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 811-5320
Van Kampen 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: 6/30/03
-----------
Date of reporting period: 6/30/03
-----------
Item 1 Report to Shareholders
Welcome, Shareholder
In this update, you'll learn about how your trust performed during the
reporting period. The portfolio management team will provide an overview
of the market climate, and discuss some of the factors that helped or
hindered performance during the reporting period. In addition, this
report includes the trust's financial statements and a list of
investments, as well as other information.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the trust will achieve its investment
objective. The trust is subject to market risk, which is the possibility
that the market values of securities owned by the trust will decline and,
therefore, the value of the trust shares may be less than what you paid
for them. Accordingly, you can lose money investing in this trust.
Income may subject certain individuals to the federal alternative minimum
tax (AMT).
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Performance Summary
NET ASSET VALUE AND COMMON SHARE MARKET PRICE
(based upon quarter-end values--June 1993 through June 2003)
(LINE GRAPH)
<Table>
<Caption>
NET ASSET VALUE COMMON SHARE MARKET PRICE
--------------- -------------------------
6/93 11.13 12.00
11.37 12.38
11.17 11.75
9.93 10.75
6/94 9.92 11.13
9.82 10.25
9.34 9.75
9.90 11.00
6/95 9.76 11.13
9.86 10.75
10.24 10.50
9.88 10.38
6/96 9.76 9.88
9.90 10.25
10.00 10.38
9.81 10.13
6/97 10.01 10.88
10.18 11.00
10.35 10.81
10.32 10.31
6/98 10.26 10.88
10.57 11.00
10.38 10.81
10.13 10.69
6/99 9.56 9.63
9.15 8.88
8.80 7.63
9.02 8.06
6/00 9.00 8.69
9.13 8.38
9.67 8.38
9.72 8.70
6/01 9.62 8.89
9.94 8.90
9.61 8.48
9.55 8.41
6/02 9.99 8.85
10.66 9.57
10.47 9.05
10.48 9.20
6/03 10.73 9.66
</Table>
The solid line above represents the fund's net asset value (NAV), which
indicates overall changes in value among the fund's underlying securities. The
fund'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 fund at a
given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions.
<Table>
<Caption>
- ------------------------------------------
AVERAGE ANNUAL MARKET PRICE
TOTAL RETURNS since 08/26/88
Since Inception 7.15%
10-year 4.80
5-year 4.01
1-year 15.76
- ------------------------------------------
</Table>
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. Total return assumes an investment at the
common share market price at the beginning of the period, 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. Distribution rate is as a percentage of closing
common share market price, and represents the monthly annualized distributions
of the trust at the end of the period and not the earnings of the trust.
The Lehman Brothers Municipal Bond Index is broad-based statistical composite of
municipal bonds. The index does not include any expenses, fees or sales charges,
which would lower performance. The index is unmanaged and should not be
considered an investment.
1
Trust Report
FOR THE 12-MONTH PERIOD ENDED JUNE 30, 2003
Van Kampen Municipal Income Trust is managed by the Adviser's Municipal
Fixed Income team. Current members of the team(1) include Thomas Byron,
Vice President; Robert Wimmel, Vice President; and Jack Reynoldson,
Executive Director. The following discussion reflects their views on the
trust's performance.
Q. BEFORE YOU DISCUSS HOW THE TRUST PERFORMED, PLEASE DESCRIBE THE
OVERALL MARKET ENVIRONMENT.
A. The municipal-bond market was dominated by the effects of steadily
falling interest rates over the course of the period. The Federal Reserve
Bank (the Fed) cut interest rates several times in an effort to stimulate
the economy, bringing benchmark Treasury rates to their lowest levels in
decades.
Geopolitical concerns around the war in Iraq and terrorism also
contributed to volatility, though the tension in the market was somewhat
eased as the initial combat phase of the war was concluded.
The slow economy had a significant impact on cash-strapped states, many
of which experienced serious credit deterioration in their general
obligations. Budget problems and low financing costs led state and local
municipalities to bring record levels of issuance to the market in 2002,
with volume in the first half of 2003 even higher than the same period in
2002.
Q. HOW DID THE TRUST PERFORM DURING THE REPORTING PERIOD?
A. The trust outperformed its benchmark index.
-- The trust generated a total return of 15.76 percent for the 12
months ended June 30, 2003, based on common share market price.
-- By comparison, the Lehman Brothers Municipal Bond Index, returned
8.74 percent.
-- The trust's monthly dividend of $0.05 translated to a distribution
rate of 6.21 percent, based on the trust's common share market price
as of June 30, 2003.
See Performance Summary for additional information and index definitions
(1)Team members may change at any time without notice.
2
Q. WHAT HELPED PERFORMANCE DURING THE REPORTING PERIOD?
A. -- The weak economy led us to keep the portfolio's credit quality
relatively high. This was an aid to performance as investors bid up
the price of higher-rated securities.
-- Our strategy also emphasized highly liquid securities favored by the
market during the reporting period.
-- The portfolio came into the period with several securities we
purchased at a discount in previous years. As interest rates
declined, these bonds rallied strongly, helping to boost the
portfolio's performance.
