Ser A (FGIC Insd) (a)....... * 06/15/16 4,869,261
3,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expansion Ser A (MBIA Insd)........... 5.250 06/15/42 3,136,980
1,005 Naperville, IL Ser A.................. 5.000 12/01/10 1,125,097
1,105 Saint Clair Cnty, IL Pub Bldg Comm
Bldg Rev Cap Apprec Ser B (FGIC
Insd)................................. * 12/01/15 631,596
1,000 Southern IL Univ Rev Cap Apprec Hsg &
Aux (MBIA Insd)....................... * 04/01/29 252,580
-------------
74,202,573
-------------
INDIANA 3.6%
2,000 Indiana Transn Fin Auth Toll Rd Lease
Rev Rfdg (AMBAC Insd)................. 5.375 07/01/09 2,251,080
4,500 Indianapolis, IN Arpt Auth Rev Spl Fac
Fed Express Corp Proj (a)............. 7.100 01/15/17 4,785,345
1,935 Logansport, IN Sch Bldg Corp First Mtg
(FGIC Insd)........................... 5.500 07/15/13 2,181,558
1,000 Marion Cnty, IN Convention & Rec Fac
Auth Excise Tax Rev (MBIA Insd)....... * 06/01/14 617,240
1,280 North Adams, IN Cmnty Schs Renovation
Bldg Corp Cap Apprec First Mtg (FSA
Insd)................................. * 01/15/19 594,701
1,200 North Adams, IN Cmnty Schs Renovation
Bldg Corp Cap Apprec First Mtg (FSA
Insd)................................. * 07/15/15 694,512
1,500 Petersburg, IN Pollutn Ctl Rev IN Pwr
& Lt.................................. 5.950 12/01/29 1,373,220
1,605 Richland Beanblossom, IN Sch First Mtg
(FGIC Insd)........................... 5.500 07/15/12 1,822,895
2,530 Vigo Cnty, IN Sch Bldg Corp First Mtg
Impt & Rfdg (FSA Insd)................ 5.250 07/10/24 2,664,368
-------------
16,984,919
-------------
</Table>
See Notes to Financial Statements
12
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
IOWA 0.8%
$ 1,685 Des Moines, IA Pub Pkg Sys Ser A (FGIC
Insd)................................. 5.750% 06/01/15 $ 1,939,654
1,785 Des Moines, IA Pub Pkg Sys Ser A (FGIC
Insd)................................. 5.750 06/01/16 2,052,090
-------------
3,991,744
-------------
KANSAS 0.5%
1,975 Sedgwick Cnty, KS Uni Sch Dist No 259
Wichita (MBIA Insd)................... 6.000 09/01/09 2,332,218
-------------
KENTUCKY 2.0%
1,000 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/ Northn KY Intl Arpt Ser A
Rfdg (MBIA Insd)...................... 6.200 03/01/08 1,146,690
1,500 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/ Northn KY Intl Arpt Ser A
Rfdg (MBIA Insd)...................... 6.250 03/01/09 1,722,480
945 Kentucky Hsg Corp Hsg Rev Ser B....... 6.250 07/01/28 1,003,562
1,500 Kentucky St Ppty & Bldg Proj No 69 Ser
A..................................... 5.000 08/01/05 1,618,200
1,000 Kentucky St Tpk Auth Econ Dev
Revitalization Proj Rfdg (FSA Insd)... 5.625 07/01/14 1,129,240
2,450 Louisville & Jefferson Cnty, KY Swr
Ser A (MBIA Insd)..................... 5.500 05/15/16 2,766,221
-------------
9,386,393
-------------
LOUISIANA 0.4%
2,000 Louisiana St Ser A (FGIC Insd)........ 5.500 11/15/03 2,047,540
-------------
MAINE 0.6%
2,650 Maine Muni Bank Ser A Rfdg
(Prerefunded @ 06/01/03) (MBIA
Insd)................................. 5.800 11/01/20 2,713,679
-------------
MARYLAND 1.0%
2,250 Maryland St Trans Auth Arpt Baltimore/
Wash Intl Arpt B (AMBAC Insd)......... 5.125 03/01/24 2,306,295
2,350 Northeast MD Waste Disp Auth Rfdg
(AMBAC Insd).......................... 5.500 04/01/16 2,584,647
-------------
4,890,942
-------------
</Table>
See Notes to Financial Statements
13
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MASSACHUSETTS 3.1%
$ 2,000 Massachusetts Muni Whsl Elec Co
Nuclear Proj 5 (MBIA Insd)............ 5.250% 07/01/13 $ 2,227,600
2,625 Massachusetts Muni Whsl Elec Co Pwr
Supply Sys Rev Ser A (Prerefunded @
07/01/04) (AMBAC Insd)................ 5.000 07/01/14 2,795,257
5,000 Massachusetts St Cons Ln Ser E (FSA
Insd)................................. 5.250 01/01/20 5,403,050
1,500 Massachusetts St Fed Hwy Grant Antic
Nt Ser A.............................. 5.750 06/15/14 1,722,900
500 Massachusetts St Hlth & Ed Fac Auth
Rev Hlthcare Sys Covenant Hlth........ 6.000 07/01/31 523,480
1,000 Massachusetts St Hlth & Ed Fac Auth
Rev Partn Hlthcare Sys Ser C.......... 5.750 07/01/32 1,057,180
1,000 Massachusetts St Indl Fin Agy Rev
Wentworth Institute Tech.............. 5.650 10/01/18 1,044,870
-------------
14,774,337
-------------
MICHIGAN 5.9%
2,500 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No 1 Proj Ser A
Rfdg (MBIA Insd)...................... 4.750 07/01/25 2,514,075
3,015 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1.................. * 07/01/17 1,489,320
