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 811-6736
Van Kampen Advantage Municipal Income Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
1221 Avenue of the Americas NY NY 10020
- --------------------------------------------------------------------------------
(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
-----------
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 - VKA
- ------------------------------
<Table>
- -----------------------------------------------------------------------
Six-month total return(1) 9.19%
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One-year total return(1) 16.94%
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Five-year average annual total return(1) 8.43%
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Ten-year average annual total return(1) 7.46%
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Life-of-Trust average annual total return(1) 7.45%
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Commencement date 09/25/92
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Distribution rate as a % of closing common share market
price(2) 6.81%
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Taxable-equivalent distribution rate as a % of closing
common share market price(3) 11.09%
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Preferred share (Series A) rate(4) 1.050%
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Preferred share (Series B) rate(4) 0.990%
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Preferred share (Series C) rate(4) 1.000%
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Preferred share (Series D) rate(4) 0.969%
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Net asset value $17.06
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Closing common share market price $16.30
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Six-month high common share market price (04/29/03) $16.33
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Six-month low common share market price (01/13/03) $14.92
- -----------------------------------------------------------------------
</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 the 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........................... 67.5%
AA/Aa............................. 17.1%
A/A............................... 10.7%
BBB/Baa........................... 4.0%
BB/Ba............................. 0.4%
B/B............................... 0.3%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
Health Care....................... 13.6%
Higher Education.................. 9.4%
General Purpose................... 9.2%
Industrial Revenue................ 9.1%
Transportation.................... 9.0%
</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 $16.3300 $15.2500
6/93 $16.6300 $15.2500
$17.2500 $16.1250
$17.0800 $15.7500
$15.1600 $14.0000
6/94 $14.9400 $14.2500
$14.6500 $13.0625
$13.8800 $12.7500
$15.2400 $14.5000
6/95 $15.1800 $14.5000
$15.3500 $13.8750
$16.2000 $14.6250
$15.4300 $14.8750
6/96 $15.2300 $14.6250
$15.5600 $14.7500
$15.7600 $13.8750
$15.4100 $14.0000
6/97 $15.8900 $14.8750
$16.3300 $15.0625
$16.6600 $15.3120
$16.6400 $15.2500
6/98 $16.6500 $15.3125
$17.1100 $16.1250
$16.8700 $16.5000
$16.6800 $15.5625
6/99 $15.8500 $14.7500
$15.2800 $13.5000
$14.6900 $12.7500
$15.0900 $12.6875
6/00 $15.0900 $12.6875
$15.3800 $13.1875
$16.1700 $13.3750
$16.3700 $14.1200
6/01 $16.2000 $13.9000
$16.5500 $14.2000
$16.0800 $14.2400
$16.0100 $14.6800
6/02 $16.6000 $15.8000
$17.4900 $16.5000
$17.0000 $15.8400
$16.9300 $15.8900
4/03 $17.0600 $16.3000
</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 ADVANTAGE 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.
DENNIS PIETRZAK, PORTFOLIO MANAGER, HAS MANAGED THE TRUST SINCE 1995 AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1968. 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 by the bonds' attractive total
return potential.
The trust's monthly dividend of $0.0925 per share translated to a
distribution rate of 6.81 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 11.09 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 9.19 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 portfolio from the potential adverse
effects of rising interest rates while maintaining its yield. One of our primary
methods for trying to do this was to purchase premium bonds with maturities
between 15 and 20 years. Our quantitative analysis showed that this segment of
the yield curve offered a favorable combination of total return potential as
well as downside protection in the form of a comfortable yield cushion and an
intermediate maturity profile.
The funds for these purchases came from a number of sources. One of the
fund's holdings was called by its issuer; we also preemptively sold prerefunded
issues that posed a risk of imminent call activity. We trimmed the fund's
holdings of shorter premium bonds that would be highly likely to underperform in
the event that interest rates began to climb. We followed a
5
similar rationale in selling some of the portfolio's holdings of bonds in the
shorter part of the intermediate segment of the yield curve.
