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 811-7400
Van Kampen Value Municipal Income Trust
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 - VKV
- ------------------------------
<Table>
- -----------------------------------------------------------------------
Six-month total return(1) 7.01%
- -----------------------------------------------------------------------
One-year total return(1) 13.52%
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Five-year average annual total return(1) 8.32%
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Ten-year average annual total return(1) 6.98%
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Life-of-Trust average annual total return(1) 6.55%
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Commencement date 03/26/93
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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) 1.150%
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Preferred share (Series B) rate(4) 0.965%
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Preferred share (Series C) rate(4) 1.000%
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Preferred share (Series D) rate(4) 1.049%
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Preferred share (Series E) rate(4) 1.000%
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Net asset value $15.86
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Closing common share market price $14.85
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Six-month high common share market price (04/30/03) $14.85
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Six-month low common share market price (11/27/02) $13.90
- -----------------------------------------------------------------------
</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........................... 71.2%
AA/Aa............................. 13.0%
A/A............................... 8.6%
BBB/Baa........................... 4.5%
Non-Rated......................... 2.7%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
Transportation.................... 13.7%
Public Building................... 13.1%
Health Care....................... 12.9%
Industrial Revenue................ 11.8%
General Purpose................... 9.3%
</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 $15.2000 $14.5000
6/93 $15.7000 $14.7500
$16.5800 $15.2500
$16.2500 $14.5000
$13.9500 $12.8750
6/94 $13.8400 $12.8750
$13.5300 $11.5000
$12.8200 $11.0000
$14.0700 $12.3750
6/95 $13.7500 $12.3750
$14.0800 $12.1250
$14.9600 $12.5000
$14.2000 $12.2500
6/96 $14.0300 $11.8750
$14.3500 $12.5000
$14.6300 $12.1250
$14.2300 $12.3750
6/97 $14.6700 $13.0625
$15.1000 $13.7500
$15.4300 $13.9375
$15.3600 $14.1250
6/98 $15.3600 $13.9375
$15.8200 $14.6250
$15.6000 $14.7500
$15.4300 $14.3750
6/99 $14.6800 $13.7500
$14.1700 $12.3750
$13.6200 $12.0000
$14.0000 $11.8125
6/00 $13.9900 $11.7500
$14.2200 $12.5625
$15.0900 $12.6250
$15.2400 $13.0100
6/01 $15.0600 $13.0300
$15.4400 $13.4000
$14.9700 $13.5800
$14.8100 $13.7000
6/02 $15.3800 $14.6600
$16.2900 $15.4500
$15.8100 $14.4500
$15.7500 $14.5800
4/03 $15.8600 $14.8500
</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 MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF VAN KAMPEN VALUE MUNICIPAL INCOME
TRUST 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.
TIMOTHY D. HANEY, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1996 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1988. 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 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 $0.0845 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 through April 30, 2003, the trust produced a total return
of 7.01 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 With interest rates hovering near
record lows, we focused on protecting the trust from the potential adverse
effects of rising interest rates while maintaining the trust's yield. One of our
primary methods for doing this was to purchase premium bonds with maturities
between 15 and 20 years, priced to a ten-year call date. Our quantitative
analysis showed that this segment of the yield curve offered a favorable
combination of total return potential and downside protection. The yield of
these bonds is competitive, corresponding to their 15 to 20 year maturity dates,
yet their interest rate volatility is more closely related to the 10-year call
feature. We funded our purchases in this maturity range chiefly through sales of
bonds in the 10- and 30-year segments of the yield curve. We believe this
alteration of the trust's yield curve exposure should benefit
5
shareholders if rates rise on the short end of the yield curve.
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. We
reinvested the proceeds into premium intermediate and other securities with
better total return prospects.
The generally poor economies of the states and municipalities also led us to
upgrade the portfolio's overall credit profile. The ongoing economic
difficulties across the country have made uninsured and lower-quality paper
increasingly unattractive in our analysis, and as a result we focused our
purchases on higher-quality paper. During the period, the trust's exposure to
AAA rated bonds climbed by 2 percent.
