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 811-6567
Van Kampen Municipal Opportunity 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
-----------
Item 1. Report to Shareholders
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of April 30, 2003)
- -------------------------------
NYSE Ticker Symbol - VMO
- -------------------------------
<Table>
- -----------------------------------------------------------------------
Six-month total return(1) 11.62%
- -----------------------------------------------------------------------
One-year total return(1) 21.96%
- -----------------------------------------------------------------------
Five-year average annual total return(1) 9.00%
- -----------------------------------------------------------------------
Ten-year average annual total return(1) 7.72%
- -----------------------------------------------------------------------
Life-of-Trust average annual total return(1) 8.11%
- -----------------------------------------------------------------------
Commencement date 4/24/92
- -----------------------------------------------------------------------
Distribution rate as a % of closing common share market
price(2) 6.89%
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Taxable-equivalent distribution rate as a % of closing
common share market price(3) 11.22%
- -----------------------------------------------------------------------
Preferred share (Series A) rate(4) 0.990%
- -----------------------------------------------------------------------
Preferred share (Series B) rate(4) 1.080%
- -----------------------------------------------------------------------
Net asset value $17.33
- -----------------------------------------------------------------------
Closing common share market price $16.80
- -----------------------------------------------------------------------
Six-month high common share market price (04/25/03) $16.95
- -----------------------------------------------------------------------
Six-month low common share market price (01/13/03) $15.50
- -----------------------------------------------------------------------
</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........................... 70.7%
AA/Aa............................. 4.9%
A/A............................... 19.7%
BBB/Baa........................... 2.9%
B/B............................... 0.3%
Non-Rated......................... 1.5%
</Table>
TOP FIVE SECTORS
(as a percentage of long-term investments)
<Table>
<Caption>
As of April 30, 2003
Wholesale Electric................ 16.5%
Health Care....................... 12.3%
General Purpose................... 12.0%
Airport........................... 10.7%
Public Building................... 7.4%
</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 $16.6500 $15.8750
6/93 $16.9500 $15.8750
$17.4400 $16.2500
$17.4400 $16.0000
$15.4100 $14.1250
6/94 $15.2500 $14.6250
$14.9900 $13.3750
$14.3000 $12.7500
$15.6100 $14.0000
6/95 $15.2300 $13.8750
$15.4800 $13.5000
$16.6200 $13.5000
$15.8200 $13.7500
6/96 $15.6200 $13.5000
$15.9800 $13.6250
$16.2400 $13.5000
$15.9400 $13.7500
6/97 $16.4600 $14.5620
$16.9400 $15.1250
$17.3300 $15.5000
$17.3000 $15.6250
6/98 $17.2600 $15.6250
$17.8100 $16.6875
$17.5400 $16.6875
$17.3800 $16.5625
6/99 $16.5400 $15.1250
$16.0500 $13.8750
$15.5000 $13.1250
$15.9000 $13.2500
6/00 $15.9000 $13.6250
$16.1400 $14.1250
$17.0500 $14.6250
$17.2000 $15.2300
6/01 $16.9600 $15.3200
$17.3500 $15.8400
$16.6200 $15.5200
$16.4800 $14.8000
6/02 $17.0800 $16.1400
$18.2000 $17.1700
$17.2200 $16.0300
$17.2000 $16.5500
4/03 $17.3300 $16.8000
</Table>
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's common share market price is represented by the dashed line, which
indicates the price the market is willing to pay for shares of the trust at a
given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions.