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, our analysis showed that some A rated hospital bonds were
oversold during the period and reached prices that we believed more than
compensated for any credit risk. We bought some of these issues with the
expectation of selling them once they reached fair value. Similarly, we sold the
some of the fund's holdings of New York bonds in the transportation sector
during the period when they reached our price targets in order to reinvest the
proceeds into bonds with greater total return potential. This trading had the
effect of reducing the fund's holdings in the transportation sector by roughly 5
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 155.4%
ALABAMA 3.7%
$ 1,000 Alabama Bldg Renovation Fin Auth Rev
Rfdg (AMBAC Insd)..................... 5.625% 09/01/24 $ 1,101,990
1,800 Alabama St Univ Rev Gen Tuition & Fee
Ser B (MBIA Insd)..................... 5.250 03/01/28 1,894,968
1,550 Birmingham, AL Arpt Auth Arpt Rev Rfdg
(AMBAC Insd).......................... 5.500 07/01/14 1,676,123
5,000 Jefferson Cnty, AL Swr Rev Cap Impt Wt
Ser B (FGIC Insd)..................... 5.125 02/01/42 5,115,000
2,000 Montgomery, AL Wt (AMBAC Insd)........ 5.250 05/01/20 2,160,740
-------------
11,948,821
-------------
ARIZONA 3.8%
1,425 Arizona Cap Fac Fin Corp Student Hsg
Rev AZ St Univ Proj................... 6.250 09/01/32 1,505,313
2,500 Arizona Sch Fac Brd Rev St Sch Impt... 5.500 07/01/17 2,796,875
2,900 Arizona Tourism & Sports Auth Multi
Purp Stad Fac Ser A (MBIA Insd)....... 5.375 07/01/22 3,153,199
2,875 Phoenix, AZ Civic Impt Corp Arpt Rev
Jr Lien (FGIC Insd)................... 5.375 07/01/29 2,923,990
955 Pima Cnty, AZ Indl Dev Auth Indl Rev
Lease Oblig Irvington Proj Tucson Ser
A Rfdg (FSA Insd) (a)................. 7.250 07/15/10 1,009,196
1,000 Scottsdale, AZ Indl Dev Auth Hosp Rev
Scottsdale Hlthcare................... 5.800 12/01/31 1,034,640
-------------
12,423,213
-------------
CALIFORNIA 6.8%
2,630 Anaheim, CA Pub Fin Auth Lease Rev Cap
Apprec Sub Pub Impts Proj C (FSA
Insd)................................. * 09/01/20 1,123,852
3,865 California Hlth Fac Auth Rev Kaiser
Permanente Med Ctr.................... 5.450 10/01/13 3,885,678
4,000 California St......................... 5.000 02/01/26 3,980,840
5,500 California St Dept Wtr Res Pwr Ser A
(AMBAC Insd) (a)...................... 5.500 05/01/16 6,212,745
2,000 California St Dept Wtr Res Pwr Ser
A..................................... 5.750 05/01/17 2,227,440
</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)
$ 5,000 Foothill/Eastern Corridor Agy CA Toll
Rd Rev Cap Apprec Rfdg................ * 01/15/25 $ 1,421,750
3,000 Los Angeles, CA Uni Sch Dist Ser A
(FSA Insd)............................ 5.250% 07/01/19 3,288,300
-------------
22,140,605
-------------
COLORADO 2.4%
8,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy
Rev E-470 Proj Ser C (Prerefunded @
08/31/05)............................. * 08/31/26 1,711,560
3,000 Colorado Hlth Fac Auth Rev Catholic
Hlth Initiatives Ser A................ 5.500 03/01/32 3,089,670
295 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser B1......................... 7.900 12/01/25 300,649
130 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser D-1 Rfdg................... 8.000 12/01/24 133,513
242 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser E.......................... 8.125 12/01/24 248,810
2,000 La Plata Cnty, CO Sch Dist 9 (MBIA
Insd)................................. 5.250 11/01/19 2,170,500
-------------
7,654,702
-------------
CONNECTICUT 1.4%
3,250 Connecticut St Spl Oblig Pkg Rev
Bradley Intl Arpt Ser A (ACA Insd).... 6.600 07/01/24 3,518,287
1,000 Hartford, CT Pkg Sys Rev Ser A........ 6.400 07/01/20 1,067,640
-------------
4,585,927
-------------
DISTRICT OF COLUMBIA 2.0%
2,500 District Columbia Rev Gonzaga College
(FSA Insd)............................ 5.250 07/01/32 2,603,900
3,850 Metropolitan Washington DC Arpt Auth
Sys Ser A (FGIC Insd)................. 5.250 10/01/32 3,934,507
-------------
6,538,407
-------------
FLORIDA 2.2%
2,000 Escambia Cnty, FL Hlth Fac Auth Rev
(AMBAC Insd).......................... 5.950 07/01/20 2,192,280
2,500 Miami-Dade Cnty, FL Aviation Rev Miami
Intl Arpt (FGIC Insd)................. 5.375 10/01/32 2,578,550
2,500 Miami-Dade Cnty, FL Aviation Ser A
(FSA Insd)............................ 5.000 10/01/33 2,512,025
-------------
7,282,855
-------------
</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
GEORGIA 4.0%
$ 1,500 Athens, GA Hsg Auth Student Hsg Univ
of Georgia East Campus (AMBAC Insd)... 5.250% 12/01/22 $ 1,598,175
1,000 Atlanta, GA Arpt Rev Ser B (FGIC
Insd)................................. 5.625 01/01/30 1,047,700
3,770 Monroe Cnty, GA Dev Auth Pollutn Ctl
Rev Oglethorpe Pwr Corp Scherer Ser
A..................................... 6.800 01/01/12 4,547,374
3,000 Municipal Elec Auth GA Combustion
Turbine Proj Ser A (MBIA Insd)........ 5.250 11/01/19 3,237,180
2,500 Municipal Elec Auth GA Combustion
Turbine Proj Ser A (MBIA Insd)........ 5.250 11/01/21 2,672,600
-------------
13,103,029
-------------
ILLINOIS 17.7%
125 Aurora, IL Single Family Mtg Rev Ser B
Rfdg (GNMA Collateralized)............ 8.050 09/01/25 127,992
3,750 Bolingbrook, IL Cap Apprec Ser B (MBIA
Insd)................................. * 01/01/30 862,537
2,000 Chicago, IL Brd of Ed (FGIC Insd)..... 5.500 12/01/31 2,160,180
5,000 Chicago, IL Brd of Ed Cap Apprec Sch
Reform Ser A (FGIC Insd).............. * 12/01/28 1,273,950
3,150 Chicago, IL O'Hare Intl Arpt Rev Gen
Arpt Third Lien Ser A Rfdg (MBIA Insd)
(a)................................... 5.375 01/01/32 3,237,412
1,895 Chicago, IL Pk Dist Hbr Fac Rev....... 5.875 01/01/16 2,088,764
2,500 Chicago, IL Pk Dist Ser C (FGIC
Insd)................................. 5.500 01/01/19 2,738,025
5,000 Chicago, IL Sch Fin Auth Ser A (MBIA
Insd) (a)............................. 5.000 06/01/09 5,291,400
1,000 Chicago, IL Wastewtr Transmission Rev
Second Lien (MBIA Insd)............... 5.750 01/01/25 1,113,900
3,000 Cicero, IL Alt Rev Source (Prerefunded
@ 12/01/04) (MBIA Insd)............... 6.500 12/01/14 3,308,160
4,500 Cook Cnty, IL Cap Impt Ser A (FGIC
Insd)................................. 5.000 11/15/23 4,638,105
1,620 Cook Cnty, IL Cmnty High Sch Dist No.