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 156.8%
ALABAMA 2.3%
$ 1,000 Birmingham Baptist Med Ctr AL Baptist
Hlth Sys Ser A........................ 5.875% 11/15/24 $ 1,055,630
5,000 Birmingham Baptist Med Ctr AL Spl Care
Fac Fin Auth Rev (MBIA Insd) (a)...... 5.750 11/15/10 5,448,450
2,000 Jefferson Cnty, AL Swr Rev Cap Impt
Wts Ser A (FGIC Insd)................. 5.000 02/01/41 2,021,760
286 Mobile, AL Indl Dev Brd Solid Waste
Disp Rev Mobile Energy Svc Co Proj
Rfdg (b) (c).......................... 6.950 01/01/20 2,142
-------------
8,527,982
-------------
ARIZONA 3.0%
1,860 Arizona Hlth Fac Auth Hosp John C
Lincoln Hlth Network.................. 5.750 12/01/32 1,804,628
6,000 Arizona St Trans Brd Hwy Rev Sub Ser A
Rfdg.................................. 4.750 07/01/11 6,322,020
3,025 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson Ser
A Rfdg (FSA Insd)..................... 7.250 07/15/10 3,196,669
-------------
11,323,317
-------------
ARKANSAS 0.3%
1,930 Arkansas St Cap Apprec College
Savings............................... * 06/01/16 1,116,003
-------------
CALIFORNIA 16.5%
6,215 ABC, CA Uni Sch Dist Cap Apprec (FGIC
Insd)................................. * 08/01/34 1,192,783
195 California Rural Home Mtg Fin Auth
Single Family Mtg Rev Ser B (GNMA
Collateralized)....................... 7.750 09/01/26 196,884
3,000 California St Dept Wtr Res Ser A...... 5.875 05/01/16 3,397,740
5,000 California St Pub Wks Brd Dept Gen Svc
Cap East End A (AMBAC Insd)........... 5.125 12/01/21 5,306,950
6,000 California St Pub Wks Brd Lease Rev
Dept of Corrections St Prisons Ser A
Rfdg (AMBAC Insd)..................... 5.250 12/01/13 6,839,340
</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)
$ 2,000 California St Pub Wks Brd Lease Rev
Dept of Corrections St Prisons Ser A
Rfdg (AMBAC Insd)..................... 5.000% 12/01/19 $ 2,180,920
5,000 California St Rfdg.................... 5.000 02/01/19 5,129,750
30,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Ser A Rfdg..................... * 01/15/22 10,359,900
1,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Sr Lien Ser A (Prerefunded @
01/01/07)............................. 6.500 01/01/32 1,163,620
1,175 Kings Cnty, CA Waste Mgmt Auth Solid
Waste Rev............................. 7.200 10/01/14 1,241,035
9,500 Los Angeles, CA Dept Wtr & Pwr Elec
Plant Rev Crossover Rfdg (FGIC
Insd)................................. 5.375 09/01/23 9,812,075
5,500 Port Oakland, CA Ser L (FGIC Insd).... 5.000 11/01/32 5,535,145
9,000 Riverside Cnty, CA Asset Leasing Corp
Leasehold Rev Riverside Cnty Hosp Proj
(MBIA Insd)........................... * 06/01/21 3,629,340
5,700 Sacramento, CA City Fin Auth Rev Comb
Proj B (MBIA Insd).................... * 11/01/15 3,273,681
10,225 Santa Ana, CA Unified Sch Dist Ctf
Part Cap Apprec Fin Proj (FSA Insd)... * 04/01/32 2,221,074
-------------
61,480,237
-------------
COLORADO 7.1%
4,340 Adams & Arapahoe Cntys, CO Jt Sch Dist
Ser A (FSA Insd)...................... 5.250 12/01/18 4,778,731
4,290 Adams & Arapahoe Cntys, CO Jt Sch Dist
Ser C (MBIA Insd)..................... 5.750 12/01/08 4,938,905
3,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy
Rev E-470 Proj (Prerefunded @
08/31/05)............................. 7.000 08/31/26 3,470,010
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
9,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy
Rev E-470 Proj Ser C (Prerefunded @
08/31/05)............................. * 08/31/26 1,812,240
2,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A................ 5.500 03/01/32 2,059,780
6,495 Colorado Springs, CO Utils Rev
(Escrowed to Maturity)................ 6.600 11/15/18 8,326,655
-------------
26,541,851
-------------
</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
CONNECTICUT 0.7%
$ 2,500 Connecticut St Hlth & Ed Fac Auth Rev
Nursing Home Pgm AHF/Hartford
(Prerefunded @ 11/01/04).............. 7.125% 11/01/14 $ 2,769,050
-------------
DISTRICT OF COLUMBIA 1.4%
5,000 Metropolitan Washington DC Arpt Auth
Sys Ser A (FGIC Insd)................. 5.250 10/01/32 5,109,750
-------------
FLORIDA 9.8%
1,985 Bay Cnty, FL Sch Brd Ctf Part