Q. WHAT FACTORS HINDERED PERFORMANCE?
A. -- Our expectation for an improving economy led us to assume a
defensive duration posture, which held the trust back when interest
rates fell sharply, especially in the second half of the period.
-- The portfolio had a small position in airport bonds that lagged
because of that sector's ongoing difficulties. We ultimately sold
the bonds when it became clear that the industry's profitability
would probably suffer for quite some time, negatively affecting
performance.
Q. PLEASE WALK US THROUGH HOW YOU POSITIONED THE FUND, HIGHLIGHTING KEY
THEMES.
A. Our expectations for the economy centered on an anticipated return to
positive growth in the relatively near term. This led us to keep the
portfolio's duration shorter than that of its benchmark index in an
effort to minimize unwanted volatility. Many of our purchases were bonds
with the yield advantage of premium coupons and the moderate
<Table>
TOP 5 SECTORS AS OF 6/30/03 RATINGS ALLOCATION AS OF 6/30/03
General Purpose 18.3% AAA/Aaa 77.3%
Public Building 13.3 AA/Aa 11.7
Transportation 12.1 A/A 4.4
Wholesale Electric 10.7 BBB/Baa 4.6
Health Care 10.2 Not Rated 2.0
</Table>
Subject to change daily. All percentages are as a percentage of long-term
investments. Provided for informational purposes only and should not be deemed
as a recommendation to buy securities in the sectors shown above. Securities are
classified by sectors that represent broad groupings of related industries.
Rating allocations based upon ratings as issued by Standard and Poor's and
Moody's, respectively. Morgan Stanley is a full-service securities firm engaged
in securities trading and brokerage activities, investment banking, research and
analysis, financing and financial advisory services.
3
interest-rate sensitivity of intermediate bonds. We also reduced the
portfolio's turnover in order to avoid having to reinvest the sale
proceeds in low-coupon issues.
Because of ongoing credit deterioration across the market, we upgraded
the portfolio's overall credit quality through the purchase of credit-
enhanced bonds and by trimming holdings of bonds in economically troubled
sectors such as airports and health care.
Q. NOW THAT YOU'VE PROVIDED AN OVERVIEW OF THE FUND, DO YOU HAVE ANY
CLOSING THOUGHTS FOR THE SHAREHOLDERS?
A. Treasury yields ended the period at multi-decade lows that we believe may
be unsustainable. In addition, both fiscal and monetary policy remain
geared to spurring near-term economic growth. Considering these factors,
we believe its more likely interest rates will rise than fall. Rising
interest rates would provide more attractive investment opportunities,
especially if issuance remains strong. It is difficult to predict with
certainty, however, where the economy and interest rates are headed.
Regardless, we will continue with our disciplined investment approach,
watching the markets closely for emerging opportunities.
PROXY VOTING POLICIES AND PROCEDURES
A description of the fund's policies and procedures with respect to the
voting of proxies relating to the fund's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
4
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
June 30, 2003
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 151.7%
ALABAMA 2.7%
$3,660 Alabama St Brd Ed Rev & Impt Southn Univ St
Cmnty Rfdg (MBIA Insd).......................... 5.250% 07/01/20 $ 3,987,021
1,865 Alabama St Univ Rev Gen Tuit & Fee Ser B (MBIA
Insd)........................................... 5.250 03/01/33 1,990,776
1,990 Jefferson Cnty, AL Wts Ser A (AMBAC Insd)....... 5.000 04/01/09 2,250,391
-------------
8,228,188
-------------
ALASKA 1.8%
3,650 Alaska St Intl Arpt Rev Ser B (AMBAC Insd)...... 5.250 10/01/27 3,865,824
1,575 Matanuska-Susitna Boro, AK Ctf Part Pub Safety
Bldg Lease (FSA Insd)........................... 5.750 03/01/16 1,802,209
-------------
5,668,033
-------------
ARIZONA 4.6%
1,000 Arizona Hlth Fac Auth Hosp John C Lincoln Hlth
Network......................................... 6.375 12/01/37 1,048,020
4,000 Arizona St Trans Brd Excise Tax Maricopa Cnty
Regl Area Rd Fd................................. 5.500 07/01/04 4,180,600
4,000 Arizona St Trans Brd Hwy Rev Sub Ser A Rfdg..... 4.750 07/01/11 4,211,440
4,375 Salt River Proj AZ Agric Impt Salt River Proj
Ser A Rfdg...................................... 5.250 01/01/06 4,778,200
-------------
14,218,260
-------------
CALIFORNIA 7.3%
1,000 California St Dept Wtr Res Ctr Wtr Sys Ser X
(FGIC Insd)..................................... 5.000 12/01/29 1,046,220
1,000 California St Dept Wtr Res Pwr Ser A............ 6.000 05/01/15 1,142,970
1,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.500 05/01/16 1,132,490