3
Q&A WITH YOUR PORTFOLIO MANAGER
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF VAN KAMPEN MUNICIPAL OPPORTUNITY
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, many 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 $0.0965 per share translated to a
distribution rate of 6.89 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 11.22 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 11.62 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 the trust's yield. One of our
primary methods for doing this was to purchase premium bonds with maturities of
between 15 and 20 years. Our quantitative analysis showed that this segment of
the yield curve offered the optimal 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. Several of the
fund's holdings were called by their issuers, and in other cases we preemptively
sold prerefunded issues that posed a risk of imminent call activity. We also
trimmed the fund's holdings of shorter premium
5
bonds that would be likely to underperform in the event that interest rates
began to climb. We followed a 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 when
they reached our price targets in order to reinvest the proceeds into bonds with
greater total return potential. These sales reduced the portfolio's exposure to
transportation bonds by 4 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
appears to have been 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 154.2%
ALABAMA 2.9%
$ 5,000 Jefferson Cnty, AL Swr Rev Cap Impt Wt Ser
B (FGIC Insd).............................. 5.125% 02/01/42 $ 5,115,000
2,435 Marshall Cnty, AL Hlthcare Ser C........... 6.000 01/01/32 2,561,523
381 Mobile, AL Indl Dev Brd Solid Waste Disp
Rev Mobile Energy Svc Co Proj Rfdg (a)
(b)........................................ 6.950 01/01/20 2,856
-------------
7,679,379
-------------
ARIZONA 1.8%
2,500 Arizona Sch Fac Brd Ctf Part Ser A (MBIA
Insd)...................................... 5.250 09/01/17 2,759,425
1,500 Maricopa Cnty, AZ Stadium Dist Rfdg (AMBAC
Insd)...................................... 5.375 06/01/19 1,639,635
500 Scottsdale, AZ Indl Dev Auth Hosp Rev
Scottsdale Hlthcare........................ 5.800 12/01/31 517,320
-------------
4,916,380
-------------
ARKANSAS 1.3%
3,035 Fort Smith, AR Wtr & Swr Rev Ser A Rfdg
(FSA Insd)................................. 5.250 10/01/16 3,343,720
-------------
CALIFORNIA 7.9%
375 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser C (GNMA
Collateralized)............................ 7.800 02/01/28 433,980
5,000 California St.............................. 5.000 02/01/24 5,025,500
5,500 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)...................................... 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
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (Escrowed to Maturity) (MBIA Insd)..... * 09/01/17 2,517,600
4,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Conv Cap Apprec Sr Lien Ser A (Escrowed
to Maturity) (c)........................... 0/7.050 01/01/10 4,488,680
-------------
20,905,945
-------------
</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
COLORADO 4.1%
$ 2,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev
E-470 Proj Ser B (Prerefunded @
08/31/05).................................. 7.000% 08/31/26 $ 2,313,340
1,505 Arapahoe Cnty, CO Ctfs Partn Rfdg (FSA
Insd)...................................... 5.250 12/01/15 1,701,688
545 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives................................ 5.250 09/01/21 562,217
1,000 Colorado Hlth Fac Auth Rev Hosp Portercare
Adventist Hlth............................. 6.500 11/15/31 1,090,470
1,000 Colorado Hsg Fin Auth Multi-Family Hsg Ins
Mtg Ser B2 (FHA Gtd)....................... 5.800 10/01/28 1,021,050
406 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser A2..................................... 7.250 05/01/27 419,126
265 Colorado Hsg Fin Auth Single Family Pgm Sr
Ser C1..................................... 7.550 11/01/27 268,673
1,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)...................................... 6.250 11/15/07 1,138,590
1,005 Greeley, CO Multi-Family Rev Hsg Mtg Creek
Stone (FHA Gtd)............................ 5.950 07/01/28 1,045,120