(Prerefunded @ 07/01/04) (AMBAC
Insd)................................. 6.750 07/01/12 2,153,983
2,500 Dade Cnty, FL Wtr & Swr Sys Rev (FGIC
Insd)................................. 5.250 10/01/21 2,673,400
5,000 Escambia Cnty, FL Hlth Fac Auth Rev
(AMBAC Insd).......................... 5.950 07/01/20 5,480,700
1,045 Florida Hsg Fin Agy Single Family Mtg
Ser A Rfdg (GNMA Collateralized)...... 6.650 01/01/24 1,091,920
3,000 Hillsborough Cnty, FL Cap Impt Pgm Rev
Criminal Justice Fac Rfdg (FGIC
Insd)................................. 5.250 08/01/16 3,057,300
3,980 Jacksonville, FL Port Auth (MBIA
Insd)................................. 5.700 11/01/30 4,210,880
2,780 Jacksonville, FL Port Auth
(Prerefunded @ 11/01/10) (MBIA
Insd)................................. 5.700 11/01/30 3,243,343
11,500 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt (FGIC Insd)................. 5.375 10/01/32 11,861,330
2,830 Pinellas Cnty, FL Hsg Fin Auth Single
Family Mtg Rev Multi Cnty Pgm Ser A
(GNMA Collateralized)................. 6.700 02/01/28 2,941,219
-------------
36,714,075
-------------
GEORGIA 3.8%
5,000 Georgia Muni Elec Auth Pwr Rev Ser B
(Escrowed to Maturity) (FGIC Insd).... 5.700 01/01/19 5,871,450
2,700 Marietta, GA Dev Auth Rev First Mtg
Life College Ser B (FSA Insd)......... 5.375 09/01/09 2,968,083
5,000 Municipal Elec Auth GA Combustion
Turbine Proj Ser A (MBIA Insd)........ 5.250 11/01/20 5,373,400
-------------
14,212,933
-------------
HAWAII 3.0%
10,430 Hawaii St Dept Budget & Fin Spl Purp
Rev Hawaiian Elec Co Inc Ser A (MBIA
Insd)................................. 5.650 10/01/27 11,137,467
-------------
</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
ILLINOIS 9.0%
$ 7,500 Chicago, IL Brd Ed Cap Apprec Sch
Reform B-1 (FGIC Insd)................ * 12/01/29 $ 1,801,650
3,500 Chicago, IL Cap Apprec (Prerefunded @
07/01/05) (AMBAC Insd)................ * 01/01/17 1,630,020
10,000 Chicago, IL Cap Apprec City Colleges
(FGIC Insd)........................... * 01/01/29 2,565,900
6,000 Chicago, IL Lakefront Millenium Pkg
Fac (MBIA Insd) (d)................... 0/5.750% 01/01/29 5,393,580
3,180 Illinois Hlth Fac Auth Rev Children's
Mem Hosp (MBIA Insd).................. 6.250 08/15/13 3,812,756
1,485 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser A Rfdg (FSA Insd)............ 6.750 04/15/17 1,517,893
825 Illinois Hlth Fac Auth Rev Evangelical
Hosp Ser C (FSA Insd)................. 6.750 04/15/17 843,274
1,000 Illinois Hlth Fac Auth Rev Highland
Park Hosp Proj Ser A (Prerefunded @
10/01/07) (MBIA Insd)................. 5.750 10/01/17 1,167,560
5,000 Illinois St First Ser (FSA Insd)...... 5.250 12/01/20 5,388,100
2,070 Northern IL Univ Ctf Part Hoffman
Estates Ctr Proj (FSA Insd)........... 5.400 09/01/16 2,391,554
5,000 Regional Trans Auth IL Ser A (AMBAC
Insd)................................. 8.000 06/01/17 7,080,650
-------------
33,592,937
-------------
INDIANA 0.5%
2,000 Petersburg, IN Pollutn Ctl Rev
IN Pwr & Lt........................... 6.375 11/01/29 1,771,740
-------------
KANSAS 2.0%
3,430 Kansas St Dev Fin Auth Rev KS Proj Ser
N (AMBAC Insd)........................ 5.250 10/01/20 3,678,709
3,615 Kansas St Dev Fin Auth Rev KS Proj Ser
N (AMBAC Insd)........................ 5.250 10/01/21 3,856,916
-------------
7,535,625
-------------
KENTUCKY 0.2%
500 Mount Sterling, KY Lease Rev KY League
Cities Fdg Ser B...................... 6.100 03/01/18 597,010
-------------
LOUISIANA 1.6%
6,000 Saint Charles Parish, LA Solid Waste
Disp Rev LA Pwr & Lt Co Proj (FSA
Insd)................................. 7.050 04/01/22 6,024,420
-------------
</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
MAINE 0.8%
$ 3,000 Maine Ed Ln Mktg Corp Student Ln Rev
Ser A4 (Std Lns Gtd).................. 5.950% 11/01/03 $ 3,066,960
-------------
MARYLAND 2.5%
5,000 Maryland St Econ Dev Corp MD Aviation
Admin Fac (FSA Insd).................. 5.375 06/01/20 5,328,400
4,000 Maryland St Trans Auth Arpt Baltimore/
WA Intl Arpt B (AMBAC Insd)........... 5.125 03/01/24 4,100,080
-------------
9,428,480
-------------
MASSACHUSETTS 1.1%
1,750 Massachusetts St Hlth & Ed Fac Auth