219 Niles Twp (FSA Insd).............. * 12/01/11 1,157,085
2,260 Cook Cnty, IL Cmnty High Sch Dist No.
219 Niles Twp (FSA Insd).............. * 12/01/12 1,530,449
2,235 Cook Cnty, IL Cmnty High Sch Dist No.
219 Niles Twp (FSA Insd).............. * 12/01/13 1,433,440
</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 (CONTINUED)
$ 3,110 Du Page Cnty, IL Trans Rev (FSA
Insd)................................. 5.750% 01/01/17 $ 3,510,195
2,740 Illinois Dev Fin Auth Rev Loc Govt Pgm
Aurora East Sch (MBIA Insd)........... * 12/01/16 1,500,835
985 Illinois Hsg Dev Auth Rev Homeowner
Mtg G2................................ 6.050 08/01/29 1,046,956
1,925 Kendall, Kane & Will Cntys, IL Cmnty
Unit Sch Dist No. 308 Ser B (FGIC
Insd)................................. 5.250 10/01/21 2,061,502
2,135 Mc Henry Cnty, IL Cmnty High Sch Dist
No. 154 Cap Apprec (FGIC Insd)........ * 01/01/14 1,347,527
1,440 Mc Henry Cnty, IL Cmnty High Sch Dist
No. 154 Cap Apprec (FGIC Insd)........ * 01/01/17 761,054
1,250 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expansion Proj (FGIC Insd)............ 5.375 12/15/18 1,374,725
1,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expansion Proj Rfdg (FGIC Insd)....... 5.500 12/15/24 1,083,430
6,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expansion Ser A (MBIA Insd) (a)....... 5.250 06/15/42 6,273,960
5,000 Regional Tran Auth IL Ser B (AMBAC
Insd)................................. 8.000 06/01/17 7,080,650
1,150 Will Cnty, IL Cmnty Sch Dist 365U Vly
View Ser B (FSA Insd)................. * 11/01/15 659,272
-------------
57,661,505
-------------
INDIANA 3.9%
1,000 Allen Cnty, IN Juvenile Justice Ctr
First Mtg (AMBAC Insd)................ 5.500 01/01/18 1,115,620
1,960 Bloomington, IN Swr Wks Rev Rfdg (MBIA
Insd)................................. 5.000 01/01/20 2,064,507
1,060 Bloomington, IN Swr Wks Rev Rfdg (MBIA
Insd)................................. 5.000 01/01/21 1,109,417
3,155 Indiana Hlth Fac Fin Auth Hosp Rev
Cmnty Hosp Proj (MBIA Insd)........... 6.850 07/01/22 3,230,310
2,000 Indiana Hlth Fac Fin Auth Hosp Rev
Columbus Regl Hosp Rfdg (FSA Insd).... 7.000 08/15/15 2,512,960
1,500 Indiana St Dev Fin Auth Rev Exempt Fac
Conv Rfdg............................. 5.950 08/01/30 1,358,910
</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
INDIANA (CONTINUED)
$ 1,220 North Adams, IN Cmnty Sch Cap Apprec
First Mtg (FSA Insd).................. * 07/15/16 $ 665,632
1,230 North Admas, IN Cmnty Sch Cap Apprec
First Mtg (FSA Insd).................. * 01/15/17 646,279
-------------
12,703,635
-------------
KANSAS 0.3%
395 Sedgwick & Shawnee Cntys, KS Single
Family Rev Coll Mtg Ser A-II Rfdg
(GNMA Collateralized)................. 8.050% 05/01/24 422,429
605 Sedgwick Cnty, KS Single Family Rev
Coll Mtg Ser A-III Rfdg (GNMA
Collateralized)....................... 8.125 05/01/24 646,067
-------------
1,068,496
-------------
LOUISIANA 2.9%
1,920 Louisiana Hsg Fin Agy Mtg Rev Multi-
Family Emerald Pointe Apts (FHA Gtd).. 7.100 11/01/33 1,979,846
675 Louisiana Hsg Fin Agy Mtg Rev Single
Family Access Pgm Ser B (GNMA
Collateralized)....................... 8.000 03/01/25 725,942
3,000 Louisiana St Energy & Pwr Auth Pwr
Proj Rev Rfdg (FSA Insd).............. 5.750 01/01/12 3,487,440
3,000 Saint Charles Parish, LA Environmental
Impt Rev LA Pwr & Lt Co Ser A (AMBAC
Insd)................................. 6.875 07/01/24 3,219,780
-------------
9,413,008
-------------
MARYLAND 0.8%
2,360 Northeast MD Waste Disp Auth Rfdg
(AMBAC Insd).......................... 5.500 04/01/16 2,595,646
-------------
MASSACHUSETTS 3.8%
3,955 Massachusetts Bay Trans Auth Gen Trans
Sys Ser A Rfdg........................ 5.500 03/01/12 4,506,683
4,815 Massachusetts Muni Whsl Elec Co Proj
6-A (MBIA Insd)....................... 5.000 07/01/11 5,311,523
1,500 Massachusetts St Fed Hwy Gnt Antic Nt
Ser A................................. 5.750 06/15/15 1,721,175
1,000 Massachusetts St Hlth & Ed Fac Auth
Rev Saint Mem Med Ctr Ser A........... 6.000 10/01/23 909,660
-------------
12,449,041