1,000 Highlands Ranch Metro Dist No 2 CO Rfdg
(FSA Insd)................................. 6.500 06/15/11 1,217,310
-------------
10,777,584
-------------
CONNECTICUT 2.1%
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 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement (d)..... 6.400 09/01/11 1,080,180
840 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A, 144A--Private Placement
(Escrowed to Maturity) (d)................. 6.500 09/01/06 970,234
-------------
5,568,701
-------------
DELAWARE 0.3%
700 Delaware St Hlth Facs Auth Rev Nanticoke
Mem Hosp Proj Ser B........................ 5.625 05/01/32 716,877
-------------
DISTRICT OF COLUMBIA 1.9%
5,000 Metropolitan Washington DC Arpt Auth Sys
Ser A (FGIC Insd).......................... 5.250 10/01/32 5,109,750
-------------
</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
FLORIDA 3.9%
$ 2,000 Escambia Cnty, FL Hlth Fac Auth Rev FL
Hlthcare Fac Ln VHA Pgm (AMBAC Insd)....... 5.950% 07/01/20 $ 2,192,280
1,000 Lakeland, FL Hosp Sys Rev Lakeland Regl
Hlth Sys................................... 5.500 11/15/32 1,017,180
2,100 Miami-Dade Cnty, FL Aviation Miami Intl
Arpt (FGIC Insd)........................... 5.375 10/01/27 2,170,770
2,500 Miami-Dade Cnty, FL Aviation Ser A (FSA
Insd)...................................... 5.000 10/01/33 2,512,025
2,375 North Broward, FL Hosp Dist Rev Impt....... 6.000 01/15/31 2,490,401
-------------
10,382,656
-------------
GEORGIA 6.9%
2,367 Fulton Cnty, GA Lease Rev (e).............. 7.250 06/15/10 2,588,025
7,000 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd)...................................... 6.500 01/01/20 8,871,800
6,245 Municipal Elec Auth GA Combustion Turbine
Proj Ser A (MBIA Insd)..................... 5.250 11/01/16 6,901,287
-------------
18,361,112
-------------
ILLINOIS 13.0%
2,000 Bolingbrook, IL Cap Apprec Ser C Rfdg (MBIA
Insd)...................................... * 01/01/23 727,240
2,000 Chicago, IL Brd of Ed (FGIC Insd).......... 5.500 12/01/31 2,160,180
5,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt
Second Lien Ser A Rfdg (MBIA Insd) (f)..... 6.375 01/01/12 5,458,300
2,000 Chicago, IL Pk Dist Hbr Fac Rev............ 5.875 01/01/16 2,204,500
6,400 Chicago, IL Sch Fin Auth Ser A (MBIA Insd)
(f)........................................ 5.000 06/01/09 6,772,992
240 Chicago, IL Single Family Mtg Rev Ser A
(GNMA Collateralized)...................... 7.000 09/01/27 244,742
195 Chicago, IL Single Family Mtg Rev Ser B
(GNMA Collateralized)...................... 7.625 09/01/27 203,584
1,000 Chicago, IL Wastewtr Transmission Rev
Second Lien (MBIA Insd).................... 5.750 01/01/25 1,113,900
2,000 Cook Cnty, IL Cmnty Cap Apprec (FSA Insd).. * 12/01/10 1,514,080
2,500 Du Page Cnty, IL Trans Rev (FSA Insd)...... 5.750 01/01/17 2,821,700
3,285 Illinois Hlth Facs Auth Rev Midwest
Physician Group Ltd Proj (Prerefunded @
11/15/04).................................. 8.125 11/15/19 3,687,215
650 Illinois Hsg Dev Auth Rev Homeowner Mtg
G2......................................... 6.050 08/01/29 690,885
</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)
$ 3,630 Kendall, Kane & Will Cntys, IL Cmnty Sch
Dist 308 Ser B (FGIC Insd)................. 5.250% 10/01/20 $ 3,907,768
1,000 Metropolitan Pier & Expo Auth IL Dedicated
St Tax Rev McCormick Pl Expn Proj Rfdg
(FGIC Insd)................................ 5.500 12/15/24 1,083,430
1,865 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5
(FGIC Insd)................................ 6.500 12/01/05 2,097,491
-------------
34,688,007
-------------
INDIANA 3.0%
3,270 Allen Cnty, IN War Mem Coliseum Ser A
(AMBAC Insd)............................... 5.500 11/01/16 3,655,239
1,000 Indiana St Dev Fin Auth Rev Exempt Fac Conv
Rfdg....................................... 5.950 08/01/30 905,940
1,210 North Adams, IN Cmnty Sch Cap Apprec First
Mtg (FSA Insd)............................. * 01/15/16 675,495
2,500 Purdue Univ, IN Univ Rev Student Fee Ser B
(Prerefunded @ 01/01/05)................... 6.750 07/01/09 2,796,500
-------------
8,033,174
-------------
IOWA 0.8%
1,890 Des Moines, IA Pub Pkg Sys Rev Ser A (FGIC
Insd)...................................... 5.750 06/01/17 2,166,772
-------------
KENTUCKY 2.9%