Rev Hlthcare Sys Covenant Hlth........ 6.000 07/01/31 1,832,180
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment Amern Hingham............... 6.900 12/01/29 1,035,550
1,000 Massachusetts St Indl Fin Agy Wtr
Treatment Amern Hingham............... 6.950 12/01/35 1,030,670
-------------
3,898,400
-------------
MICHIGAN 7.4%
1,250 Battle Creek, MI Downtown Dev Auth Tax
Increment Rev (Prerefunded @
05/01/04)............................. 7.600 05/01/16 1,354,450
5,450 Detroit, MI Convention Fac Rev Cobo
Hall Expansion Rfdg (FSA Insd)........ 5.250 09/30/12 5,641,622
5,000 Detroit, MI Downtown Dev Auth Tax
Increment Rev Dev Area No 1 Proj Ser
C1 (Prerefunded @ 07/01/06)........... 6.250 07/01/25 5,797,950
2,750 Detroit, MI Ser B Rfdg................ 7.000 04/01/04 2,882,495
3,185 Detroit, MI Wtr Supply Sys Rev Sr Lien
Ser A (MBIA Insd)..................... 5.250 07/01/20 3,444,227
5,000 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Ser B Rfdg......... 5.650 09/01/29 5,107,150
3,090 Troy, MI Downtown Dev Auth Dev Rfdg
(MBIA Insd)........................... 5.500 11/01/15 3,484,191
-------------
27,712,085
-------------
MISSISSIPPI 0.5%
2,000 Mississippi Bus Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj....... 5.875 04/01/22 1,975,160
-------------
</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
MISSOURI 1.3%
$ 2,395 Kansas City, MO Port Auth Fac Rvrfront
Park Proj Ser A....................... 5.750% 10/01/03 $ 2,409,562
2,195 Missouri St Hlth & Ed Fac Rev Univ MO
Columbia Arena Proj................... 5.000 11/01/16 2,370,776
-------------
4,780,338
-------------
NEVADA 2.3%
6,000 Clark Cnty, NV Arpt Rev Sub Lien Ser B
(FGIC Insd)........................... 5.250 07/01/34 6,220,500
1,440 Clark Cnty, NV Passenger Fac Charge
Rev Las Vegas McCarran Intl Rfdg (MBIA
Insd)................................. 4.750 07/01/22 1,456,920
940 Nevada Hsg Div Single Family Pgm Mezz
B (FHA/VA Gtd)........................ 6.550 10/01/12 973,088
-------------
8,650,508
-------------
NEW JERSEY 9.1%
1,000 New Jersey Econ Dev Auth Econ Dev Rev
Manahawkin Convalescent Ser A Rfdg
(FHA Gtd)............................. 6.650 02/01/23 1,052,730
2,500 New Jersey Econ Dev Auth Mkt Trans Fac
Rev Sr Lien Ser A (Prerefunded @
07/01/04) (MBIA Insd)................. 5.800 07/01/09 2,685,025
2,350 New Jersey Econ Dev Auth Trans Proj
Sublease Ser B (FSA Insd)............. 5.750 05/01/09 2,723,861
1,695 New Jersey Hlthcare Fac Fin Auth Rev
Gen Hosp Ctr Passaic (Escrowed to
Maturity) (FSA Insd).................. 6.000 07/01/06 1,885,687
2,500 New Jersey Hlthcare Fac Fin Auth Rev
Gen Hosp Ctr Passaic (Escrowed to
Maturity) (FSA Insd).................. 6.750 07/01/19 3,226,050
10,000 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)........... 5.250 09/01/20 10,831,600
4,000 New Jersey St Trans Tr Fd Auth Trans
Sys Ser A............................. 5.750 06/15/16 4,756,600
6,750 Salem Cnty, NJ Indl Pollutn Ctl Fin
Auth Rev Pollutn Ctl Pub Svc Elec &
Gas Ser A (MBIA Insd)................. 5.450 02/01/32 6,900,997
-------------
34,062,550
-------------
NEW YORK 20.0%
7,000 Metropolitan Trans Auth NY Ser A Rfdg
(FGIC Insd)........................... 5.250 11/15/31 7,367,430
7,270 New York City Ser A................... 7.000 08/01/04 7,745,458
5,000 New York City Ser C................... 5.500 08/01/13 5,410,950
5,000 New York City Ser G................... 5.750 02/01/14 5,437,200
</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
NEW YORK (CONTINUED)
$ 6,000 New York City Transitional Fin Auth
Rev Future Tax Secd Ser A (d)......... 5.500/14.000% 11/01/26 $ 6,701,040
8,240 New York City Transitional Future Tax
Secd C Rfdg (AMBAC Insd).............. 5.250 08/01/18 9,006,155
7,575 New York St Dorm Auth Rev City Univ
Sys Cons Ser A........................ 5.625 07/01/16 8,778,819
2,000 New York St Dorm Auth Rev City Univ
Third Gen Res Ser 2 (Prerefunded @
07/01/04) (MBIA Insd)................. 6.250 07/01/19 2,119,920
3,845 New York St Dorm Auth Rev Secd Hosp
General Hosp Rfdg..................... 5.750 02/15/20 4,226,770
5,885 New York St Energy Resh & Dev Auth Fac
Rev................................... 7.125 12/01/29 6,427,420