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1.................. * 07/01/18 1,412,394
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1.................. * 07/01/19 1,323,578
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1.................. * 07/01/22 1,081,987
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1.................. * 07/01/23 1,011,044
3,050 Detroit, MI Downtown Dev Auth Tax
Increment Rev Ser C1.................. * 07/01/24 945,439
2,965 Detroit, MI Wtr Supply Sys Rev Sr Lien
Ser C Rfdg (MBIA Insd)................ 5.250 07/01/20 3,206,321
3,500 Grand Rapids, MI Downtown Dev Cap
Apprec (MBIA Insd).................... * 06/01/15 2,087,995
2,765 Grand Rapids, MI Downtown Dev Cap
Apprec (MBIA Insd).................... * 06/01/16 1,558,382
1,000 Grand Rapids, MI Wtr Supply Sys Rfdg
(FGIC Insd)........................... 5.750 01/01/13 1,140,400
</Table>
See Notes to Financial Statements
14
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MICHIGAN (CONTINUED)
$ 1,400 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Cent............. 5.250% 05/15/26 $ 1,208,060
2,000 Michigan Muni Bd Auth Rev Clean Wtr
Rev Fd................................ 5.250 10/01/18 2,197,020
2,850 Michigan St Hosp Fin Auth Rev
Ascension Hlth Cr Ser A (Prerefunded @
11/15/09) (MBIA Insd)................. 5.750 11/15/18 3,377,791
1,500 Michigan St Strategic Fd Detroit
Edison Co Proj C Rfdg (XLCA Insd)..... 5.450 12/15/32 1,558,875
1,000 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Ser B Rfdg......... 5.650 09/01/29 1,021,430
1,000 Wayne Charter Cnty, MI Arpt Rev
Detroit Met Wayne Cnty Ser A (MBIA
Insd)................................. 5.000 12/01/22 1,015,410
-------------
28,149,521
-------------
MINNESOTA 1.7%
5,000 Minneapolis & Saint Paul, MN Metro
Arpts Comm Arpt Rev Ser A (FGIC Insd)
(a)................................... 5.125 01/01/31 5,169,800
2,800 Minnesota Agriculture & Econ Dev Brd
Rev Hlthcare Sys Fairview Hosp Ser A
(MBIA Insd)........................... 5.750 11/15/26 3,078,740
-------------
8,248,540
-------------
MISSISSIPPI 1.5%
500 Gulfport, MS Hosp Fac Rev Mem Hosp at
Gulfport Proj A....................... 5.750 07/01/31 517,235
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 3,279,960
3,250 Mississippi Business Fin Corp MS
Pollutn Ctl Rev Sys Energy Res Inc
Proj.................................. 5.875 04/01/22 3,209,635
-------------
7,006,830
-------------
</Table>
See Notes to Financial Statements
15
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MISSOURI 1.3%
$ 1,500 Cape Girardeau Cnty, MO Indl Dev Auth
Hlthcare Fac Rev Southeast MO Hosp
Assoc................................. 5.625% 06/01/27 $ 1,535,265
1,625 Jefferson Cnty, MO Reorg Sch Dist No
R-6 (FGIC Insd)....................... 5.625 03/01/20 1,808,495
1,500 Kansas City, MO Met Cmnty Impt
Leasehold Jr College Rfdg (FGIC
Insd)................................. 5.500 07/01/17 1,665,885
1,000 Missouri St Hwys & Trans Ser A........ 5.125 02/01/17 1,085,950
-------------
6,095,595
-------------
NEBRASKA 0.3%
1,190 Dodge Cnty, NE Sch Dist No 001 Fremont
(FSA Insd)............................ 5.750 12/15/13 1,379,424
-------------
NEVADA 0.3%
1,500 Reno, NV Sr Lien Retrac Reno Trans
Proj (AMBAC Insd)..................... 5.125 06/01/32 1,544,070
-------------
NEW HAMPSHIRE 0.5%
1,000 New Hampshire Hlth & Ed Fac Auth Rev
Derryfield Sch........................ 7.000 07/01/30 1,034,360
1,000 New Hampshire St Bus Fin Auth Wtr Fac
Rev Pennichuck Wtrwks Inc (AMBAC
Insd)................................. 6.300 05/01/22 1,142,580
-------------
2,176,940
-------------
NEW JERSEY 10.4%
1,500 New Jersey Econ Dev Auth Rev Trans
Proj Sublease Ser A (FSA Insd)........ 5.250 05/01/17 1,645,440
4,000 New Jersey Econ Dev Auth Sch Facs
Constr Ser C (MBIA Insd).............. 5.000 06/15/16 4,342,920
25,000 New Jersey Econ Dev Auth St Contract
Econ Recovery (MBIA Insd) (a)......... 5.900 03/15/21 29,796,250
2,000 New Jersey Hlthcare Fac Fin Auth Rev
Gen Hosp Ctr at Passaic (Escrowed to
Maturity) (FSA Insd).................. 6.000 07/01/06 2,225,000
3,000 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)........... 5.250 09/01/19 3,268,860
1,000 New Jersey St Tpk Auth Tpk Rev Ser A
(MBIA Insd)........................... 6.000 01/01/11 1,175,280
</Table>
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NEW JERSEY (CONTINUED)
$ 3,500 New Jersey St Trans Corp Ctfs Fed
Trans Admin Grant Ser A (AMBAC