-------------
</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
MICHIGAN 0.9%
$ 1,680 Michigan Higher Ed Fac Auth Rev Ltd
Oblig Hope College Proj Rfdg (Connie
Lee Insd)............................. 7.000% 10/01/14 $ 1,825,958
1,000 Michigan St Strategic Fd Detroit
Edison Pollutn Ctl Ser B Rfdg......... 5.650 09/01/29 1,021,430
-------------
2,847,388
-------------
MISSISSIPPI 2.0%
2,000 Mississippi Bus Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj....... 5.875 04/01/22 1,975,160
1,000 Mississippi Bus Fin Corp MS Pollutn
Ctl Rev Sys Energy Res Inc Proj
Rfdg.................................. 5.900 05/01/22 990,430
1,970 Mississippi Home Corp Single Family
Rev Mtg Access Pgm Ser B (GNMA
Collateralized)....................... 7.900 03/01/25 2,053,232
585 Mississippi Home Corp Single Family
Rev Mtg Access Pgm Ser C (GNMA
Collateralized)....................... 8.125 12/01/24 623,060
785 Mississippi Home Corp Single Family
Rev Mtg Access Pgm Ser E (GNMA
Collateralized)....................... 8.100 12/01/25 840,892
-------------
6,482,774
-------------
MISSOURI 2.0%
2,100 Kansas City, MO Arpt Rev Gen Impt Ser
A (FSA Insd).......................... 6.900 09/01/10 2,272,494
1,345 Kansas City, MO Met Cmnty Colleges
Bldg Corp Rev Leasehold Jr College
Impt & Rfdg (FGIC Insd)............... 5.500 07/01/17 1,493,744
1,400 Saint Louis, MO Arpt Rev (Prerefunded
@ 07/01/03)........................... 6.000 01/01/04 1,425,396
1,210 Saint Louis, MO Arpt Rev Cap Impt Pgm
Ser A (MBIA Insd)..................... 5.375 07/01/18 1,332,198
-------------
6,523,832
-------------
NEW HAMPSHIRE 0.7%
1,155 New Hampshire Hlth & Ed Fac Auth Rev
Derryfield Sch........................ 7.000 07/01/30 1,194,686
1,000 New Hampshire St Bus Fin Auth Wtr Fac
Rev Pennichuck Wtrwks Inc (AMBAC
Insd)................................. 6.300 05/01/22 1,142,580
-------------
2,337,266
-------------
</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 JERSEY 9.5%
$10,000 New Jersey Econ Dev Auth St Contract
Econ Recovery (MBIA Insd) (a)......... 5.900% 03/15/21 $ 11,918,500
8,000 New Jersey Econ Dev Auth Wtr Fac Rev
NJ American Wtr Co Inc Proj Ser A
(FGIC Insd) (a)....................... 6.875 11/01/34 8,716,000
5,000 New Jersey St Ed Fac Auth Higher Ed
Cap Impt Ser A (AMBAC Insd)........... 5.250 09/01/21 5,387,700
4,650 Salem Cnty, NJ Indl Pollutn Ctl Fin
Auth Rev Pub Svc Elec & Gas Ser D Rfdg
(MBIA Insd)........................... 6.550 10/01/29 5,063,990
-------------
31,086,190
-------------
NEW MEXICO 1.0%
2,020 University NM Univ Rev Sub Lien Ser A
Rfdg.................................. 5.250 06/01/20 2,166,935
1,125 University NM Univ Rev Sub Lien Ser A
Rfdg.................................. 5.250 06/01/21 1,200,713
-------------
3,367,648
-------------
NEW YORK 26.5%
170 Broome Cnty, NY Ctf Partn (MBIA
Insd)................................. 5.250 04/01/15 178,787
4,250 New York City Indl Dev Agy Civic Fac
Rev USTA Natl Tennis Ctr Proj (FSA
Insd)................................. 6.375 11/15/14 4,630,418
1,300 New York City Indl Dev Civic YMCA Gtr
NY Proj............................... 5.800 08/01/16 1,378,975
1,325 New York City Ser B1 (Prerefunded @
08/15/04)............................. 7.000 08/15/16 1,438,115
2,225 New York City Ser F Rfdg.............. 6.000 08/01/11 2,464,610
2,500 New York City Ser H................... 5.750 03/15/12 2,766,750
5,000 New York City Transitional Fin Auth
Rev Future Tax Secd Ser A Rfdg (a)
(b)................................... 5.500/14.000 11/01/26 5,584,200
2,525 New York St Dorm Auth Lease Rev Muni
Hlth Fac Impt Pgm Ser A (FSA Insd).... 5.500 05/15/25 2,722,102
1,625 New York St Dorm Auth Lease Rev St
Univ Dorm Fac Ser A................... 6.000 07/01/14 1,877,314
1,450 New York St Dorm Auth Lease Rev St
Univ Dorm Fac Ser C (MBIA Insd)....... 5.500 07/01/29 1,578,644
5,050 New York St Dorm Auth Rev City Univ
Second Gen Res Ser B.................. 5.375 07/01/07 5,662,767
3,100 New York St Dorm Auth Rev City Univ
Sys Cons Ser A........................ 5.625 07/01/16 3,592,652