2,500 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.375 05/01/18 2,768,275
5,000 California St Univ Rev & Co Systemwide Ser A
(AMBAC Insd).................................... 5.000 11/01/33 5,225,400
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(Escrowed to Maturity) (MBIA Insd).............. * 09/01/17 2,605,400
4,500 Los Angeles, CA Dept Wtr & Pwr Ser A (FGIC
Insd)........................................... 5.125 07/01/40 4,691,070
2,500 Los Angeles, CA Uni Sch Dist Ser A (FSA Insd)... 5.250 07/01/20 2,754,450
1,000 Santa Clara Cnty, CA Brd Ed Rfdg (MBIA Insd).... 5.000 04/01/25 1,047,500
-------------
22,413,775
-------------
</Table>
See Notes to Financial Statements 5
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
COLORADO 2.4%
$1,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj (Prerefunded @ 08/31/05)................... 7.000% 08/31/26 $ 1,727,850
1,000 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj Ser B (Prerefunded @ 08/31/05)............. 6.950 08/31/20 1,150,830
550 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives..................................... 5.250 09/01/21 570,097
1,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A............................... 5.500 03/01/32 1,040,100
1,000 El Paso Cnty, CO Ctf Part Detention Fac Proj Ser
B (AMBAC Insd).................................. 5.375 12/01/18 1,116,570
1,850 Montrose Cnty, CO Ctf Part...................... 6.350 06/15/06 1,934,970
-------------
7,540,417
-------------
CONNECTICUT 1.0%
1,750 Connecticut St Spl Oblig Pkg Rev Bradley Intl
Arpt Ser A (ACA Insd)........................... 6.600 07/01/24 1,907,167
1,000 Hartford, CT Pkg Sys Rev Ser A.................. 6.500 07/01/25 1,070,050
-------------
2,977,217
-------------
DISTRICT OF COLUMBIA 1.0%
2,775 District of Columbia Hosp Rev Medlantic Hlthcare
Ser A Rfdg (Escrowed to Maturity) (MBIA Insd)... 5.250 08/15/12 3,109,138
-------------
FLORIDA 12.1%
2,775 Broward Cnty, FL Wtr & Swr Util Rfdg (MBIA
Insd)........................................... 5.000 10/01/21 2,961,813
2,500 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd)........................................... 5.950 07/01/20 2,775,350
1,000 Florida Keys Aqueduct Auth Wtr Rfdg (MBIA
Insd)........................................... 5.000 09/01/19 1,082,390
1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd)........................................... 5.750 07/01/11 1,174,420
2,000 Florida St Dept Environmental Prot Preservtn Rev
Ser A (FGIC Insd)............................... 5.750 07/01/10 2,363,060
1,075 Gulf Breeze, FL Rev Miami Beach Loc Govt Ln E
Tender (FGIC Insd).............................. 4.950 12/01/20 1,191,337
1,745 Hillsborough Cnty, FL Port Dist Tampa Port Auth
Proj Ser A (MBIA Insd).......................... 5.375 06/01/27 1,838,741
1,000 Jea, FL Elec Sys Rev Ser 3 Ser A................ 5.500 10/01/41 1,074,810
2,105 Lake Cnty, FL Sch Brd Ctf Part (AMBAC Insd)..... 5.375 07/01/15 2,396,206
1,000 Marion Cnty, FL Sch Brd Ctf..................... 5.250 06/01/18 1,114,060
1,500 Miami Beach, FL Stormwtr Rev (FGIC Insd)........ 5.250 09/01/25 1,580,820
1,720 Miami-Dade Cnty, FL Aviation Rev Miami Intl Arpt
(FGIC Insd)..................................... 5.375 10/01/32 1,787,321
1,725 Miami-Dade Cnty, FL Aviation Ser A (FSA Insd)... 5.000 10/01/33 1,739,490
3,000 Orange Cnty, FL Sch Brd Ctf Part Ser A (AMBAC
Insd)........................................... 5.250 08/01/14 3,433,710
</Table>
6 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FLORIDA (CONTINUED)
$4,000 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd)........................................... 5.625% 10/01/14 $ 4,594,400
2,000 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd)........................................... 5.500 10/01/31 2,162,080
2,470 Plantation, FL Impt Proj Rfdg (FSA Insd)........ 5.000 08/15/20 2,651,520
1,115 Tallahassee, FL Lease Rev FL St Univ Proj Ser A
(MBIA Insd)..................................... 5.500 08/01/19 1,244,485
-------------
37,166,013
-------------
GEORGIA 7.9%
4,499 Fulton Cnty, GA Lease Rev (a)................... 7.250 06/15/10 4,878,349
2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd)........................................... 6.500 01/01/20 3,393,537
3,000 Georgia Muni Elec Auth Pwr Rev Ser B Rfdg (FGIC
Insd)........................................... 6.250 01/01/17 3,776,190
2,500 Georgia St Ser D................................ 6.000 10/01/05 2,760,275
2,335 Georgia St Ser D................................ 6.000 10/01/06 2,665,309
1,405 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)............................... 5.250 11/01/14 1,596,319
2,000 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)............................... 5.250 11/01/22 2,145,520