Insd)................................. 5.500% 09/15/13 $ 4,047,715
2,385 New Jersey St Trans Corp Ctfs Fed
Trans Admin Grants Ser A (Prerefunded
@ 09/15/09) (AMBAC Insd).............. 5.750 09/15/11 2,797,486
-------------
49,298,951
-------------
NEW YORK 23.1%
1,500 Long Island Pwr Auth NY Elec Sys Rev
Gen Ser A (MBIA Insd)................. 5.500 12/01/29 1,519,695
3,000 Metropolitan Trans Auth NY Commuter
Fac Rev Ser A (Prerefunded @ 01/01/08)
(MBIA Insd)........................... 5.625 07/01/27 3,474,510
2,000 Metropolitan Trans Auth NY Trans Fac
Rev Svc Contract Ser R (Prerefunded @
07/01/15)............................. 5.500 07/01/17 2,361,920
2,000 Nassau Cnty, NY Interim Fin Auth Sales
Tax Secured Ser A..................... 5.750 11/15/13 2,256,140
2,500 New York City Ser A Rfdg.............. 7.000 08/01/05 2,771,450
3,000 New York City Ser A Rfdg.............. 7.000 08/01/06 3,428,370
1,850 New York City Ser G................... 5.875 10/15/14 2,042,030
1,000 New York City Ser H................... 5.750 03/15/13 1,092,790
5,000 New York City Ser I................... 6.000 04/15/12 5,554,750
10,000 New York City Trans Auth Trans Fac
Livingston Plaza Proj Rfdg (Escrowed
to Maturity) (FSA Insd)............... 5.400 01/01/18 11,505,600
3,000 New York City Transitional Fin Auth
Rev Future Tax Secd Ser A (b)......... 5.500/14.000 11/01/26 3,350,520
5,305 New York City Transitional Future Tax
Secd Ser C (AMBAC Insd)............... 5.250 08/01/20 5,730,196
2,000 New York City Transitional Future Tax
Secd Ser C (AMBAC Insd)............... 5.250 08/01/22 2,136,560
4,545 New York City Transitional Future Tax
Secd Ser D (MBIA Insd)................ 5.250 02/01/21 4,895,101
2,500 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Pgm Ser A (FSA Insd).... 5.500 05/15/25 2,695,150
1,250 New York St Dorm Auth Lease Rev St
Univ Dorm Fac Ser C (MBIA Insd)....... 5.500 07/01/29 1,360,900
13,500 New York St Dorm Auth Rev City Univ
Sys Ser C............................. 7.500 07/01/10 16,368,210
</Table>
See Notes to Financial Statements
17
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NEW YORK (CONTINUED)
$ 2,000 New York St Dorm Auth Rev Court Fac
Lease Ser A........................... 5.375% 05/15/16 $ 2,035,700
3,000 New York St Dorm Auth Rev St Univ Ed
Fac (Prerefunded @ 5/15/10) (FGIC
Insd)................................. 5.750 05/15/24 3,549,270
2,000 New York St Dorm Auth Rev St Univ Ed
Fac 1989 Res (MBIA Insd).............. 6.000 05/15/16 2,345,260
2,330 New York St Dorm Auth Rev St Univ Ed
Fac Ser B............................. 5.250 05/15/10 2,612,443
2,800 New York St Environmental Fac
Revolving Fds Ser C................... 5.000 07/15/21 2,948,652
2,840 New York St Loc Govt Assistance Corp
Ser E Rfdg............................ 6.000 04/01/14 3,384,797
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 3,348,030
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 6,083,386
1,500 New York St Urban Dev Corp Rev Proj
Cent for Indl Innovation Rfdg......... 5.500 01/01/13 1,694,925
3,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd)................................. 5.750 12/01/22 3,269,640
3,000 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd)................................. 5.750 12/01/25 3,266,490
2,150 Triborough Brdg & Tunl Auth Gen Purp
Ser A................................. 5.000 01/01/27 2,194,591
-------------
109,277,076
-------------
NORTH CAROLINA 5.0%
2,000 Johnston Cnty, NC (FGIC Insd)......... 5.900 03/01/19 2,324,620
1,000 North Carolina Eastern Muni Pwr Agy
Pwr Sys Rev Ser D..................... 6.750 01/01/26 1,089,000
15,000 North Carolina Muni Pwr Agy No. 1
Catawba Elec Rev Rfdg (MBIA Insd)
(a)................................... 6.000 01/01/12 17,714,850
2,500 North Carolina Muni Pwr Agy Ser A
(MBIA Insd)........................... 5.250 01/01/19 2,707,725
-------------
23,836,195
-------------
</Table>
See Notes to Financial Statements
18
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NORTH DAKOTA 0.4%
$ 1,925 North Dakota St Hsg Fin Agy Rev Hsg
Fin Pgm Home Mtg Fin Ser B (MBIA
Insd)................................. 5.500% 07/01/29 $ 1,988,102
-------------
OHIO 3.5%
1,400 Bowling Green St Univ OH Gen Rcpt
(FGIC Insd)........................... 5.750 06/01/12 1,603,938
1,550 Cleveland, OH City Sch Dist Rev Antic
Nts (AMBAC Insd)...................... 6.000 06/01/04 1,630,864
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton
Inc Proj.............................. 7.500 01/01/30 1,109,430