1,475 Kenton Cnty, KY Arpt Brd Rev Cincinnati/
Northn KY Intl Arpt Ser A Rfdg (MBIA
Insd)...................................... 6.200 03/01/08 1,691,368
2,000 Kentucky Hsg Corp Hsg Rev Ser F (FNMA
Collateralized)............................ 5.450 01/01/32 2,072,360
1,250 Kentucky St Tpk Auth Econ Dev
Revitalization Proj Rfdg (Prerefunded @
01/01/11) (FSA Insd)....................... 5.625 07/01/13 1,415,125
2,345 Kentucky St Tpk Auth Econ Dev
Revitalization Proj Rfdg (FSA Insd)........ 5.625 07/01/14 2,648,068
-------------
7,826,921
-------------
MARYLAND 1.0%
2,350 Northeast, MD Waste Disp Auth Rfdg (AMBAC
Insd)...................................... 5.500 04/01/16 2,584,647
-------------
</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
MASSACHUSETTS 3.7%
$ 4,000 Massachusetts Muni Whsl Elec Co Proj 6 A
(MBIA Insd)................................ 5.250% 07/01/15 $ 4,408,400
3,000 Massachusetts St Dev Fin Agy Semass Sys Ser
A (MBIA Insd).............................. 5.625 01/01/16 3,327,540
1,000 Massachusetts St Fed Hwy Grant Antic Nt Ser
A.......................................... 5.750 06/15/15 1,147,450
1,000 Massachusetts St Hlth & Ed Fac Auth Rev
Partn Hlthcare Sys Ser C................... 5.750 07/01/32 1,057,180
-------------
9,940,570
-------------
MICHIGAN 2.6%
3,505 Detroit, MI Wtr Supply Sys Ser B
(MBIA Insd)................................ 5.250 07/01/18 3,844,880
2,000 Michigan St Ctf Part (AMBAC Insd).......... 5.500 06/01/27 2,171,000
1,000 Michigan St Strategic Fd Detroit Edison
Pollutn Ctl Ser B Rfdg..................... 5.650 09/01/29 1,021,430
-------------
7,037,310
-------------
MINNESOTA 0.4%
1,000 Chaska, MN Elec Rev Ser A.................. 6.100 10/01/30 1,066,480
-------------
MISSISSIPPI 1.4%
2,500 Mississippi Home Corp Single Family Rev Mtg
Ser C (GNMA Collateralized)................ 7.600 06/01/29 2,778,175
980 Mississippi Home Corp Single Family Rev Mtg
Ser F (GNMA Collateralized)................ 7.550 12/01/27 1,030,313
-------------
3,808,488
-------------
MISSOURI 2.3%
2,250 Cape Girardeau Cnty, MO Indl Southeast MO
Hosp Assoc................................. 5.500 06/01/22 2,297,452
180 Saint Louis Cnty, MO Single Family Mtg Rev
(MBIA Insd)................................ 6.900 04/01/16 192,200
3,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)
(f)........................................ 6.200 06/01/10 3,552,480
-------------
6,042,132
-------------
NEVADA 0.6%
1,500 Reno, NV Sr Lien Retrac Reno Trans Proj
(AMBAC Insd)............................... 5.125 06/01/32 1,544,070
-------------
NEW HAMPSHIRE 1.1%
2,500 New Hampshire Hlth & Ed Fac Univ Sys of NH
(AMBAC Insd)............................... 5.500 07/01/15 2,824,675
-------------
</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
NEW JERSEY 11.8%
$ 2,000 Garden St Preservation Tr NJ Ser A (FSA
Insd)...................................... 5.250% 11/01/18 $ 2,213,580
20,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (MBIA Insd) (f)................... 5.900 03/15/21 23,837,000
5,000 New Jersey St Ed Fac Auth Higher Ed Cap
Impt Ser A (AMBAC Insd).................... 5.250 09/01/21 5,387,700
-------------
31,438,280
-------------
NEW MEXICO 1.3%
3,215 New Mexico Mtg Fin Auth Single Family Mtg
Pgm Ser G (GNMA Collateralized)............ 7.250 07/01/26 3,390,250
-------------
NEW YORK 13.3%
10,000 New York City Ser A (f).................... 7.000 08/01/07 11,409,300
3,000 New York City Ser A Rfdg................... 7.000 08/01/05 3,325,740
2,500 New York St Dorm Auth Lease Mun Hlth Facs
Impt Ser 1 (FSA Insd)...................... 5.500 01/15/12 2,843,200
1,500 New York St Dorm Auth Rev Mental Hlth Svcs
Fac Ser A.................................. 5.750 08/15/12 1,684,185
1,445 New York St Dorm Auth Rev Secd Hosp North
Gen Hosp Rfdg (MBIA Insd).................. 5.750 02/15/17 1,651,274
2,040 New York St Dorm Auth Rev Secd Hosp North
Gen Hosp Rfdg.............................. 5.750 02/15/18 2,275,090
3,800 New York St Mtg Agy Rev Ser 101............ 5.400 04/01/32 3,958,384
3,500 Port Auth NY & NJ Cons 97th Ser (FGIC
Insd)...................................... 6.650 01/15/23 3,779,720
4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj
JFK Intl Arpt Terminal 6 (MBIA Insd)....... 5.750 12/01/22 4,359,520