800 Royston, GA Hosp Auth Hosp Rev Ctf Hlthcare Sys
Inc............................................. 6.700 07/01/16 806,296
2,500 Royston, GA Hosp Auth Hosp Rev Ctf Hlthcare Sys
Inc............................................. 6.500 07/01/27 2,448,300
-------------
24,470,095
-------------
HAWAII 0.4%
1,140 University Hawaii Univ Sys Rev Ser B Rfdg (FSA
Insd)........................................... 5.250 10/01/14 1,291,916
-------------
ILLINOIS 17.0%
4,000 Chicago, IL Brd Ed Chicago Sch Reform Ser A
(AMBAC Insd).................................... 5.250 12/01/27 4,173,440
1,400 Chicago, IL Brd Ed Ser A (MBIA Insd)............ 5.500 12/01/28 1,516,956
2,250 Chicago, IL Neighborhoods Alive 21 Ser A (FGIC
Insd)........................................... 5.500 01/01/13 2,594,385
1,000 Chicago, IL O'Hare Intl Arpt Rev Second Lien
Passenger Fac Ser B (AMBAC Insd)................ 5.500 01/01/16 1,116,570
1,000 Chicago, IL Proj Ser C Rfdg (FGIC Insd)......... 5.750 01/01/14 1,160,710
1,000 Chicago, IL Proj Ser C Rfdg (FGIC Insd)......... 5.750 01/01/15 1,156,430
4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A
(Escrowed to Maturity) (MBIA Insd).............. * 01/01/07 4,563,804
1,000 Chicago, IL Ser B Rfdg (AMBAC Insd)............. 5.125 01/01/15 1,143,100
2,000 Chicago, IL Wastewtr Transmission Rev Second
Lien (MBIA Insd)................................ 5.750 01/01/25 2,221,160
</Table>
See Notes to Financial Statements 7
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ILLINOIS (CONTINUED)
$1,960 Cook Cnty, IL Cmnty Cons Sch Dist (FSA Insd).... 5.500% 12/01/13 $ 2,336,575
1,000 Cook Cnty, IL Ser A (FGIC Insd)................. 5.500 11/15/31 1,084,680
3,230 Cook Cnty, IL Ser A Rfdg (MBIA Insd)............ 5.625 11/15/16 3,667,504
2,310 Illinois Dev Fin Auth Rev Adventist Hlth Ser A
(MBIA Insd)..................................... 5.500 11/15/13 2,685,999
2,500 Illinois Dev Fin Auth Rev Adventist Hlth Ser A
(MBIA Insd)..................................... 5.500 11/15/15 2,896,250
1,335 Illinois Dev Fin Auth Rev Bradley Univ Proj
(Prerefunded @ 08/01/09) (AMBAC Insd)........... 5.375 08/01/24 1,568,345
2,000 Illinois Ed Fac Auth Rev Lewis Univ............. 6.125 10/01/26 2,023,900
3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg............................................ 6.000 11/15/23 3,280,926
1,500 Illinois St First Ser (FGIC Insd)............... 5.375 11/01/14 1,707,795
1,900 Kendall, Kane & Will Cntys, IL Cmnty Unit Sch
Dist No. 308 Ser B (FGIC Insd).................. 5.250 10/01/21 2,050,765
2,500 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev McCormick Pl Expansion Ser A (MBIA
Insd)........................................... 5.250 06/15/42 2,664,400
1,250 Sangamon Cnty, IL Ctf Part......................10.000 12/01/06 1,568,725
7,455 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)........................................... * 12/01/12 5,253,688
-------------
52,436,107
-------------
INDIANA 2.3%
2,420 Brownsburg, IN Sch Bldg Corp First Mtg
Brownsburg Cmnty Sch (MBIA Insd)................ 5.550 02/01/24 2,631,871
1,000 Clark Pleasant, IN Cmnty Sch First Mtg (AMBAC
Insd)........................................... 5.500 07/15/18 1,115,650
2,000 Indiana Trans Fin Auth Toll Rfdg (AMBAC Insd)... 5.375 07/01/09 2,251,040
1,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt...... 6.375 11/01/29 952,820
-------------
6,951,381
-------------
KANSAS 2.6%
3,810 Kansas St Dev Fin Auth Rev KS Proj Ser N (AMBAC
Insd)........................................... 5.250 10/01/22 4,079,138
1,250 Kansas St Dev Fin Auth Rev KS St Proj (AMBAC
Insd)........................................... 5.500 03/01/16 1,414,038
2,235 Sedgwick Cnty, KA Uni Sch Dist No. 259 Wichita
(MBIA Insd)..................................... 5.500 09/01/11 2,582,341
-------------
8,075,517
-------------
KENTUCKY 3.4%
2,190 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl Arpt Ser A Rfdg (MBIA Insd)............. 6.250 03/01/09 2,529,625
5,000 Kentucky St Ppty & Bldgs Commn Proj No. 74 Rfdg
(FSA Insd)...................................... 5.375 02/01/16 5,589,650
2,000 Kentucky St Tpk Auth Econ Dev Revitalization
Proj Rfdg (FSA Insd)............................ 5.500 07/01/07 2,272,520
-------------
10,391,795
-------------
</Table>
8 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
LOUISIANA 0.6%
$1,500 Louisiana St Ser A (FGIC Insd).................. 5.500% 11/15/08 $ 1,741,350
-------------
MARYLAND 1.0%
2,180 Baltimore, MD Cap Apprec Ser A (FGIC Insd)...... * 10/15/09 1,646,837
220 Baltimore, MD Cap Apprec Ser A (Prerefunded @
10/15/05) (FGIC Insd)........................... * 10/15/09 168,124