1,000 Delaware Cnty, OH Cap Fac............. 6.000 12/01/25 1,155,160
2,000 Franklin Cnty, OH Convention Fac Auth
Tax & Lease Rev Antic Bds Rfdg (AMBAC
Insd)................................. 5.250 12/01/13 2,254,580
1,000 Hamilton, OH One Renaissance Ctr Ser A
(AMBAC Insd).......................... 5.500 11/01/16 1,132,520
1,000 Mahoning Cnty, OH Hosp Fac Forum Hlth
Oblig Group Ser A..................... 6.000 11/15/32 1,038,350
1,250 Montgomery Cnty, OH Hosp Rev Grandview
Hosp & Med Cent Hosp Rfdg (Escrowed to
Maturity)............................. 5.250 12/01/03 1,279,800
1,000 Ohio St Air Quality Dev Auth Rev JMG
Fdg Ltd Part Proj Rfdg (AMBAC Insd)... 6.375 04/01/29 1,078,720
1,675 Ohio St Infrastructure Impt Ser A..... 5.500 08/01/13 1,943,402
1,840 Pickerington, OH Loc Sch Dist Cap
Apprec Sch Fac Contr (FGIC Insd)...... * 12/01/12 1,278,046
1,000 University Cincinnati OH Gen Ser A
(FGIC Insd)........................... 5.500 06/01/09 1,148,530
-------------
16,653,340
-------------
OKLAHOMA 2.4%
1,500 Jenks, OK Aquarium Auth Rev First Mtg
(MBIA Insd)........................... 6.100 07/01/30 1,760,655
1,575 Oklahoma City, OK Arpt Tr Jr Lien 27th
Ser B (FSA Insd)...................... 5.750 07/01/16 1,725,192
2,305 Oklahoma St Cap Impt Auth St (MBIA
Insd)................................. 5.000 06/01/06 2,535,062
</Table>
See Notes to Financial Statements
19
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
OKLAHOMA (CONTINUED)
$ 2,500 Pottawatomie Cnty, OK Dev Auth North
Dear Creek Reservoir Proj (AMBAC
Insd)................................. 5.000% 07/01/23 $ 2,606,150
2,250 Tulsa Cnty, OK Pub Fac Auth Cap Impt
Rev (AMBAC Insd)...................... 6.250 11/01/22 2,678,985
-------------
11,306,044
-------------
OREGON 3.1%
4,000 Oregon Hlth Sciences Univ Insd Ser A
(MBIA Insd)........................... 5.250 07/01/22 4,276,560
3,000 Oregon St Dept Admin Ser C Rfdg (MBIA
Insd)................................. 5.250 11/01/17 3,284,730
2,120 Oregon St Veterans Welfare Ser 76A.... 6.050 10/01/28 2,227,314
1,190 Portland, OR Cmnty College Dist Ser
B..................................... 5.250 06/01/12 1,337,929
1,985 Portland, OR Urban Renewal & Redev
Downtown Wtrfront Ser A (AMBAC Insd).. 5.750 06/15/16 2,289,142
1,000 Washington Multnomah & Yamhill (MBIA
Insd)................................. 5.000 06/01/13 1,097,210
-------------
14,512,885
-------------
PENNSYLVANIA 3.9%
1,250 Allegheny Cnty, PA Ctf Part (AMBAC
Insd)................................. 5.000 12/01/28 1,278,213
1,250 Allegheny Cnty, PA San Auth Swr Rev
(MBIA Insd)........................... 5.750 12/01/16 1,442,363
4,680 Erie, PA Sch Dist Cap Apprec Rfdg (FSA
Insd)................................. * 09/01/19 2,170,163
3,865 Falls Twp, PA Hosp Auth Hosp Rev DE
Vly Med Rfdg (FHA Gtd) (a)............ 7.000 08/01/22 4,104,630
1,905 Harrisburg, PA Cap Apprec Ser D Rfdg
(AMBAC Insd).......................... * 09/15/16 1,060,171
1,710 Harrisburg, PA Cap Apprec Ser D Rfdg
(AMBAC Insd).......................... * 03/15/19 810,335
1,385 Harrisburg, PA Cap Apprec Ser F Rfdg
(AMBAC Insd).......................... * 09/15/19 641,075
1,500 Penn Cambria Sch Dist PA Cap Apprec
(FGIC Insd)........................... * 08/15/20 654,960
60 Penn Hills, PA (Prerefunded @
12/01/07) (FGIC Insd)................. 5.900 12/01/17 69,664
1,000 Pennsylvania St Higher Edl Fac Auth
College & Univ Rev Bryn Mawr College
(MBIA Insd)........................... 5.625 12/01/27 1,102,220
</Table>
See Notes to Financial Statements
20
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PENNSYLVANIA (CONTINUED)
$ 1,000 Philadelphia, PA Auth Indl Dev
Philadelphia Arpt Sys Proj Ser A (FGIC
Insd)................................. 5.125% 07/01/19 $ 1,042,960
1,400 Philadelphia, PA Sch Dist Ser A (FSA
Insd)................................. 5.750 02/01/12 1,613,514
365 Pittsburgh & Allegheny Cnty, PA Pub
Aud Hotel Room (AMBAC Insd)........... 4.500 02/01/29 354,937
1,500 Pittsburgh, PA Ser A (Prerefunded @
09/01/09) (FGIC Insd)................. 5.750 09/01/23 1,758,255
1,005 Southeast Delco Sch Dist PA Cap Apprec
(MBIA Insd)........................... * 02/01/17 542,770
-------------
18,646,230
-------------
RHODE ISLAND 0.9%
1,490 Providence, RI Redev Agy Rev Pub
Safety & Muni Bldgs Ser A (AMBAC
Insd)................................. 5.500 04/01/14 1,681,048
2,420 Rhode Island St Cons Cap Dev Ln Ser
A..................................... 5.000 08/01/12 2,475,176
-------------
4,156,224