</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
NEW YORK (CONTINUED)
$ 2,600 New York St Dorm Auth Rev Cons City
Univ Sys Second Gen Ser A............. 5.750% 07/01/13 $ 3,002,350
2,545 New York St Dorm Auth Rev Mental Hlth
Svc Fac Impt Ser D (FSA Insd)......... 5.875 02/15/14 2,889,669
2,550 New York St Dorm Auth Rev Mental Hlth
Svc Fac Ser B Rfdg.................... 5.750 08/15/11 2,872,983
1,350 New York St Dorm Auth Rev Ser B....... 7.500 05/15/11 1,661,702
650 New York St Dorm Auth Rev Ser B
(Prerefunded @ 05/15/09).............. 7.500 05/15/11 831,747
5,000 New York St Dorm Auth Rev St Univ Ed
Fac Ser A............................. 5.500 05/15/08 5,672,100
2,000 New York St Environmental Fac Corp St
Clean Wtr & Drinking Revolving Fds Ser
B..................................... 5.000 06/15/20 2,117,820
5,000 New York St Med Care Fac Fin Agy Rev
NY Downtown Hosp Ser A (Prerefunded @
02/15/05)............................. 6.800 02/15/20 5,586,400
6,750 New York St Med Care Fac Fin Agy Rev
NY Hosp Mtg Ser A (Prerefunded @
02/15/05) (AMBAC Insd) (a)............ 6.300 08/15/06 7,479,473
7,000 New York St Med Care Fac Fin Agy Rev
NY Hosp Mtg Ser A (Prerefunded @
02/15/05) (AMBAC Insd)................ 6.400 08/15/07 7,768,810
2,880 New York St Mtg Agy Rev Homeowner Mtg
Ser 82................................ 5.650 04/01/30 3,012,768
7,025 New York St Twy Auth Svc Contract Rev
Loc Hwy & Brdg........................ 5.500 04/01/16 7,889,988
1,550 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser 7
(Prerefunded @ 01/01/07).............. 5.700 01/01/27 1,782,190
-------------
86,443,334
-------------
NORTH CAROLINA 5.3%
11,000 North Carolina Muni Pwr Agy No. 1
Catawba Elec Rev Rfdg (MBIA Insd)..... 6.000 01/01/12 12,990,890
4,000 North Carolina Muni Pwr Agy Ser A
(MBIA Insd)........................... 5.250 01/01/19 4,332,360
-------------
17,323,250
-------------
</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
NORTH DAKOTA 0.6%
$ 1,955 North Dakota St Hsg Fin Agy Rev Hsg
Fin Pgm Home Mtg Fin Ser B (MBIA
Insd)................................. 5.500% 07/01/29 $ 2,019,085
-------------
OHIO 2.5%
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton
Inc Proj.............................. 7.500 01/01/30 1,109,430
2,000 Lorain Cnty, OH Hosp Rev Catholic
Hlthcare.............................. 5.375 10/01/30 2,036,900
3,750 Lorain Cnty, OH Hosp Rev Catholic
Hlthcare Ser A Impt & Rfdg............ 5.250 10/01/33 3,802,425
1,000 Marion Cnty, OH Hosp Impt Rev Cmnty
Hosp Rfdg............................. 6.375 05/15/11 1,064,210
-------------
8,012,965
-------------
OKLAHOMA 2.6%
1,100 Oklahoma City, OK Indl & Cultural Fac
Tr Rev Dist Heating & Cooling Trigen
(LOC: Societe Generale)............... 6.750 09/15/17 1,104,103
1,065 Oklahoma Dev Fin Auth Lease Rev OK
Council Law Enforcement (MBIA Insd)... 5.500 06/01/17 1,192,981
1,120 Oklahoma Dev Fin Auth Lease Rev OK
Council Law Enforcement (MBIA Insd)... 5.500 06/01/18 1,246,437
1,185 Oklahoma Dev Fin Auth Lease Rev OK
Council Law Enforcement (MBIA Insd)... 5.500 06/01/19 1,311,167
2,000 Sapulpa, OK Muni Auth Cap Rev Impt &
Rfdg (FSA Insd)....................... 5.750 07/01/30 2,243,320
1,250 Tulsa Cnty, OK Pub Fac Auth Cap Impt
Rev (AMBAC Insd)...................... 6.250 11/01/22 1,488,325
-------------
8,586,333
-------------
OREGON 3.9%
2,500 Oregon Hlth Sciences Univ Insd Ser A
(MBIA Insd)........................... 5.250 07/01/22 2,672,850
5,000 Oregon St Dept Admin Ser C Rfdg (MBIA
Insd)................................. 5.250 11/01/18 5,443,000
4,000 Portland, OR Swr Sys Rev Ser A (FGIC
Insd)................................. 5.750 08/01/18 4,586,200
-------------
12,702,050
-------------
PENNSYLVANIA 4.7%
700 Harrisburg, PA Cap Apprec Ser D Rfdg
(AMBAC Insd).......................... * 03/15/14 445,914
</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
PENNSYLVANIA (CONTINUED)
$ 1,830 Harrisburg, PA Cap Apprec Ser D Rfdg
(AMBAC Insd).......................... * 09/15/14 $ 1,141,829