1,365 Maryland St Econ Dev Corp Salisbury Univ Proj... 5.000 06/01/34 1,269,191
-------------
3,084,152
-------------
MASSACHUSETTS 3.2%
2,000 Massachusetts Muni Whsl Elec Co Proj 6 A (MBIA
Insd)........................................... 5.250 07/01/15 2,222,780
4,000 Massachusetts St Cons Ln Ser B (Prerefunded @
03/01/12) (FSA Insd)............................ 5.500 03/01/17 4,722,400
1,500 Massachusetts St Fed Hwy Gnt Antic Nt Ser A..... 5.750 06/15/15 1,792,185
1,000 Massachusetts St Indl Fin Agy Rev Higher Ed
Hampshire College Proj.......................... 5.625 10/01/12 1,067,410
-------------
9,804,775
-------------
MICHIGAN 3.0%
1,000 Grand Rapids, MI Wtr Supply Sys Rfdg (FGIC
Insd)........................................... 5.750 01/01/13 1,169,620
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale
Cmnty Hlth Ctr.................................. 5.750 05/15/18 1,134,546
1,000 Macomb Cnty, MI Hosp Fin Auth Hosp Rev Mt
Clemens Gen Hosp Ser B.......................... 5.750 11/15/25 977,780
1,000 Michigan Muni Bd Auth Rev Clean Wtr Rev Fd...... 5.250 10/01/18 1,111,760
1,000 Michigan St Strategic Fd Detroit Edison Co Proj
C Rfdg (XLCA Insd).............................. 5.450 12/15/32 1,048,930
1,000 Michigan St Strategic Fd Detroit Edison Pollutn
Ctl Ser B Rfdg.................................. 5.650 09/01/29 1,032,250
2,500 Michigan St Strategic Fd Ltd Oblig Rev Detroit
Ed Conv Rfdg (AMBAC Insd)....................... 4.850 09/01/30 2,777,300
-------------
9,252,186
-------------
MISSISSIPPI 0.5%
1,500 Mississippi Hosp Equip & Fac MS Baptist Med Ctr
Rfdg (MBIA Insd)................................ 6.000 05/01/13 1,620,255
-------------
MISSOURI 3.2%
2,530 Bi State Dev Agy MO IL Met Metrolink Cross Cnty
Proj B (FSA Insd)............................... 5.250 10/01/18 2,810,577
3,400 Missouri St Hwys & Trans Commn Rd Rev Ser A..... 5.500 02/01/08 3,884,432
1,405 Saint Louis, MO Direct Dep Ser A Rfdg (FSA
Insd)........................................... 5.000 04/01/19 1,513,340
1,605 Saint Louis, MO Direct Dep Ser A Rfdg (FSA
Insd)........................................... 5.000 04/01/20 1,719,388
-------------
9,927,737
-------------
</Table>
See Notes to Financial Statements 9
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NEVADA 2.4%
$3,965 Clark Cnty, NV Bd Bk (FGIC Insd)................ 5.500% 06/01/09 $ 4,599,083
2,500 Clark Cnty, NV Sch Dist Bldg Ser C (MBIA
Insd)........................................... 5.000 06/15/12 2,840,975
-------------
7,440,058
-------------
NEW JERSEY 2.6%
1,835 New Jersey St Ed Fac Auth Higher Ed Cap Impt Ser
A (AMBAC Insd).................................. 5.250 09/01/21 1,988,259
1,000 New Jersey St Trans Corp Cap Grant Antic Nt Ser
B (AMBAC Insd).................................. 5.500 02/01/08 1,141,550
2,000 New Jersey St Trans Corp Ctf Fed Trans Admin
Grant Ser A (AMBAC Insd)........................ 5.500 09/15/13 2,370,600
2,095 New Jersey St Trans Tr Fd Auth Trans Sys Ser
A............................................... 5.750 06/15/17 2,520,432
-------------
8,020,841
-------------
NEW MEXICO 1.5%
4,000 Santa Fe, NM Gross Rcpt Tax Impt (AMBAC Insd)... 5.250 06/01/13 4,580,680
-------------
NEW YORK 17.7%
3,000 Metropolitan Trans Auth NY Ser A Rfdg (AMBAC
Insd)........................................... 5.500 11/15/18 3,402,750
2,500 Metropolitan Trans Auth NY Ser A Rfdg (FGIC
Insd)........................................... 5.250 11/15/31 2,678,750
2,500 Nassau Cnty, NY Interim Fin Auth Sales Tax Sec
Ser A........................................... 5.750 11/15/13 2,867,625
5,700 New York City Muni Wtr Fin Auth Ser A (FSA
Insd)........................................... 5.375 06/15/17 6,373,854
5,900 New York City Ser A............................. 7.000 08/01/04 6,250,696
4,500 New York City Ser B (AMBAC Insd)................ 7.250 08/15/07 5,402,700
445 New York City Ser C............................. 7.000 08/15/08 446,909
1,000 New York City Ser H............................. 5.750 03/15/13 1,118,380
6,930 New York City Trans Auth Trans Fac Livingston
Plaza Proj Rfdg (Escrowed to Maturity) (FSA
Insd)........................................... 5.400 01/01/18 8,116,901
3,000 New York City Transitional Fin Auth Rev Future
Tax Secd Ser A (b).............................. 5.500 11/01/26 3,462,180
2,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser D
(MBIA Insd)..................................... 5.500 10/01/17 2,280,620
3,000 New York St Urban Dev Corp Rev Personal Income
Tax Ser C (FGIC Insd)........................... 5.500 03/15/18 3,419,820
3,000 New York St Urban Dev Corp Rev Personal Income
Tax Ser C....................................... 5.000 03/15/33 3,120,330
2,635 New York St Urban Dev Corp Rev Youth Fac