-------------
SOUTH CAROLINA 3.7%
2,275 Beaufort Cnty, SC Tax Incre New River
Redev Proj Area (MBIA Insd)........... 5.500 06/01/19 2,530,050
2,375 Berkeley Cnty, SC Sch Dist Ctfs Part
Berkeley Sch Facs Grp Inc (MBIA
Insd)................................. 5.250 02/01/16 2,584,404
2,700 Charleston Cnty, SC Solid Waste (MBIA
Insd)................................. 6.000 01/01/14 2,933,766
3,750 South Carolina Jobs Econ Dev Auth Indl
Rev Proj Ser B (AMBAC Insd)........... 5.450 11/01/32 3,916,200
3,500 South Carolina Jobs Econ Elec & Gas Co
Proj Ser A (AMBAC Insd)............... 5.200 11/01/27 3,667,055
2,000 South Carolina St Pub Svc Auth Rev Ser
D Rfdg (FSA Insd)..................... 5.000 01/01/20 2,115,360
-------------
17,746,835
-------------
</Table>
See Notes to Financial Statements
21
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
SOUTH DAKOTA 0.8%
$ 1,375 Deadwood, SD Ctf Part (ACA Insd)...... 6.375% 11/01/20 $ 1,490,748
1,000 South Dakota St Hlth & Ed Fac Auth Rev
Childrens Care Hosp Rfdg.............. 6.125 11/01/29 1,054,540
1,000 South Dakota St Hlth & Ed Fac Auth
Vocational Ed Pgm Ser A (AMBAC Insd).. 5.400 08/01/13 1,125,100
-------------
3,670,388
-------------
TENNESSEE 2.4%
1,500 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Mtn States Rfdg
(MBIA Insd)........................... 7.500 07/01/25 1,904,775
3,000 Memphis, TN Gen Impt (c).............. 5.000 05/01/20 3,173,760
5,500 Montgomery Cnty, TN Pub Impt Rfdg
(FGIC Insd) (a)....................... 5.500 05/01/16 6,222,920
-------------
11,301,455
-------------
TEXAS 10.4%
2,685 Beaumont, TX Wtrwks & Swr Sys (FGIC
Insd)................................. 6.250 09/01/15 3,193,351
1,250 Brazos River Auth TX Pollutn Adj TXU
Elec Co Proj Ser C Rfdg............... 5.750 05/01/36 1,230,563
1,275 Cameron Cnty, TX Ctf Oblig (AMBAC
Insd)................................. 5.750 02/15/13 1,461,928
3,000 Dallas Cnty, TX Util & Reclamation
Dist Ser B Rfdg (AMBAC Insd).......... 5.875 02/15/29 3,196,920
2,000 Dallas, TX Wtrwks & Swr Sys Rev
Rfdg.................................. 5.750 10/01/17 2,286,420
4,000 Dallas-Fort Worth, TX Intl Arpt Rev
Impt Jt Ser A Rfdg (FGIC Insd) (a).... 5.500 11/01/31 4,172,320
4,000 Dallas-Fort Worth, TX Intl Arpt Rev Jt
Ser A (FGIC Insd) (a)................. 5.750 11/01/30 4,269,680
1,000 Houston, TX Arpt Sys Rev Sub Lien Ser
A (FSA Insd).......................... 5.625 07/01/30 1,041,780
2,000 Houston, TX Arpt Sys Rev Sub Lien Ser
A (FSA Insd) (a)...................... 5.125 07/01/32 2,018,800
3,000 Houston, TX Hotel Occupancy Tax & Spl
Rev Convention & Entmt Ser B (AMBAC
Insd)................................. 5.750 09/01/15 3,424,800
1,500 Houston, TX Pub Impt Rfdg (FSA
Insd)................................. 5.750 03/01/15 1,715,580
1,925 Houston, TX Wtr & Swr Sys Rev Jr Lien
Ser C (FGIC Insd)..................... 5.375 12/01/27 2,044,985
1,500 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj.......... 7.250 01/01/31 1,356,360
</Table>
See Notes to Financial Statements
22
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TEXAS (CONTINUED)
$ 1,500 North Cent TX Hlth Fac Dev Hosp Baylor
Hlthcare Sys Proj Ser A............... 5.125% 05/15/29 $ 1,509,780
4,000 North Cent TX Hlth Fac Dev Hosp
Childrens Med Ctr Dallas (AMBAC
Insd)................................. 5.250 08/15/32 4,126,480
3,000 San Antonio, TX Elec & Gas Sys Rfdg... 5.375 02/01/16 3,324,090
2,750 Texas St Vets Housing Assistance Pgm
Vet Ser B (FHA Gtd)................... 6.100 06/01/31 2,958,203
3,000 University of TX Univ Rev Fin Sys Ser
A..................................... 5.250 08/15/20 3,249,090
2,300 University of TX Univ Rev Fin Sys Ser
C..................................... 5.375 08/15/19 2,501,710
-------------
49,082,840
-------------
UTAH 1.9%
255 Utah St Hsg Fin Agy Single Family Mtg
Mezzanine Issue H1 (AMBAC Insd)....... 6.000 07/01/12 270,257
3,625 Utah St Ser A......................... 5.000 07/01/07 4,047,856
4,000 Utah St Ser B Rfdg.................... 5.250 07/01/08 4,537,440
-------------
8,855,553
-------------
VIRGINIA 0.5%
1,320 Fairfax Cnty, VA Ctf Part............. 5.300 04/15/23 1,378,106
1,000 Henrico Cnty, VA Indl Dev Auth Pub Fac
Lease Rev Henrico Cnty Regl Jail Proj
(Prerefunded @ 08/01/05).............. 7.125 08/01/21 1,145,580
-------------
2,523,686
-------------
WASHINGTON 5.6%
3,245 Clark Cnty, WA Sch Dist 114 (FSA
Insd)................................. 5.500 12/01/15 3,674,735
2,500 Energy Northwest WA Elec Rev Proj No.