4,000 Pennsylvania Intergovt Coop Auth Spl
Tax Rev Philadelphia Fdg Pgm
(Prerefunded @ 06/15/05) (FGIC Insd)
(a)................................... 6.750% 06/15/21 4,447,680
1,500 Pennsylvania St Higher Ed UPMC Hlth
Sys Ser A............................. 6.000 01/15/31 1,567,560
2,440 Philadelphia, PA Sch Dist Ser A (FSA
Insd)................................. 5.750 02/01/11 2,835,524
2,640 Pittsburgh & Allegheny Cnty, PA Pub
Aud Regl Asset Dist Sales Tax (AMBAC
Insd)................................. 5.000 02/01/29 2,696,971
2,000 Radnor Twp, PA Sch Dist............... 5.750 03/15/26 2,215,160
-------------
15,350,638
-------------
RHODE ISLAND 1.1%
3,495 Rhode Island Hsg & Mtg Fin Corp
Homeownership Opportunity Ser 5....... 6.400 04/01/24 3,567,976
-------------
SOUTH CAROLINA 4.0%
1,385 Easley, SC Util Rev (FSA Insd)........ 5.250 12/01/20 1,494,761
3,750 South Carolina Jobs Econ Dev Auth Indl
Rev Proj Ser B (AMBAC Insd)........... 5.450 11/01/32 3,916,200
5,000 South Carolina Jobs Econ Dev Rev Bon
Secours Hlth Sys Inc Ser A............ 5.625 11/15/30 5,118,450
2,500 South Carolina Jobs Econ Elec & Gas Co
Proj Ser A (AMBAC Insd)............... 5.200 11/01/27 2,619,325
-------------
13,148,736
-------------
TENNESSEE 1.0%
1,500 Elizabethton, TN Hlth & Edl Fac Brd
Rev Hosp Ser B Impt & Rfdg (MBIA
Insd)................................. 7.750 07/01/29 1,963,500
1,000 Elizabethton, TN Hlth & Edl Fac Brd
Rev Hosp Ser B Impt & Rfdg............ 8.000 07/01/33 1,134,270
400 Franklin, TN Spl Sch Dist Cap Apprec
(FSA Insd)............................ * 06/01/16 223,148
-------------
3,320,918
-------------
TEXAS 14.7%
2,350 Austin, TX Ctf Oblig (MBIA Insd)...... 5.375 09/01/20 2,552,782
</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
TEXAS (CONTINUED)
$ 2,650 Brazos River Auth TX Pollutn Adj TXU
Elec Co Proj Ser C Rfdg (Variable Rate
Coupon)............................... 5.750% 05/01/36 $ 2,608,793
825 Brazos, TX Higher Ed Auth Inc Student
Ln Rev SubSer A2 Rfdg................. 6.800 12/01/04 873,708
3,000 Dallas Cnty, TX Util & Reclamation
Dist Ser B Rfdg (AMBAC Insd).......... 5.875 02/15/29 3,196,920
2,365 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev Delta Airl Inc.......... 7.625 11/01/21 1,233,158
2,500 Dallas-Fort Worth, TX Intl Arpt Rev Jt
Ser A (FGIC Insd)..................... 5.750 11/01/30 2,668,550
2,000 Harris Cnty, TX Hlth Fac Dev Mem
Hermann Hlthcare Ser A................ 6.375 06/01/29 2,161,800
5,000 Houston, TX Arpt Sys Rev Sub Lien Ser
A (FSA Insd) (a)...................... 5.125 07/01/32 5,047,000
2,910 Houston, TX Wtr & Swr Sys Rev Jr Lien
Ser C (FGIC Insd)..................... 5.375 12/01/27 3,091,380
515 Little Elm, TX Indpt Sch Dist (PSFG
Insd)................................. 6.750 08/15/29 570,244
4,625 Little Elm, TX Indpt Sch Dist
(Prerefunded @ 08/15/05) (PSFG Insd)
(a)................................... 6.750 08/15/29 5,178,890
1,500 Metropolitan Hlth Fac Dev Corp TX
Wilson N Jones Mem Hosp Proj.......... 7.250 01/01/31 1,356,360
5,000 North Cent TX Hlth Fac Dev Hosp
Childrens Med Ctr Dallas (AMBAC
Insd)................................. 5.250 08/15/32 5,158,100
1,250 Sabine River Auth TX Pollutn Ctl Rev
TX Elec Proj Ser A Rfdg (Variable Rate
Coupon)............................... 6.450 06/01/21 1,227,050
5,000 San Antonio, TX Elec & Gas Sys Rfdg... 5.375 02/01/19 5,435,800
2,000 San Antonio, TX Elec & Gas Sys Rfdg... 5.375 02/01/20 2,160,620
2,000 Tarrant Cnty, TX Jr College Dist...... 5.050 02/15/10 2,190,700
1,000 Trinity River Auth TX Rev Tarrant Cnty
Wtr Proj Impt & Rfdg (MBIA Insd)...... 5.500 02/01/21 1,096,790
-------------
47,808,645
-------------
WASHINGTON 7.8%
3,750 Chelan Cnty, WA Pub Util Dist No. 001
Cons Rev Chelan Hydro Ser A (MBIA
Insd)................................. 5.600 01/01/36 3,946,838
</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
WASHINGTON (CONTINUED)
$ 2,500 Energy Northwest WA Elec Rev Proj No.
3 Ser A Rfdg (FSA Insd)............... 5.500% 07/01/18 $ 2,754,100
5,000 Energy Northwest, WA Elec Rev Proj No.