-------------
35,286,413
-------------
NORTH CAROLINA 6.7%
1,500 North Carolina Eastn Muni Pwr Agy Pwr Sys
Rev Ser D.................................. 6.700 01/01/19 1,660,515
11,000 North Carolina Muni Pwr Agy No 1 Catawba
Elec Rev Rfdg (MBIA Insd) (f).............. 6.000 01/01/12 12,990,890
3,000 North Carolina Muni Pwr Agy Ser A (MBIA
Insd)...................................... 5.250 01/01/19 3,249,270
-------------
17,900,675
-------------
NORTH DAKOTA 0.4%
1,030 North Dakota St Hsg Fin Agy Ser C.......... 5.550 07/01/29 1,059,829
-------------
</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
OHIO 3.8%
$ 1,000 Akron, OH Ctf Partn Akron Muni Baseball
Stad Proj.................................. 6.500% 12/01/07 $ 1,093,370
1,190 Bowling Green St Univ OH (FGIC Insd)....... 5.750 06/01/14 1,370,785
500 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj....................................... 7.500 01/01/30 554,715
3,000 Lucas Cnty, OH Hosp Rev Promedica Hlthcare
Oblig (MBIA Insd).......................... 6.000 11/15/07 3,420,240
1,500 Mahoning Cnty, OH Hosp Fac Forum Hlth Oblig
Group Ser A................................ 6.000 11/15/32 1,557,525
1,000 Ohio St Air Quality Dev Auth Rev JMG Fdg
Ltd Part Proj Rfdg (AMBAC Insd)............ 6.375 04/01/29 1,078,720
1,385 Pickerington, OH Loc Sch Dist Cap Apprec
Sch Facs Contr (FGIC Insd)................. * 12/01/10 1,061,076
-------------
10,136,431
-------------
OKLAHOMA 3.6%
4,770 McAlester, OK Pub Wks Auth Util Cap Apprec
(FSA Insd)................................. * 02/01/34 989,966
1,300 Sapulpa, OK Muni Auth Cap Impt Rev Rfdg
(FSA Insd)................................. 5.750 07/01/30 1,458,158
1,000 Tulsa Cnty, OK Pub Fac Auth Cap Impt Rev
(AMBAC Insd)............................... 6.250 11/01/22 1,190,660
2,000 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med
Cent Proj Rfdg (Escrowed to Maturity)
(Connie Lee Insd).......................... 6.125 06/01/05 2,191,020
3,140 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med
Cent Proj Rfdg (Escrowed to Maturity)
(Connie Lee Insd).......................... 6.250 06/01/08 3,694,273
-------------
9,524,077
-------------
OREGON 3.0%
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
-------------
8,115,850
-------------
PENNSYLVANIA 2.1%
1,000 Harrisburg, PA Cap Apprec Nts Ser F Rfdg
(AMBAC Insd)............................... * 03/15/15 601,980
1,865 Harrisburg, PA Cap Apprec Ser D Rfdg (AMBAC
Insd)...................................... * 09/15/15 1,098,951
</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
PENNSYLVANIA (CONTINUED)
$ 1,865 Harrisburg, PA Cap Apprec Ser D Rfdg (AMBAC
Insd)...................................... * 03/15/16 $ 1,060,905
1,500 Pennsylvania St Higher Ed UPMC Hlth Sys Ser
A.......................................... 6.000% 01/15/31 1,567,560
1,000 Philadelphia, PA Sch Dist Ser A (FSA
Insd)...................................... 5.750 02/01/13 1,144,480
-------------
5,473,876
-------------
SOUTH CAROLINA 3.0%
1,250 Easley, SC Util Rev Comb (FSA Insd)........ 5.250 12/01/18 1,368,662
4,000 South Carolina Jobs Econ Dev Rev Bon
Secours Hlth Sys Inc A..................... 5.625 11/15/30 4,094,760
2,500 South Carolina Jobs Econ Elec & Gas Co Proj
A (AMBAC Insd)............................. 5.200 11/01/27 2,619,325
-------------
8,082,747
-------------
SOUTH DAKOTA 0.6%
1,375 Deadwood, SD Ctfs Partn (ACA Insd)......... 6.375 11/01/20 1,490,747
-------------
TENNESSEE 0.9%
1,000 Elizabethton, TN Hlth & Ed Fac Brd Rev Hosp
First Mtg Ser B Impt & Rfdg................ 8.000 07/01/33 1,134,270
1,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Mtn St Hlth Ser A Rfdg (MBIA
Insd)...................................... 7.500 07/01/25 1,269,850
-------------
2,404,120
-------------
TEXAS 15.7%
980 Austin, TX Utility Sys Rev Comb (AMBAC
Insd)...................................... 6.500 11/15/05 1,101,344
20 Austin, TX Utility Sys Rev Comb (Escrowed
to Maturity) (AMBAC Insd).................. 6.500 11/15/05 22,487
2,500 Brazos River Auth TX Pollutn Ctl Rev Adj TX
Elec Co Proj Ser C Rfdg.................... 5.750 05/01/36 2,461,125
2,545 Dallas Cnty, TX Cmnty College Fin Sys
(AMBAC Insd)............................... 5.375 02/15/17 2,799,754