3 Ser A Rfdg (FSA Insd)............... 5.500 07/01/18 2,754,100
5,360 Energy Northwest WA Elec Rev Proj No.
3 Ser B Rfdg (FSA Insd) (a)........... 6.000 07/01/16 6,218,190
1,485 Pierce Cnty, WA (AMBAC Insd).......... 5.750 08/01/14 1,708,997
1,000 Port Seattle, WA Rev Ser B (MBIA
Insd)................................. 5.625 02/01/24 1,053,390
1,435 Radford Ct Pptys WA Student Hsg Rev
(MBIA Insd)........................... 6.000 06/01/15 1,683,312
1,585 Radford Ct Pptys WA Student Hsg Rev
(MBIA Insd)........................... 6.000 06/01/16 1,859,268
1,150 Seattle, WA Muni Lt & Pwr Rev......... 5.250 12/01/08 1,299,489
1,315 Seattle, WA Muni Lt & Pwr Rev......... 5.500 12/01/09 1,504,952
1,410 Seattle, WA Muni Lt & Pwr Rev......... 5.625 12/01/18 1,542,667
</Table>
See Notes to Financial Statements
23
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
WASHINGTON (CONTINUED)
$ 1,350 Tacoma, WA Elec Sys Rev Ser A Rfdg
(FSA Insd)............................ 5.750% 01/01/15 $ 1,535,207
1,650 Tacoma, WA Elec Sys Rev Ser B Rfdg
(FSA Insd)............................ 5.500 01/01/12 1,887,551
-------------
26,721,858
-------------
WEST VIRGINIA 0.7%
3,000 Marshall Cnty, WV Pollutn Ctl Rev OH
Pwr Co Proj Ser C (MBIA Insd)......... 6.850 06/01/22 3,102,300
-------------
WISCONSIN 1.2%
1,775 De Pere, WI Uni Sch Dist Rfdg (FGIC
Insd)................................. 5.000 10/01/13 1,939,223
1,340 Oconto Falls, WI Pub Sch Dist Ser A
Rfdg (Prerefunded @ 03/01/11) (FSA
Insd)................................. 5.750 03/01/15 1,566,514
2,000 Southeast WI Professional Baseball Pk
Dist Sales Tax Rev Ser A Rfdg (MBIA
Insd)................................. 5.500 12/15/20 2,303,760
-------------
5,809,497
-------------
WYOMING 0.1%
240 Wyoming Cmnty Dev Auth Hsg Rev Ser
2..................................... 6.350 06/01/29 254,359
-------------
GUAM 0.7%
3,000 Guam Pwr Auth Rev Ser A (AMBAC
Insd)................................. 5.250 10/01/34 3,151,290
-------------
</Table>
See Notes to Financial Statements
24
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PUERTO RICO 0.2%
$ 1,110 Puerto Rico Comwlth Aqueduct & Swr
Auth Rev Rfdg......................... 5.000% 07/01/15 $ 1,150,793
-------------
TOTAL LONG-TERM INVESTMENTS 152.1%
(Cost $652,715,852).................................................... 720,675,245
SHORT-TERM INVESTMENTS 0.4%
(Cost $1,800,000)...................................................... 1,800,000
-------------
TOTAL INVESTMENTS 152.5%
(Cost $654,515,852).................................................... 722,475,245
OTHER ASSETS IN EXCESS OF LIABILITIES 3.5%.............................. 16,325,278
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (56.0%).............. (265,111,064)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%........................... $ 473,689,459
=============
</Table>
* Zero coupon bond
(a) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments and open futures transactions.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Securities purchased on a when-issued or delayed delivery basis.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
XLCA--XL Capital Assurance Inc.