2,310 New York St Med Care Fac Fin Agy Rev
Saint Peter's Hosp Proj Ser A (AMBAC
Insd)................................. 5.375 11/01/13 2,373,617
3,130 New York St Urban Dev Corp Rev
Correctional Fac Ser A Rfdg........... 5.500 01/01/16 3,265,779
5,000 New York St Urban Dev Corp Rev St Fac
Rfdg.................................. 5.700 04/01/20 5,772,950
-------------
74,633,508
-------------
OHIO 4.8%
1,150 Cuyahoga Cnty, OH Hosp Fac Rev Canton
Inc Proj.............................. 7.500 01/01/30 1,275,845
2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg
Dale Bridge Apt (GNMA
Collateralized)....................... 6.600 10/20/30 2,105,660
3,540 Franklin Cnty, OH Hosp Rev & Impt
Doctor's Hosp Proj Rfdg (Escrowed to
Maturity)............................. 5.875 12/01/23 3,637,385
1,500 Mahoning Cnty, OH Hosp Fac Forum Hlth
Oblig Group Ser A..................... 6.000 11/15/32 1,557,525
5,130 Muskingum Cnty, OH Hosp Fac Rev
Bethesda Care Sys Rfdg & Impt (Connie
Lee Insd)............................. 6.250 12/01/10 5,984,709
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac
Rev OH Edison Co Proj Rfdg............ 5.950 05/15/29 2,001,100
1,490 Toledo Lucas Cnty, OH Port Auth Dev
Rev Northwest OH Bd Fd Ser C.......... 6.600 11/15/15 1,516,299
-------------
18,078,523
-------------
</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
OKLAHOMA 0.5%
$ 1,500 Jenks, OK Aquarium Auth Rev First Mtg
(MBIA Insd)........................... 6.100% 07/01/30 $ 1,760,655
-------------
OREGON 3.7%
5,000 Oregon Hlth Sciences Univ Insd Ser A
(MBIA Insd)........................... 5.250 07/01/22 5,345,700
2,745 Oregon St Dept Admin Ser A
(Prerefunded @ 11/01/05) (MBIA
Insd)................................. 5.250 11/01/10 3,026,088
5,000 Oregon St Dept Admin Ser C Rfdg (MBIA
Insd)................................. 5.250 11/01/18 5,443,000
-------------
13,814,788
-------------
PENNSYLVANIA 4.7%
5,000 Philadelphia, PA Auth Indl Ser B (FSA
Insd)................................. 5.125 10/01/26 5,209,100
6,400 Philadelphia, PA Gas Wks Rev Ser 14
(Prerefunded @ 07/01/03) (FSA Insd)... 6.250 07/01/08 6,583,552
2,525 Philadelphia, PA Gas Wks Rev Ser 14
Rfdg (FSA Insd)....................... 6.375 07/01/26 2,597,947
1,370 Philadelphia, PA Hosp & Higher Ed Fac
Auth Rev Cmnty College Ser B Rfdg
(MBIA Insd)........................... 6.500 05/01/08 1,620,683
1,320 Ridley Park, PA Hosp Auth Rev Taylor
Hosp Ser A (Escrowed to Maturity)..... 6.000 12/01/05 1,408,453
-------------
17,419,735
-------------
RHODE ISLAND 1.1%
3,000 Rhode Island St Cons Cap Dev Ln Ser
A..................................... 5.000 08/01/12 3,068,400
1,050 Rhode Island St Hlth & Ed Bldg Corp
Rev Higher Ed Fac Roger Williams
(Prerefunded @ 11/15/04) (Connie Lee
Insd)................................. 7.200 11/15/14 1,166,676
-------------
4,235,076
-------------
SOUTH CAROLINA 2.1%
1,015 Rock Hill, SC Util Sys Rev Comb Ser C
Rfdg (FSA Insd)....................... 5.000 01/01/11 1,121,484
6,500 South Carolina Jobs Econ Elec & Gas Co
Proj Ser A (AMBAC Insd)............... 5.200 11/01/27 6,810,245
-------------
7,931,729
-------------
</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
TENNESSEE 1.9%
$13,250 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev Cap Apprec First Mtg Ser A
Rfdg (MBIA Insd)...................... * 07/01/26 $ 3,837,863
2,500 Johnson City, TN Hlth & Ed Fac Brd
Hosp Rev First Mtg Mtn St Hlth Ser A
Rfdg (MBIA Insd)...................... 7.500% 07/01/25 3,174,625
95 Tennessee Hsg Dev Agy Mtg Fin Ser A... 7.125 07/01/26 98,400
-------------
7,110,888
-------------
TEXAS 13.4%
1,815 Alliance Arpt Auth Inc TX Spl Amern
Airl Inc Proj......................... 7.500 12/01/29 635,323
2,000 Brazos River Auth TX Pollutn Adj TXU
Elec Co Proj Ser C Rfdg (Variable Rate
Coupon)............................... 5.750 05/01/36 1,968,900
5,000 Dallas-Fort Worth, TX Intl Arpt Rev
Impt Jt Ser A Rfdg (FGIC Insd)........ 5.500 11/01/31 5,215,400
2,345 Denton Cnty, TX Perm Impt............. 5.500 07/15/19 2,581,587
2,250 Harris Cnty, TX Hlth Fac Dev Corp Hosp
Rev Hermann Hosp Proj (Prerefunded @