3,000 Dallas Cnty, TX Util & Reclamation Dist Ser
B Rfdg (AMBAC Insd)........................ 5.875 02/15/29 3,196,920
2,500 Dallas, TX Wtrwks & Swr Sys Rev & Impt Rfdg
(FSA Insd)................................. 5.375 10/01/18 2,775,850
5,500 Dallas-Fort Worth, TX Intl Arpt Rev Impt Jt
Ser A Rfdg (FGIC Insd)..................... 5.500 11/01/31 5,736,940
1,500 Dallas-Fort Worth, TX Intl Arpt Rev Jt Ser
A (FGIC Insd).............................. 5.750 11/01/30 1,601,130
</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
TEXAS (CONTINUED)
$ 2,000 Houston, TX Arpt Sys Rev Sub Lien (FSA
Insd)...................................... 5.500% 07/01/20 $ 2,180,940
3,000 Houston, TX Arpt Sys Rev Sub Lien Ser A
(FSA Insd)................................. 5.625 07/01/30 3,125,340
5,000 Houston, TX Arpt Sys Rev Sub Lien Ser A
(FSA Insd)................................. 5.125 07/01/32 5,047,000
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
1,225 Sabine River Auth TX Pollutn Ctl Rev TX
Elec Proj Ser A Rfdg....................... 6.450 06/01/21 1,202,509
1,303 Texas Gen Svcs Comm Partn Int Lease Purch
Ctfs....................................... 7.250 08/01/11 1,321,495
2,360 University TX Univ Rev Fin Sys Ser B....... 5.250 08/15/20 2,555,951
-------------
41,643,245
-------------
WASHINGTON 17.7%
9,850 Bellevue, WA Convention Cent Comp Int Rfdg
(MBIA Insd)................................ * 02/01/25 3,156,925
3,750 Chelan Cnty, WA Pub Util Dist No. 001 Cons
Rev Chelan Hydro Ser A (MBIA Insd)......... 5.600 01/01/36 3,946,837
5,000 Energy Northwest WA Elec Rev Columbia
Generating Ser A Rfdg (FSA Insd)........... 5.500 07/01/16 5,574,550
2,000 Port Seattle, WA Rev Ser B (MBIA Insd)..... 5.625 02/01/24 2,106,780
4,000 Tacoma, WA Elec Sys Rev Ser B Rfdg (FSA
Insd) (f).................................. 5.500 01/01/11 4,546,800
2,900 Thurston & Pierce Cntys, WA (FSA Insd)..... 5.000 12/01/22 3,015,217
9,975 Washington St Pub Pwr Supply Ser B (MBIA
Insd)...................................... 5.600 07/01/15 10,250,110
25 Washington St Pub Pwr Supply Ser B
(Prerefunded @ 07/01/03) (MBIA Insd)....... 5.600 07/01/15 25,690
10,975 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser A (MBIA Insd)............ 5.700 07/01/17 11,269,240
5,125 Washington St Pub Pwr Supply Sys Nuclear
Proj No 3 Rev Ser C Rfdg (MBIA Insd)....... * 07/01/14 3,151,875
-------------
47,044,024
-------------
WEST VIRGINIA 3.0%
8,000 Harrison Cnty, WV Cmnty Solid Waste Disp
Rev West Penn Pwr Co Proj Ser A (MBIA Insd)
(f)........................................ 6.875 04/15/22 8,111,200
-------------
</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
WISCONSIN 1.3%
$ 1,500 Southeast WI Professional Baseball Pk Dist
Sales Tax Rev Ser A Rfdg (MBIA Insd)....... 5.500% 12/15/20 $ 1,727,820
1,825 Wisconsin Hsg & Econ Dev Auth Home
Ownership Rev Ser F........................ 5.250 07/01/29 1,860,843
-------------
3,588,663
-------------
WYOMING 0.1%
240 Wyoming Cmnty Dev Auth Hsg Rev Ser 2....... 6.350 06/01/29 254,359
-------------
TOTAL LONG-TERM INVESTMENTS 154.2%
(Cost $375,007,451)........................................................ 410,270,136
SHORT-TERM INVESTMENTS 1.6%
(Cost $4,300,000).......................................................... 4,300,000
-------------
TOTAL INVESTMENTS 155.8%
(Cost $379,307,451)........................................................ 414,570,136
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%................................... 1,586,150
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (56.4%)................... (150,104,673)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%............................... $ 266,051,613
=============
</Table>
See Notes to Financial Statements
16
YOUR TRUST'S INVESTMENTS
April 30, 2003 (Unaudited)
* Zero coupon bond
(a) Non-income producing security.
(b) This borrower has filed for protection in federal bankruptcy court.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(e) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
(f) Asset segregated as collateral for open futures transactions.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
Connie Lee--Connie Lee Insurance Co.
FGIC--Financial Guaranty Insurance Co.