See Notes to Financial Statements
25
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $654,515,852)....................... $722,475,245
Cash........................................................ 306,772
Receivables:
Investments Sold.......................................... 13,615,657
Interest.................................................. 10,838,211
Other....................................................... 1,374
------------
Total Assets............................................ 747,237,259
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 7,253,080
Variation Margin on Futures............................... 475,469
Investment Advisory Fee................................... 361,613
Administrative Fee........................................ 30,134
Affiliates................................................ 12,217
Trustees' Deferred Compensation and Retirement Plans........ 208,436
Accrued Expenses............................................ 95,787
------------
Total Liabilities....................................... 8,436,736
Preferred Shares (including accrued distributions).......... 265,111,064
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $473,689,459
============
NET ASSET VALUE PER COMMON SHARE ($473,689,459 divided by
27,013,149 shares outstanding)............................ $ 17.54
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 27,013,149 shares issued and
outstanding).............................................. $ 270,131
Paid in Surplus............................................. 399,280,859
Net Unrealized Appreciation................................. 67,562,793
Accumulated Net Realized Gain............................... 2,891,623
Accumulated Undistributed Net Investment Income............. 3,684,053
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $473,689,459
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 10,600 issued with liquidation preference of
$25,000 per share)........................................ $265,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $738,689,459
============
</Table>
See Notes to Financial Statements
26
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $18,074,743
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,177,816
Preferred Share Maintenance................................. 349,791
Administrative Fee.......................................... 181,486
Trustees' Fees and Related Expenses......................... 38,182
Legal....................................................... 27,862
Custody..................................................... 21,905
Other....................................................... 162,398
-----------
Total Expenses.......................................... 2,959,440
-----------
NET INVESTMENT INCOME....................................... $15,115,303
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 5,004,749
Futures................................................... (1,846,937)
-----------
Net Realized Gain........................................... 3,157,812
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 58,340,737
-----------
End of the Period:
Investments............................................. 67,959,393
Futures................................................. (396,600)
-----------
67,562,793
-----------
Net Unrealized Appreciation During the Period............... 9,222,056
-----------
NET REALIZED AND UNREALIZED GAIN............................ $12,379,868
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,809,305)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $25,685,866
===========
</Table>
See Notes to Financial Statements
27
Statements of Changes in Net Assets
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.............................. $ 15,115,303 $ 31,800,167
Net Realized Gain.................................. 3,157,812 9,316,751
Net Unrealized Appreciation/Depreciation During the
Period........................................... 9,222,056 (4,384,608)
Distributions to Preferred Shareholders:
Net Investment Income............................ (1,022,984) (2,695,352)
Net Realized Gain................................ (786,321) (1,890,883)
------------ ------------
Change in Net Assets Applicable to Common Shares
from Operations.................................. 25,685,866 32,146,075
Distributions to Common Shareholders:
Net Investment Income............................ (14,910,001) (27,767,715)
Net Realized Gain................................ (8,706,338) (5,764,605)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES................ 2,069,527 (1,386,245)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................ 471,619,932 473,006,177
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $3,684,053
and $4,501,735, respectively).................... $473,689,459 $471,619,932
============ ============
</Table>
See Notes to Financial Statements
28
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED
APRIL 30, -------------------
2003 2002 (a) 2001
--------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD................ $ 17.46 $ 17.51 $ 16.22
------- ------- -------
Net Investment Income................................. .56 1.18 1.25
Net Realized and Unrealized Gain/Loss................. .46 .18 1.24
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................... (.04) (.10) (.32)
Net Realized Gain................................... (.03) (.07) -0-
------- ------- -------
Total from Investment Operations........................ .95 1.19 2.17
Distributions Paid to Common Shareholders:
Net Investment Income............................... (.55) (1.03) (.88)
Net Realized Gain................................... (.32) (.21) -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD...................... $ 17.54 $ 17.46 $ 17.51
======= ======= =======
Common Share Market Price at End of the Period.......... $ 16.16 $ 15.80 $ 14.94
Total Return (b)........................................ 8.04%* 14.56% 16.85%
Net Assets Applicable to Common Shares at End of the
Period (In millions).................................. $ 473.7 $ 471.6 $ 473.0
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c)..................................... 1.28% 1.41% 1.55%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)....................... 6.53% 6.89% 7.37%
Portfolio Turnover...................................... 15%* 33% 29%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c).................................. .82% .89% .98%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)....................... 6.09% 6.30% 5.49%
SENIOR SECURITIES:
Total Preferred Shares Outstanding...................... 10,600 10,600 10,600
Asset Coverage Per Preferred Share (e).................. $69,698 $69,511 $69,623
Involuntary Liquidating Preference Per Preferred
Share................................................. $25,000 $25,000 $25,000
Average Market Value Per Preferred Share................ $25,000 $25,000 $25,000
</Table>
* Non-Annualized
(a) As required effective November 1, 2001, the Trust has adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
accreting market discount on fixed income securities. The effect of this
change for the year ended October 31, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains and
losses per share by $.01 and increase the ratio of net investment income to
average net assets applicable to common shares by .02%. Per share, ratios
and supplemental data for periods prior to October 31, 2002 have not been
restated to reflect this change in presentation.
(b) Total return assumes an investment at the common share 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 share market price at the end of the
period indicated.
(c) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(d) Ratios reflect the effect of dividend payments to preferred shareholders.
(e) Calculated by subtracting the Trust's total liabilities (not including the
preferred shares) from the Trust's total assets and dividing this by the
number of preferred shares outstanding.
29
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
$ 15.63 $ 17.64 $ 17.29 $ 16.58 $ 16.58 $ 15.03 $ 17.95 $ 15.56
-------- -------- -------- -------- -------- -------- -------- --------
1.32 1.33 1.35 1.37 1.38 1.42 1.43 1.45
.64 (1.94) .42 .74 .11 1.65 (2.84) 2.42
(.40) (.32) (.34) (.35) (.35) (.38) (.30) (.29)
-0- (.02) (.02) -0- -0- -0- (.01) (.03)
-------- -------- -------- -------- -------- -------- -------- --------
1.56 (.95) 1.41 1.76 1.14 2.69 (1.72) 3.55
(.97) (.99) (1.00) (1.05) (1.14) (1.14) (1.14) (1.08)
-0- (.07) (.06) -0- -0- -0- (.06) (.08)
-------- -------- -------- -------- -------- -------- -------- --------
$ 16.22 $ 15.63 $ 17.64 $ 17.29 $ 16.58 $ 16.58 $ 15.03 $ 17.95
======== ======== ======== ======== ======== ======== ======== ========
$13.5625 $13.6875 $ 17.00 $ 16.125 $ 15.813 $ 15.75 $ 14.00 $ 17.375
6.41% -13.97% 12.40% 8.92% 7.84% 21.15% -13.12% 25.40%
$ 438.1 $ 422.2 $ 476.6 $ 467.0 $ 447.8 $ 447.9 $ 406.1 $ 485.0
1.68% 1.61% 1.58% 1.60% 1.62% 1.68% 1.63% 1.59%
8.44% 7.87% 7.73% 8.16% 8.37% 8.96% 8.63% 8.56%
31% 33% 29% 40% 30% 15% 20% 20%
1.03% 1.02% 1.01% 1.01% 1.02% 1.04% 1.03% 1.01%
5.86% 6.00% 5.80% 6.06% 6.24% 6.55% 6.79% 6.87%
10,600 10,600 5,300 5,300 5,300 5,300 5,300 5,300
$ 66,332 $ 64,827 $139,932 $138,116 $134,491 $134,501 $126,614 $141,509
$ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
$ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
</Table>
See Notes to Financial Statements
30
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services or dealers are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.