10/01/04) (MBIA Insd)................. 6.375 10/01/24 2,436,660
1,000 Harris Cnty, TX Hlth Fac Dev Mem
Hermann Hlthcare Ser A................ 6.375 06/01/29 1,080,900
5,000 Harris Cnty, TX Sr Lien Toll Rd Rfdg
(FSA Insd)............................ 5.125 08/15/32 5,160,800
4,655 Houston, TX Arpt Sys Rev Sub Lien (FSA
Insd)................................. 5.500 07/01/15 5,245,347
3,000 Houston, TX Arpt Sys Rev Sub Lien Ser
A (FSA Insd).......................... 5.625 07/01/30 3,125,340
1,275 Matagorda Cnty, TX Navig Dist No 1 Rev
Houston Lt & Pwr Ser A Rfdg (AMBAC
Insd)................................. 6.700 03/01/27 1,293,080
5,000 Matagorda Cnty, TX Navig Dist No 1 Rev
Houston Ltg Rfdg (AMBAC Insd)......... 5.125 11/01/28 5,153,150
2,000 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj.......... 7.250 01/01/31 1,808,480
4,475 North Cent TX Hlth Fac Dev Hosp Baylor
Hlthcare Sys Proj Ser A............... 5.125 05/15/29 4,504,177
5,000 San Antonio, TX Elec & Gas Sys Rfdg... 5.375 02/01/16 5,540,150
3,960 Stafford, TX Econ Dev Corp (FGIC
Insd)................................. 5.500 09/01/30 4,306,025
-------------
50,055,319
-------------
</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
UTAH 0.7%
$ 4,950 Intermountain Pwr Agy UT Pwr Supply
Rev Ser A Rfdg (Escrowed to Maturity)
(FGIC Insd)........................... * 07/01/17 $ 2,623,946
-------------
VIRGINIA 1.0%
2,000 Loudoun Cnty, VA Ctf Part (FSA
Insd)................................. 6.900% 03/01/19 2,128,320
1,500 Virginia St Hsg Dev Auth Multi-Family
Ser E Rfdg............................ 5.900 11/01/17 1,540,170
-------------
3,668,490
-------------
WASHINGTON 8.1%
5,000 Clark Cnty, WA Sch Dist 114 (FSA
Insd)................................. 5.250 06/01/19 5,434,300
2,245 King Cnty, WA Ser B (Prerefunded @
12/01/07)............................. 6.625 12/01/15 2,716,787
5,000 King Cnty, WA Ser B Rfdg.............. 5.900 12/01/14 5,893,400
4,000 Washington St Pub Pwr Supply Ser A
Rfdg (FGIC Insd)...................... 7.000 07/01/08 4,842,760
10,000 Washington St Pub Pwr Supply Ser A
Rfdg (AMBAC Insd)..................... 5.700 07/01/09 11,354,900
-------------
30,242,147
-------------
WEST VIRGINIA 3.7%
5,920 Harrison Cnty, WV Cnty Cmnty Solid
Waste Disp Rev West PA Pwr Co Ser C
(AMBAC Insd).......................... 6.750 08/01/24 6,366,723
4,000 Marshall Cnty, WV Pollutn Ctl Rev OH
Pwr Co Proj Ser C (MBIA Insd)......... 6.850 06/01/22 4,136,400
3,000 West Virginia St Wtr Dev Auth Wtr Dev
Rev Ln Pgm II Ser A (Prerefunded @
11/01/04) (FSA Insd).................. 6.750 11/01/33 3,307,350
-------------
13,810,473
-------------
WISCONSIN 1.3%
2,000 Wisconsin St Hlth & Ed Fac Children's
Hosp (FGIC Insd)...................... 5.000 08/15/10 2,047,700
2,675 Wisconsin St Hlth & Ed Fac FH Hlthcare
Dev Inc Proj.......................... 6.250 11/15/28 2,801,902
-------------
4,849,602
-------------
PUERTO RICO 3.6%
7,000 Puerto Rico Comwlth Hwy & Tran Auth
Hwy Rev Ser Y Rfdg (FSA Insd)......... 6.250 07/01/21 8,754,270
4,000 Puerto Rico Pub Bldgs Auth Gtd Pub Ed
& Hlth Fac Ser M Rfdg (MBIA Insd)..... 5.600 07/01/08 4,611,280
-------------
13,365,550
-------------
</Table>
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
MARKET
DESCRIPTION VALUE
TOTAL LONG-TERM INVESTMENTS 156.8%
(Cost $541,051,731).................................................... $ 585,629,307
SHORT-TERM INVESTMENT 0.3%
(Cost $1,300,000)...................................................... 1,300,000
-------------
TOTAL INVESTMENTS 157.1%
(Cost $542,351,731).................................................... 586,929,307
OTHER ASSETS IN EXCESS OF LIABILITIES 3.2%.............................. 11,662,479
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (60.3%).............. (225,075,054)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%........................... $ 373,516,732
=============
</Table>
* Zero coupon bond
(a) Assets segregated as collateral for open futures transactions.
(b) Non-income producing security.
(c) Issuer has filed for protection in federal bankruptcy court.
(d) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
AMBAC--AMBAC Indemnity Corp.