(Prerefunded @ 04/01/04)........................ 5.875 04/01/08 2,785,538
2,680 Port Auth NY & NJ Consolidated 119th Ser (FGIC
Insd)........................................... 5.500 09/15/17 2,890,353
-------------
54,617,406
-------------
</Table>
10 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NORTH CAROLINA 5.7%
$2,000 Charlotte, NC Ctf Part Convention Fac Proj Ser A
Rfdg (c)........................................ 5.500% 08/01/19 $ 2,229,980
3,000 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser D........................................... 6.750 01/01/26 3,291,780
10,000 North Carolina Muni Pwr Agy No. 1 Catawba Elec
Rev Rfdg (MBIA Insd) (b)........................ 6.000 01/01/12 12,041,100
-------------
17,562,860
-------------
OHIO 5.0%
1,450 Akron Bath Copley, OH Jt Twp Hosp Fac Summa Hosp
Ser A........................................... 5.375 11/15/18 1,380,531
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj............................................ 7.500 01/01/30 1,116,850
3,000 Franklin Cnty, OH Convention Fac Auth Tax &
Lease Rev Antic Bds Rfdg (AMBAC Insd)........... 5.250 12/01/19 3,290,580
1,000 Lorain Cnty, OH Hosp Rev Catholic Hlthcare...... 5.375 10/01/30 1,027,050
2,000 Lorain, OH City Sch Dist Classroom Fac Impt
(MBIA Insd)..................................... 5.250 12/01/20 2,200,860
1,000 Ohio St Air Quality Dev Auth Rev JMG Fdg Ltd
Part Proj Rfdg (AMBAC Insd)..................... 6.375 04/01/29 1,068,910
1,500 Ohio St Bldg Auth St Fac Admin Bldg Fd Proj A
(FSA Insd)...................................... 5.500 04/01/15 1,718,925
3,000 University Cincinnati OH Gen Ser A (FGIC
Insd)........................................... 5.500 06/01/09 3,486,900
-------------
15,290,606
-------------
OREGON 2.5%
1,000 Clackamas Cnty, OR Sch Dist..................... 5.500 06/01/10 1,167,930
1,350 Oregon Hlth Sciences Univ Insd Ser A (MBIA
Insd)........................................... 5.250 07/01/22 1,455,192
2,060 Oregon St Dept Admin Ser C Rfdg (MBIA Insd)..... 5.250 11/01/17 2,268,493
1,250 Portland, OR Cmnty College Dist Ser B........... 5.250 06/01/12 1,430,513
1,135 Portland, OR Swr Sys Rev Second Lien Ser A Rfdg
(FSA Insd)...................................... 5.250 06/01/19 1,247,751
-------------
7,569,879
-------------
PENNSYLVANIA 8.5%
1,500 Allegheny Cnty, PA San Auth Swr (MBIA Insd)..... 5.500 12/01/30 1,620,225
1,000 Allegheny Cnty, PA Ser C-53 Rfdg (FGIC Insd).... 5.500 11/01/14 1,152,860
1,000 Greensburg Salem, PA Sch Dist Rfdg (FGIC
Insd)........................................... 5.375 09/15/15 1,135,920
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg) (FGIC
Insd) (d).......................................10.520 06/18/15 2,690,500
1,200 Harrisburg, PA Cap Apprec Nt Ser F Rfdg (AMBAC
Insd)........................................... * 09/15/14 773,052
2,600 Philadelphia, PA Auth Indl Ser B (FSA Insd)..... 5.500 10/01/16 2,940,366
2,400 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance
4th Ser (FSA Insd).............................. 5.250 08/01/22 2,585,928
5,505 Philadelphia, PA Sch Dist Ser A (MBIA Insd)..... 4.500 04/01/18 5,615,100
</Table>
See Notes to Financial Statements 11
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PENNSYLVANIA (CONTINUED)
$4,570 Pittsburgh, PA Ser A (AMBAC Insd)............... 5.500% 09/01/16 $ 5,191,429
2,000 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A
(Escrowed to Maturity).......................... 6.000 12/01/13 2,375,220
-------------
26,080,600
-------------
SOUTH CAROLINA 0.7%
1,000 Chesterfield Cnty, SC Sch Dist (FSA Insd)....... 5.375 03/01/18 1,113,400
1,000 South Carolina Jobs Econ Elec & Gas Co Proj Ser
A (AMBAC Insd).................................. 5.200 11/01/27 1,066,410
-------------
2,179,810
-------------
SOUTH DAKOTA 0.3%
875 Deadwood, SD Ctf Part (ACA Insd)................ 6.375 11/01/20 951,948
-------------
TENNESSEE 1.7%
2,000 Johnson City, TN Hlth & Ed Fac Brd Hosp Rev
First Mtg Mtn St Hlth Ser A Rfdg (MBIA Insd).... 7.500 07/01/25 2,562,440
2,500 Memphis, TN (Prerefunded @ 10/01/06)............ 5.250 10/01/14 2,820,725
-------------
5,383,165
-------------
TEXAS 17.2%
2,050 Austin, TX Wtr & Wastewtr Rfdg (MBIA Insd)...... 5.750 05/15/12 2,396,409
1,000 Austin, TX Wtr & Wastewtr Rfdg (MBIA Insd)...... 5.250 11/15/19 1,093,840
1,000 Brazos Cnty, TX Hlth Fac Dev Oblig Grp.......... 5.375 01/01/32 1,007,580
1,430 Cameron Cnty, TX Ctf Oblig (AMBAC Insd)......... 5.750 02/15/15 1,633,246
1,500 Corpus Christi,TX Util Sys Rev Impt Rfdg (FSA
Insd)........................................... 5.250 07/15/19 1,633,335
2,000 Fort Worth, TX Wtr & Swr Rev Impt Rfdg.......... 5.500 02/15/05 2,136,440
1,000 Harris Cnty, TX Hlth Fac Dev Mem Hermann