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. At April 30, 2003, the Trust has
$3,128,880 of when issued and delayed delivery purchase commitments.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and discount is accreted over the expected life of each
applicable security.
31
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
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.
At April 30, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $653,723,493
============
Gross tax unrealized appreciation........................... $ 69,383,214
Gross tax unrealized deprecation............................ (631,462)
------------
Net tax unrealized appreciation on investments.............. $ 68,751,752
============
</Table>
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.
The tax character of distributions paid during the year ended October 31,
2002 was as follows:
<Table>
<Caption>
2002
Distributions paid from:
Ordinary income........................................... $1,959,846
Long-term capital gain.................................... 5,867,289
----------
$7,827,135
==========
</Table>
As of October 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... 1,106,072
Undistributed long-term capital gain........................ 8,533,798
</Table>
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
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
32
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
facilities to the Trust for an annual fee payable monthly of .60% of the average
daily net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Investments Inc. or its affiliates
(collectively "Van Kampen"), the Trust's Administrator, at an annual rate of
..05% of the average daily 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 six months ended April 30, 2003, the Trust recognized expenses of
approximately $17,000 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.
Under separate Accounting Services and Legal Services agreements, the
Adviser provides accounting and legal services to the Trust. The Adviser
allocates the cost of such services to each Trust. For the six months ended
April 30, 2003, the Trust recognized expenses of approximately $33,000
representing Van Kampen's cost of providing accounting and legal services to the
Trust, which are reported as part of "Other" and "Legal" expenses, respectively,
in the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement 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 $104,544,967 and $104,043,777,
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.
In order to seek to manage the interest rate exposure of the Trust's
portfolio in a changing interest rate environment, the Trust may purchase or
sell financial futures contracts or engage in transactions involving interest
rate swaps, caps, floors or collars. The Trust expects to enter into these
transactions primarily as a hedge
33
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
against anticipated interest rate or fixed-income market changes, for duration
management or for risk management purposes, but may also enter into these
transactions to generate additional income. All of the Trust's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract. Risks may arise as a result of the potential
inability of the counterparties to meet the terms of their contracts.
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 exchange traded futures on U.S. Treasury Bonds and Notes
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, an amount of cash or liquid securities with a value
equal to a percentage of the contract amount with either a futures commission
merchant pursuant to rules and regulations promulgated under the 1940 Act, or
with its custodian in an account in the broker's name. This amount is known as
initial margin. During the period the futures contract is open, payments are
received from or made to the broker based upon changes in the value of the
contract (the variation margin). The risk of loss associated with a futures
contract is in excess of the variation margin reflected on the Statement of
Assets and Liabilities.
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended April 30, 2003, were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2002............................. 1,039
Futures Opened.............................................. 1,983
Futures Closed.............................................. (2,057)
------
Outstanding at April 30, 2003............................... 965
======
</Table>
34
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
The futures contracts outstanding as of April 30, 2003, and the description
and unrealized appreciation/depreciation were as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
10-Year U.S. Treasury Notes Future June 2003
(Current Notional Value of $115,125 per contract)....... 185 $ (54,263)
5-Year U.S. Treasury Notes Future June 2003
(Current Notional Value of $113,750 per contract)....... 780 (342,337)
--- ---------
965 $(396,600)
=== =========
</Table>
5. PREFERRED SHARES
The Trust has outstanding 10,600 Auction Preferred Shares ("APS") in four
series. Series A, B, and C contain 3,000 shares each while Series D contains
1,600 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 April 30, 2003 was 1.069%. During the six
months ended April 30, 2003, the rates ranged from 0.970% to 2.100%.
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 in the Statement of Operations.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 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.
35
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
36
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
37
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN TRUST FOR INVESTMENT
GRADE MUNICIPALS
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
38
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
VGM SAR 6/03 Member NASD/SIPC.
11163F03-AS-6/03
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. [Reserved.]
Item 9.
The Trust's principal executive officer and principal financial officer have
concluded that the Trust's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Trust in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Trust's internal controls
or in other factors that could significantly affect the Trust's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits.
(a) Code of Ethics - Not applicable for semi-annual reports.
(b) Certifications of Principal Executive Officer and Principal Financial
Officer attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Trust for Investment Grade Municipals
-------------------------------------------------------------------
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: June 23, 2003
By: /s/ John L. Sullivan
----------------------------------------------------------------------------
Name: John Sullivan
Title: Principal Financial Officer
Date: June 23, 2003