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
17
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
April 30, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $379,307,451)....................... $414,570,136
Cash........................................................ 364,244
Receivables:
Interest.................................................. 6,419,138
Investments Sold.......................................... 569,349
Other....................................................... 802
------------
Total Assets............................................ 421,923,669
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,974,050
Investment Advisory Fee................................... 203,901
Variation Margin on Futures............................... 190,187
Administrative Fee........................................ 16,992
Affiliates................................................ 9,528
Accrued Expenses............................................ 192,791
Trustees' Deferred Compensation and Retirement Plans........ 179,934
------------
Total Liabilities....................................... 5,767,383
Preferred Shares (including accrued distributions).......... 150,104,673
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $266,051,613
============
NET ASSET VALUE PER COMMON SHARE ($266,051,613 divided by
15,352,891 shares outstanding)............................ $ 17.33
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 15,352,891 shares issued and
outstanding).............................................. $ 153,529
Paid in Surplus............................................. 226,695,485
Net Unrealized Appreciation................................. 35,104,044
Accumulated Undistributed Net Investment Income............. 3,063,939
Accumulated Net Realized Gain............................... 1,034,616
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $266,051,613
============
PREFERRED SHARES ($.01 par value, authorized 100,000,000
shares, 6,000 issued with liquidation preference of
$25,000 per share)........................................ $150,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $416,051,613
============
</Table>
See Notes to Financial Statements
18
Statement of Operations
For the Six Months Ended April 30, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $10,804,974
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,230,292
Preferred Share Maintenance................................. 196,281
Administrative Fee.......................................... 102,525
Trustees' Fees and Related Expenses......................... 32,251
Legal....................................................... 18,350
Custody..................................................... 12,670
Other....................................................... 122,274
-----------
Total Expenses.......................................... 1,714,643
-----------
NET INVESTMENT INCOME....................................... $ 9,090,331
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 2,239,194
Futures................................................... (1,049,492)
-----------
Net Realized Gain........................................... 1,189,702
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 30,617,858
End of the Period:
Investments............................................. 35,262,685
Futures................................................. (158,641)
-----------
35,104,044
-----------
Net Unrealized Appreciation During the Period............... 4,486,186
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 5,675,888
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(1,049,438)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $13,716,781
===========
</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.............................. $ 9,090,331 $ 18,848,277
Net Realized Gain.................................. 1,189,702 7,531,948
Net Unrealized Appreciation/Depreciation During the
Period........................................... 4,486,186 (5,147,455)
Distributions to Preferred Shareholders:
Net Investment Income............................ (511,718) (1,453,653)
Net Realized Gain................................ (537,720) (1,173,929)
------------ ------------
Change in Net Assets Applicable to Common Shares
from Operations.................................. 13,716,781 18,605,188
Distributions to Common Shareholders:
Net Investment Income............................ (8,888,357) (16,611,005)
Net Realized Gain................................ (7,109,923) (3,700,047)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM INVESTMENT ACTIVITIES................ (2,281,499) (1,705,864)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period............................ 268,333,112 270,038,976
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $3,063,939
and $3,373,683, respectively).................... $266,051,613 $268,333,112
============ ============
</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............. $ 17.48 $ 17.59 $ 16.29
------- ------- -------
Net Investment Income.............................. .59 1.23 1.26
Net Realized and Unrealized Gain/Loss.............. .37 .15 1.29
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................ (.03) (.09) (.32)
Net Realized Gain................................ (.04) (.08) (.01)
------- ------- -------
Total from Investment Operations..................... .89 1.21 2.22
Distributions Paid to Common Shareholders:
Net Investment Income............................ (.58) (1.08) (.92)
Net Realized Gain................................ (.46) (.24) -0-
------- ------- -------
NET ASSET VALUE, END OF THE PERIOD................... $ 17.33 $ 17.48 $ 17.59
======= ======= =======
Common Share Market Price at End of the Period....... $ 16.80 $ 16.04 $ 15.65
Total Return (b)..................................... 11.62%* 11.36% 21.42%
Net Assets Applicable to Common Shares at End of the
Period (In millions)............................... $ 266.1 $ 268.3 $ 270.0
Ratio of Expenses to Average Net Assets Applicable to
Common Shares (c).................................. 1.31% 1.42% 1.58%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (c).................... 6.96% 7.17% 7.40%
Portfolio Turnover................................... 17%* 43% 34%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (c)............................... .84% .91% 1.00%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (d).................... 6.57% 6.61% 5.54%
SENIOR SECURITIES:
Total Preferred Shares Outstanding................... 6,000 6,000 6,000
Asset Coverage Per Preferred Share (e)............... $69,359 $69,736 $70,006
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 by $.01, decrease net realized and unrealized gains and
losses per share by $.01 and increase the ratio of net investment income to
average net assets applicable to common shares by .03%. 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.