Hlthcare Ser A.................................. 6.375 06/01/29 1,089,900
2,000 Harris Cnty, TX Perm Impt & Rfdg................ 5.000 10/01/11 2,226,100
4,820 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09)
(AMBAC Insd).................................... * 08/15/18 2,189,196
1,000 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09)
(AMBAC Insd).................................... * 08/15/21 369,480
3,000 Houston, TX Arpt Sys Rev Sub Lien (FSA Insd).... 5.000 07/01/32 3,095,460
2,105 Houston, TX Hotel Occupancy Tax & Spl Rev
Convention & Entmt Ser B (AMBAC Insd)........... 5.750 09/01/15 2,451,399
1,000 Houston, TX Pub Impt Rfdg (FSA Insd)............ 5.750 03/01/15 1,152,480
2,000 Houston, TX Wtr & Swr Sys Rev Jr Lien Ser B Rfdg
(FGIC Insd)..................................... 6.250 12/01/05 2,231,060
1,500 Mesquite, TX Hlth Fac Dev Retirement Fac
Christian A..................................... 7.500 02/15/18 1,592,505
1,100 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones
Mem Hosp Proj................................... 7.200 01/01/21 1,037,553
1,000 North Cent TX Hlth Fac Dev Hosp Baylor Hlthcare
Sys Proj Ser A.................................. 5.125 05/15/29 1,015,480
</Table>
12 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TEXAS (CONTINUED)
$1,750 North Cent TX Hlth Fac Dev Hosp Childrens Med
Ctr Dallas (AMBAC Insd)......................... 5.250% 08/15/32 $ 1,823,168
2,805 Tarrant Regl Wtr Dist TX Wtr Impt Rfdg (FSA
Insd)........................................... 5.250 03/01/19 3,073,130
3,332 Texas Mun Pwr Agy Rev (AMBAC Insd).............. * 09/01/07 3,038,984
193 Texas Mun Pwr Agy Rev (Escrowed to Maturity)
(AMBAC Insd).................................... * 09/01/07 177,193
8,220 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (FSA Insd)..................... 5.500 09/01/13 8,427,719
1,565 Texas St Univ Sys Fin Rev Rfdg (FSA Insd)....... 5.000 03/15/20 1,658,352
1,000 Texas Tech Univ Rev Fin Sys Seventh Ser (MBIA
Insd)........................................... 5.000 08/15/25 1,040,080
1,500 Texas Wtr Dev Brd Rev St Revolving Fd Sr Lien
Ser B........................................... 5.250 07/15/17 1,652,550
1,000 Tinity River Auth TX Rev Tarrant Cnty Wtr Proj
Impt & Rfdg (MBIA Insd)......................... 5.500 02/01/21 1,110,430
2,500 University TX Univ Rev Fin Sys Ser B............ 5.250 08/15/20 2,739,425
-------------
53,092,494
-------------
UTAH 0.4%
1,000 Salt Lake Cnty, UT College Rev Westminster
College Proj.................................... 5.750 10/01/27 1,024,220
335 Utah St Hsg Fin Agy Single Family Mtg Ser B
Class 2 (FHA/VA Gtd)............................ 6.250 07/01/14 356,835
-------------
1,381,055
-------------
VIRGINIA 0.8%
2,275 Virginia Comwlth Trans Brd Northn VA Trans Dist
Pgm Ser A....................................... 5.375 05/15/15 2,583,217
-------------
WASHINGTON 4.2%
3,410 Clark Cnty, WA Pub Util Dist Rfdg (FSA Insd).... 5.500 01/01/08 3,876,556
2,595 Clark Cnty, WA Pub Util Dist Rfdg (FSA Insd).... 5.500 01/01/09 2,982,122
1,300 Energy Northwest, WA Elec Rev Proj No 3 Ser A
Rfdg (FSA Insd)................................. 5.500 07/01/17 1,453,725
4,400 King Cnty, WA Ser B Rfdg (MBIA Insd)............ 5.250 01/01/34 4,603,236
-------------
12,915,639
-------------
WISCONSIN 1.0%
2,345 Appleton, WI Wtrwks Rev Rfdg (FGIC Insd)........ 5.375 01/01/19 2,571,035
375 Wisconsin St Hlth & Ed Fac Agnesian Hlthcare
Inc............................................. 6.000 07/01/30 393,810
-------------
2,964,845
-------------
GUAM 1.0%
2,800 Guam Pwr Auth Rev Ser A (AMBAC Insd)............ 5.250 10/01/34 2,940,728
-------------
</Table>
See Notes to Financial Statements 13
YOUR TRUST'S INVESTMENTS
June 30, 2003
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PUERTO RICO 0.3%
$1,000 Puerto Rico Indl Tourist Ed Med & Environmental
Ctl Fac Fin Auth Higher Ed Rev.................. 5.375% 02/01/19 $ 1,041,750
-------------
TOTAL LONG-TERM INVESTMENTS 151.7%
(Cost $428,053,386)....................................................... 466,965,888
SHORT-TERM INVESTMENTS 0.4%
(Cost $1,300,000)......................................................... 1,300,000
-------------
TOTAL INVESTMENTS 152.1%
(Cost $429,353,386)....................................................... 468,265,888
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%................................. 4,657,548
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (53.6%)................. (165,029,669)
-------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $ 307,893,767
=============
</Table>
* Zero coupon bond
(a) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments and open futures transactions.