3 Ser B Rfdg (FSA Insd) (a)........... 6.000 07/01/16 5,800,550
1,400 King Cnty, WA Hsg Auth Hsg Rev Pooled
Sr Ser A Rfdg......................... 6.700 03/01/15 1,479,520
2,120 Seattle, WA Muni Lt & Pwr Rev......... 5.625 12/01/17 2,329,604
4,750 Tacoma, WA Elec Sys Rev Ser A Rfdg
(FSA Insd)............................ 5.750 01/01/14 5,415,285
1,500 Tacoma, WA Elec Sys Rev Ser B Rfdg
(FSA Insd)............................ 5.500 01/01/12 1,715,955
1,000 Thurston & Pierce Cntys, WA (FSA
Insd)................................. 5.000 12/01/20 1,052,160
1,000 Thurston & Pierce Cntys, WA (FSA
Insd)................................. 5.000 12/01/21 1,045,510
-------------
25,539,522
-------------
WEST VIRGINIA 3.2%
2,500 Berkeley Cnty, WV Bldg Comm Hosp Rev
City Hosp Proj........................ 6.500 11/01/22 2,392,625
5,000 Marshall Cnty, WV Pollutn Ctl Rev OH
Pwr Co Proj Ser C (MBIA Insd) (a)..... 6.850 06/01/22 5,170,500
695 West Virginia St Hsg Dev Fd Hsg Fin
Ser A................................. 5.450 11/01/21 700,942
2,000 West Virginia St Hsg Dev Fd Ser A..... 5.550 05/01/17 2,060,240
-------------
10,324,307
-------------
WISCONSIN 1.5%
1,655 Wisconsin Hsg & Econ Dev Auth
Homeownership Rev Ser A............... 6.450 03/01/17 1,694,737
3,000 Wisconsin St Health & Ed Fac Wheaton
Franciscan Svc Rfdg................... 5.750 08/15/30 3,091,410
-------------
4,786,147
-------------
WYOMING 0.4%
1,000 University WY Univ Rev Fac Impt (FSA
Insd)................................. 5.500 06/01/18 1,102,360
-------------
PUERTO RICO 3.8%
10,000 Puerto Rico Comwlth Hwy & Tran Auth
Hwy Rev Ser Y Rfdg (FSA Insd) (a)..... 6.250 07/01/21 12,506,100
-------------
</Table>
See Notes to Financial Statements
18
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
<Table>
<Caption>
MARKET
DESCRIPTION VALUE
TOTAL LONG-TERM INVESTMENT 155.4%
(Cost $468,364,861).................................................... $ 506,756,354
SHORT-TERM INVESTMENTS 1.0%
(Cost $3,100,000)...................................................... 3,100,000
-------------
TOTAL INVESTMENTS 156.4%
(Cost $471,464,861).................................................... 509,856,354
OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%.............................. 6,251,056
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (58.3%).............. (190,093,542)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%........................... $ 326,013,868
=============
</Table>
* Zero coupon bond
(a) Assets segregated as collateral for open futures transactions.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
LOC--Letter of Credit
MBIA--Municipal Bond Investors Assurance Corp.
PSFG--Permanent School Fund Guaranty
See Notes to Financial Statements
19
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $471,464,861)....................... $509,856,354
Cash........................................................ 20,708
Receivables:
Interest.................................................. 8,048,791
Investments Sold.......................................... 3,052,698
Other....................................................... 962
------------
Total Assets............................................ 520,979,513
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,940,880
Variation Margin on Futures............................... 366,625
Investment Advisory Fee................................... 252,876
Administrative Fee........................................ 21,073
Affiliates................................................ 11,739
Trustees' Deferred Compensation and Retirement Plans........ 189,451
Accrued Expenses............................................ 89,459
------------
Total Liabilities....................................... 4,872,103
Preferred Shares (including accrued distributions).......... 190,093,542
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $326,013,868
============
NET ASSET VALUE PER COMMON SHARE ($326,013,868 divided by
19,106,785 shares outstanding)............................ $ 17.06
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 19,106,785 shares issued and
outstanding).............................................. $ 191,068
Paid in Surplus............................................. 282,026,829
Net Unrealized Appreciation................................. 38,085,784
Accumulated Undistributed Net Investment Income............. 4,059,481
Accumulated Net Realized Gain............................... 1,650,706
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $326,013,868
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 7,600 issued with liquidation preference of
$25,000 per share)........................................ $190,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $516,013,868
============
</Table>
See Notes to Financial Statements
20
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $13,446,002
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,522,196
Preferred Share Maintenance................................. 259,599
Administrative Fee.......................................... 126,849
Trustees' Fees and Related Expenses......................... 35,451
Legal....................................................... 21,644
Custody..................................................... 15,263
Other....................................................... 124,369
-----------
Total Expenses.......................................... 2,105,371
-----------
NET INVESTMENT INCOME....................................... $11,340,631
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 4,663,804
Futures................................................... (2,109,159)
-----------
Net Realized Gain........................................... 2,554,645
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 34,593,640
-----------
End of the Period:
Investments............................................. 38,391,493
Futures................................................. (305,709)
-----------
38,085,784
-----------
Net Unrealized Appreciation During the Period............... 3,492,144
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 6,046,789
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,135,357)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $16,252,063
===========
</Table>
See Notes to Financial Statements
21
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.............................. $ 11,340,631 $ 22,990,585
Net Realized Gain.................................. 2,554,645 4,525,369
Net Unrealized Appreciation/Depreciation During the
Period........................................... 3,492,144 (5,371,148)
Distributions to Preferred Shareholders:
Net Investment Income............................ (1,135,357) (2,722,651)
------------ ------------
Change in Net Assets Applicable to Common Shares
from Operations.................................. 16,252,063 19,422,155
Distributions to Common Shareholders:
Net Investment Income............................ (10,603,470) (19,965,484)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES................ 5,648,593 (543,329)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................ 320,365,275 320,908,604
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $4,059,481
and $4,457,677, respectively).................... $326,013,868 $320,365,275
============ ============
</Table>
See Notes to Financial Statements
22
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................ $ 16.77 $ 16.80 $ 15.52
------- ------- -------
Net Investment Income................................. .59 1.21 1.23
Net Realized and Unrealized Gain/Loss................. .31 (.05) 1.18
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................... (.06) (.14) (.34)
Net Realized Gain................................... -0- -0- -0-
------- ------- -------
Total from Investment Operations........................ .84 1.02 2.07
Distributions Paid to Common Shareholders:
Net Investment Income............................... (.55) (1.05) (.79)
Net Realized Gain................................... -0- -0- -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD...................... $ 17.06 $ 16.77 $ 16.80
======= ======= =======
Common Share Market Price at End of the Period.......... $ 16.30 $ 15.46 $ 14.35
Total Return (b)........................................ 9.19%* 15.28% 17.27%
Net Assets Applicable to Common Shares at End of the
Period (In millions).................................. $ 326.0 $ 320.4 $ 320.9
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c)..................................... 1.32% 1.46% 1.61%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c)....................... 7.11% 7.26% 7.56%
Portfolio Turnover...................................... 14%* 40% 32%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c).................................. .83% .91% 1.00%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d)....................... 6.40% 6.40% 5.44%
SENIOR SECURITIES:
Total Preferred Shares Outstanding...................... 7,600 7,600 7,600
Asset Coverage Per Preferred Share (e).................. $67,909 $67,170 $67,225
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 $.02, decrease net realized and unrealized
gains and losses by $.02 and increase the ratio of net investment income to
average net assets applicable to common shares by .11%. 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.