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
Std Lns--Student Loans
See Notes to Financial Statements
17
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $542,351,731)....................... $586,929,307
Cash........................................................ 279,508
Receivables:
Interest.................................................. 9,254,692
Investments Sold.......................................... 8,303,144
Other....................................................... 1,134
------------
Total Assets............................................ 604,767,785
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,020,200
Variation Margin on Futures............................... 507,094
Investment Advisory Fee................................... 293,589
Administrative Fee........................................ 24,466
Affiliates................................................ 12,529
Trustees' Deferred Compensation and Retirement Plans........ 196,101
Accrued Expenses............................................ 122,020
------------
Total Liabilities....................................... 6,175,999
Preferred Shares (including accrued distributions).......... 225,075,054
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $373,516,732
============
NET ASSET VALUE PER COMMON SHARE ($373,516,732 divided by
23,555,115 shares outstanding)............................ $ 15.86
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 23,555,115 shares issued and
outstanding).............................................. $ 235,551
Paid in Surplus............................................. 348,118,080
Net Unrealized Appreciation................................. 44,154,760
Accumulated Undistributed Net Investment Income............. 3,230,727
Accumulated Net Realized Loss............................... (22,222,386)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $373,516,732
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 9,000 issued with liquidation preference of
$25,000 per share)........................................ $225,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $598,516,732
============
</Table>
See Notes to Financial Statements
18
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $15,489,526
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,767,032
Preferred Share Maintenance................................. 319,587
Administrative Fee.......................................... 147,253
Trustees' Fees and Related Expenses......................... 38,017
Legal....................................................... 24,788
Custody..................................................... 17,462
Other....................................................... 132,804
-----------
Total Expenses.......................................... 2,446,943
-----------
NET INVESTMENT INCOME....................................... $13,042,583
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 2,940,451
Futures................................................... (3,001,740)
-----------
Net Realized Loss........................................... (61,289)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 38,494,140
-----------
End of the Period:
Investments............................................. 44,577,576
Futures................................................. (422,816)
-----------
44,154,760
-----------
Net Unrealized Appreciation During the Period............... 5,660,620
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 5,599,331
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,294,439)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $17,347,475
===========
</Table>
See Notes to Financial Statements
19
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.............................. $ 13,042,583 $ 26,183,876
Net Realized Gain/Loss............................. (61,289) 6,132,890
Net Unrealized Appreciation/Depreciation During the
Period........................................... 5,660,620 (7,426,483)
Distributions to Preferred Shareholders:
Net Investment Income............................ (1,294,439) (3,147,858)
------------ ------------
Change in Net Assets Applicable to Common Shares
from Operations.................................. 17,347,475 21,742,425
Distributions to Common Shareholders:
Net Investment Income............................ (11,941,969) (22,882,903)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES................ 5,405,506 (1,140,478)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................ 368,111,226 369,251,704
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $3,230,727
and $3,424,552, respectively).................... $373,516,732 $368,111,226
============ ============
</Table>
See Notes to Financial Statements
20
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 (b)............ $ 15.63 $ 15.68 $ 14.38
------- ------- -------
Net Investment Income................................. .55 1.11 1.13
Net Realized and Unrealized Gain/Loss................. .24 (.06) 1.25
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................... (.05) (.13) (.31)
Net Realized Gain................................... -0- -0- -0-
------- ------- -------
Total from Investment Operations........................ .74 .92 2.07
Distributions Paid to Common Shareholders:
Net Investment Income............................... (.51) (.97) (.77)
Net Realized Gain................................... -0- -0- -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD...................... $ 15.86 $ 15.63 $ 15.68
======= ======= =======
Common Share Market Price at End of the Period.......... $ 14.85 $ 14.37 $ 13.78
Total Return (c)........................................ 7.01%* 11.50% 19.22%
Net Assets Applicable to Common Shares at End of the
Period (In millions).................................. $ 373.5 $ 368.1 $ 369.3
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (d)..................................... 1.34% 1.46% 1.63%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)....................... 7.13% 7.22% 7.49%
Portfolio Turnover...................................... 18%* 38% 30%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (d).................................. .83% .90% 1.00%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (e)....................... 6.42% 6.36% 5.44%
SENIOR SECURITIES:
Total Preferred Shares Outstanding...................... 9,000 9,000 9,000
Asset Coverage Per Preferred Share (f).................. $66,510 $65,910 $66,028
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 less than $.01, decrease net realized and
unrealized gains and losses per share by less than $.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 the periods
prior to October 31, 2002 have not been restated to reflect this change.
(b) Net Asset Value at March 26, 1993, is adjusted for common and preferred
share offering costs of $.211 per common share.
(c) 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.
(d) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(e) Ratios reflect the effect of dividend payments to preferred shareholders.
(f) 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.