21
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
- ----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------
$ 15.67 $ 17.61 $ 16.96 $ 16.12 $ 15.85 $ 14.39 $ 17.30 $ 14.99
-------- ------- -------- -------- -------- -------- -------- --------
1.27 1.25 1.26 1.26 1.27 1.28 1.30 1.36
.65 (1.97) .64 .83 .27 1.58 (2.92) 2.33
(.40) (.32) (.35) (.35) (.36) (.39) (.27) (.28)
-0- -0- -0- -0- -0- -0- -0- (.02)
-------- ------- -------- -------- -------- -------- -------- --------
1.52 (1.04) 1.55 1.74 1.18 2.47 (1.89) 3.39
(.90) (.90) (.90) (.90) (.91) (1.01) (1.02) (1.02)
-0- -0- -0- -0- -0- -0- -0- (.06)
-------- ------- -------- -------- -------- -------- -------- --------
$ 16.29 $ 15.67 $ 17.61 $ 16.96 $ 16.12 $ 15.85 $ 14.39 $ 17.30
======== ======= ======== ======== ======== ======== ======== ========
$13.6875 $ 13.50 $ 16.50 $15.0625 $ 13.75 $ 13.625 $ 13.00 $ 16.375
8.28% -13.29% 15.91% 16.54% 7.72% 12.70% -14.96% 20.85%
$ 250.1 $ 240.5 $ 270.3 $ 260.3 $ 247.5 $ 243.3 $ 220.9 $ 265.6
1.68% 1.62% 1.61% 1.64% 1.66% 1.75% 1.69% 1.62%
8.04% 7.35% 7.25% 7.64% 7.96% 8.45% 8.14% 8.22%
29% 30% 29% 49% 85% 70% 76% 52%
1.03% 1.03% 1.03% 1.03% 1.03% 1.06% 1.05% 1.02%
5.49% 5.48% 5.24% 5.51% 5.73% 5.87% 6.43% 6.51%
6,000 6,000 3,000 3,000 3,000 3,000 3,000 3,000
$ 66,683 $65,086 $140,098 $136,771 $132,502 $131,094 $123,637 $138,519
$ 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 Municipal Opportunity 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 commenced investment operations on April 24,
1992.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services or dealers are valued at
fair value using procedures established in good faith by the Board of Trustees.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made. At April 30, 2003, the Trust had 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.
At April 30, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $378,526,961
============
Gross tax unrealized appreciation........................... 36,773,637
Gross tax unrealized depreciation........................... (730,462)
------------
Net tax unrealized appreciation on investments.............. $ 36,043,175
============
</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........................................... $ 229,243
Long-term capital gain.................................... 4,961,634
----------
$5,190,877
==========
</Table>
As of October 31, 2002, the components of distributable earnings on a tax
basis were as follows:
<Table>
Undistributed ordinary income............................... $1,942,714
Undistributed long-term capital gain........................ 5,824,197
</Table>
Net realized gains and losses may differ for financial and tax purposes as a
result of wash sales or gains or losses recognized for tax purposes on open
future transactions on April 30, 2003.
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, 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 $9,400 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 $23,800
representing Van Kampen's cost of providing accounting and legal services to the
Trust, which are reported as part of "Other" and "Legal" expenses, respectively,
in the Statement of Operations.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable upon retirement for a
ten-year period and are based upon each trustee's years of service to the Trust.
The maximum annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $67,503,553 and $73,453,844,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
25
NOTES TO
FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
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. Risks may
arise as a result of the potential inability of the counterparties to meet the
terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Trust maintains, in a segregated
account with its custodian, an amount of cash or liquid securities with a value
equal to a percentage of the contract amount with either a futures commission
merchant pursuant to rules and regulations promulgated under the 1940 Act, or
with its custodian in an account in the broker's name. This amount is known as
initial margin. During the period the futures contract is open, payments are
received from or made to the broker based upon changes in the value of the
contract (the variation margin).
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended April 30, 2003, were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at October 31, 2002............................. 291
Futures Opened.............................................. 792
Futures Closed.............................................. (697)
----
Outstanding at April 30, 2003............................... 386
====
</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 were 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)................ 312 $(136,936)
U.S. Treasury Notes 10 Year Futures, June 2003 (Current
Notional Value of $115,125 per contract)................ 74 (21,705)
--- ---------
386 $(158,641)
=== =========
</Table>
5. PREFERRED SHARES
The Trust has outstanding 6,000 Auction Preferred Shares ("APS") in two series
of 3,000 shares each. Dividends are cumulative and the dividend rate on each
series is currently reset every 28 days through an auction process. The average
rate in effect on April 30, 2003 was 1.035%. During the six months ended April
30, 2003, the rates ranged from 0.990% to 2.050%.
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 MUNICIPAL OPPORTUNITY 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.
VMO SAR 6/03 Member NASD/SIPC.
11210F03-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 Municipal Opportunity 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