See Notes to Financial Statements
23
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- -----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------
$ 14.87 $ 16.93 $ 16.35 $ 15.68 $ 15.61 $ 13.99 $ 17.18 $ 14.59
-------- -------- -------- -------- -------- -------- -------- --------
1.24 1.22 1.25 1.26 1.29 1.33 1.35 1.37
.68 (2.06) .59 .72 .16 1.70 (3.15) 2.41
(.40) (.32) (.35) (.35) (.36) (.39) (.28) (.30)
-0- -0- -0- -0- -0- -0- (.02) -0-
-------- -------- -------- -------- -------- -------- -------- --------
1.52 (1.16) 1.49 1.63 1.09 2.64 (2.10) 3.48
(.87) (.90) (.91) (.96) (1.02) (1.02) (1.02) (.89)
-0- -0- -0- -0- -0- -0- (.07) -0-
-------- -------- -------- -------- -------- -------- -------- --------
$ 15.52 $ 14.87 $ 16.93 $ 16.35 $ 15.68 $ 15.61 $ 13.99 $ 17.18
======== ======== ======== ======== ======== ======== ======== ========
$12.9375 $12.9375 $15.8125 $15.0625 $ 14.75 $ 14.375 $ 12.75 $ 16.00
6.86% -13.16% 11.33% 8.96% 9.88% 21.06% -14.17% 22.08%
$ 296.5 $ 284.1 $ 323.4 $ 312.5 $ 299.7 $ 298.3 $ 267.3 $ 328.2
1.75% 1.66% 1.64% 1.66% 1.72% 1.72% 1.64% 1.66%
8.34% 7.55% 7.48% 7.99% 8.31% 8.94% 8.63% 8.43%
26% 33% 30% 49% 37% 79% 133% 112%
1.05% 1.03% 1.03% 1.02% 1.05% 1.03% 1.00% 1.03%
5.61% 5.56% 5.35% 5.76% 5.99% 6.31% 6.81% 6.57%
7,600 7,600 3,800 3,800 3,800 3,800 3,800 3,800
$ 64,014 $ 62,388 $135,105 $132,234 $128,865 $128,498 $120,355 $136,368
$ 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
24
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Advantage 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 seek to
provide a high level of current income exempt from federal income tax,
consistent with preservation of capital. In normal market conditions, the Trust
will invest substantially all of its net assets in municipal securities rated
investment grade at the time of investment. The Trust commenced investment
operations on September 25, 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.
Futures 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 or 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.
25
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 these losses against any future realized capital
gains. At October 31, 2002, the Trust had an accumulated capital loss
carryforward for tax purposes of $787,052, which will expire on October 31,
2007.
At April 30, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $470,147,812
============
Gross tax unrealized appreciation........................... $ 41,397,835
Gross tax unrealized depreciation........................... (1,689,293)
------------
Net tax unrealized appreciation on investments.............. $ 39,708,542
============
</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........................................... $451,859
Long-term capital gain.................................... -0-
--------
$451,859
========
</Table>
As of October 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $522,413
</Table>
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sale
transactions.
26
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 $12,300 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 $26,100
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,
on 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 $70,090,752 and $76,426,988,
respectively.
27
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 the
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 contracts 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, 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 future commission
merchant pursuant to 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 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.
28
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Transactions in futures contracts for the six months ended April 30, 2003,
were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2002............................. 507
Futures Opened.............................................. 1,527
Futures Closed.............................................. (1,290)
------
Outstanding at April 30, 2003............................... 744
======
</Table>
The futures contracts outstanding as of April 30, 2003, and the descriptions
and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
Short Contracts:
U.S. Treasury Notes 5-Year Futures June 2003 (Current
Notional Value of $113,750 per contract)................ 601 $(263,767)
U.S. Treasury Notes 10-Year Futures June 2003 (Current
Notional Value of $115,125 per contract)................ 143 (41,942)
--- ---------
744 $(305,709)
=== =========
</Table>
5. PREFERRED SHARES
The Trust has outstanding 7,600 Auction Preferred Shares ("APS") in four series.
Series A, B and C each contain 2,000 shares while Series D contains 1,600
shares. Dividends are cumulative and the dividend rate is reset every 28 days
through an auction process. The average rate in effect on April 30, 2003 was
1.004%. During the six months ended April 30, 2003, the rates ranged from 0.969%
to 1.432%.
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 on 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.
29
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN ADVANTAGE 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, Illinois 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.
VKA SAR 6/03 Member NASD/SIPC.
11198F03-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 Advantange 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