21
<Table>
<Caption>
MARCH 26, 1993
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF INVESTMENT
- ----------------------------------------------------------------------------- OPERATIONS) TO
2000 1999 1998 1997 1996 1995 1994 OCTOBER 31, 1993
- ------------------------------------------------------------------------------------------------
$ 13.80 $ 15.64 $ 15.14 $ 14.50 $ 14.37 $ 12.90 $ 16.43 $ 14.79
------- -------- -------- -------- -------- -------- -------- --------
1.15 1.14 1.14 1.16 1.17 1.18 1.18 .64
.63 (1.86) .51 .63 .13 1.57 (3.34) 1.49
(.39) (.31) (.34) (.34) (.34) (.38) (.24) (.11)
-0- -0- -0- -0- -0- -0- (.04) -0-
------- -------- -------- -------- -------- -------- -------- --------
1.39 (1.03) 1.31 1.45 .96 2.37 (2.44) 2.02
(.81) (.81) (.81) (.81) (.83) (.90) (.91) (.38)
-0- -0- -0- -0- -0- -0- (.18) -0-
------- -------- -------- -------- -------- -------- -------- --------
$ 14.38 $ 13.80 $ 15.64 $ 15.14 $ 14.50 $ 14.37 $ 12.90 $ 16.43
======= ======== ======== ======== ======== ======== ======== ========
$ 12.25 $12.0625 $ 14.75 $13.5625 $ 12.375 $ 12.75 $ 10.75 $ 15.25
8.56% -13.29% 15.10% 16.61% 3.70% 27.67% -23.52% 4.25%*
$ 338.7 $ 325.1 $ 368.5 $ 356.6 $ 341.5 $ 338.4 $ 303.9 $ 386.9
1.77% 1.67% 1.67% 1.70% 1.77% 1.80% 1.70% 1.46%
8.36% 7.56% 7.41% 7.93% 8.15% 8.67% 8.01% 6.72%
25% 35% 24% 32% 42% 50% 79% 66%*
1.05% 1.02% 1.03% 1.03% 1.06% 1.06% 1.03% 1.00%
5.55% 5.50% 5.21% 5.61% 5.78% 5.90% 6.39% 5.59%
9,000 9,000 4,500 4,500 4,500 4,500 4,500 4,500
$62,631 $ 61,123 $131,890 $129,243 $125,881 $125,198 $117,532 $135,985
$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
22
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Value Municipal Income Trust (the "Trust") is registered as a
diversified, closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
a high level of current income exempt from federal income tax, consistent with
preservation of capital. The Trust will invest in a portfolio consisting
substantially of municipal obligations rated investment grade at the time of
investment. The Trust commenced investment operations on March 26, 1993.
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.
Future contracts are valued at the settlement price established each day on the
exchange on which they are traded. 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, there were no
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.
23
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.
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At October 31, 2002, the Trust had an accumulated capital loss
carryforward for tax purposes of $22,151,605, which will expire between October
31, 2003 and October 31, 2007. Of this amount, $19,492,784 will expire on
October 31, 2003.
At April 30, 2003, the cost and related gross unrealized appreciation and
depreciation were as follows:
<Table>
Cost of investments for tax purposes........................ $541,499,745
============
Gross tax unrealized appreciation........................... $ 47,386,578
Gross tax unrealized depreciation........................... (1,957,016)
------------
Net tax unrealized appreciation on investments.............. $ 45,429,562
============
</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 were as follows:
<Table>
Distributions paid from:
Ordinary income........................................... $103,315
Long-term capital gain.................................... -0-
--------
$103,315
========
</Table>
As of October 31, 2002, the component of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $106,754
</Table>
24
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
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 .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 $14,500 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 $29,100
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 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 $144,108,626 and $102,037,476,
respectively.
25
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
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 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.
During the period, the Trust invested in futures contracts, a type of
derivative. A futures contract is an arrangement 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. Upon entering into
futures contracts, the Trust maintains 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 the rules and regulations promulgated under the
1940 Act, as amended, or with its custodian in an account in the broker's name.
This amount is known an 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 for the six months ended April 30, 2003,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2002............................. 682
Futures Opened.............................................. 2,110
Futures Closed.............................................. (1,763)
------
Outstanding at April 30, 2003............................... 1,029
======
</Table>
26
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
The futures contracts outstanding as of April 30, 2003, and the description
and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
10-Year U.S. Treasury Notes Futures June 2003 (Current
Notional Value of $115,125 per contract)................ 198 $ (58,074)
5-Year U.S. Treasury Notes Futures June 2003 (Current
Notional Value of $113,750 per contract)................ 831 (364,742)
----- ---------
1,029 $(422,816)
===== =========
</Table>
5. PREFERRED SHARES
The Trust has outstanding 9,000 Auction Preferred Shares ("APS") in five series.
Series A, B, C and D each contain 2,000 shares and Series E contains 1,000
shares. Dividends are cumulative and the dividend rate is periodically reset
through an auction process. The dividend period for Series A and E is seven
days. The dividend period for Series B, C and D is 28 days. The average rate in
effect on April 30, 2003 was 1.036%. During the six months ended April 30, 2003,
the rates ranged from 0.679% to 1.800%.
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.
27
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be
re-registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued
on the valuation date, generally at the lower of market price or net asset
value, except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in
28
the acquisition of fewer Common Shares than if the dividend or distribution had
been paid in Common Shares issued by the Trust. All reinvestments are in full
and fractional Common Shares and are carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
29
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
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.
30
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.
VKV SAR 6/03 Member NASD/SIPC.
11169F03-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 Value Municipal Income Trust
-------------------------------------------------------------------
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