(c) Securities purchased on a when-issued or delayed delivery basis.
(d) An Inverse Floating Rate security is one where the coupon is inversely
indexed to a short-term floating interest rate multiplied by a specific
factor. As the floating rate rises, the coupon is reduced. Conversely, as
the floating rate declines, the coupon is increased. The price of these
securities may be more volatile than the price of a comparable fixed rate
security. These instruments are typically used by the Trust to enhance the
yield of the portfolio. 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.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corp.
FGIC--Financial Guaranty Insurance Co.
FHA/VA--Federal Housing Administration/Department of Veterans Affairs
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
XLCA--XL Capital Assurance Inc.
14 See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2003
<Table>
ASSETS:
Total Investments (Cost $429,353,386)....................... $468,265,888
Cash........................................................ 8,505
Receivables:
Interest.................................................. 6,755,578
Investments Sold.......................................... 577,554
Other....................................................... 3,675
------------
Total Assets............................................ 475,611,200
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,111,630
Investment Advisory Fee................................... 235,808
Variation Margin on Futures............................... 20,016
Affiliates................................................ 10,295
Trustees' Deferred Compensation and Retirement Plans........ 201,095
Accrued Expenses............................................ 108,920
------------
Total Liabilities....................................... 2,687,764
Preferred Shares (including accrued distributions).......... 165,029,669
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $307,893,767
============
NET ASSET VALUE PER COMMON SHARE ($307,893,767 divided by
28,684,985 shares outstanding)............................ $ 10.73
============
NET ASSETS CONSIST OF:
Common Shares ($.01 par value with an unlimited number of
shares authorized, 28,684,985 shares issued and
outstanding).............................................. $ 286,850
Paid in Surplus............................................. 265,829,515
Net Unrealized Appreciation................................. 38,927,157
Accumulated Undistributed Net Investment Income............. 2,784,043
Accumulated Net Realized Gain............................... 66,202
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $307,893,767
============
PREFERRED SHARES ($.01 par value, authorized 1,000,000
shares, 330 issued with liquidation preference of $500,000
per share)................................................ $165,000,000
============
NET ASSETS INCLUDING PREFERRED SHARES....................... $472,893,767
============
</Table>
See Notes to Financial Statements 15
Statement of Operations
For the Year Ended June 30, 2003
<Table>
INVESTMENT INCOME:
Interest.................................................... $22,593,842
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,784,100
Preferred Share Maintenance................................. 434,811
Legal....................................................... 38,668
Trustees' Fees and Related Expenses......................... 35,288
Custody..................................................... 28,925
Other....................................................... 290,058
-----------
Total Expenses.......................................... 3,611,850
-----------
NET INVESTMENT INCOME....................................... $18,981,992
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 4,302,310
Futures................................................... (559,163)
-----------
Net Realized Gain........................................... 3,743,147
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 22,509,716
-----------
End of the Period:
Investments............................................. 38,912,502
Futures................................................. 14,655
-----------
38,927,157
-----------
Net Unrealized Appreciation During the Period............... 16,417,441
-----------
NET REALIZED AND UNREALIZED GAIN............................ $20,160,588
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $(2,032,221)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $37,110,359
===========
</Table>
16 See Notes to Financial Statements
Statements of Changes in Net Assets
<Table>
<Caption>
YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2002
------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................... $ 18,981,992 $ 19,731,921
Net Realized Gain.......................................... 3,743,147 4,307,437
Net Unrealized Appreciation During the Period.............. 16,417,441 4,552,384
Distributions to Preferred Shareholders:
Net Investment Income.................................... (2,032,221) (3,015,335)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................... 37,110,359 25,576,407
Distributions to Common Shareholders:
Net Investment Income.................................... (15,661,138) (15,144,816)
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
INVESTMENT ACTIVITIES.................................... 21,449,221 10,431,591
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period.................................... 286,444,546 276,012,955
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $2,784,043 and $1,646,876,
respectively)............................................ $307,893,767 $286,444,546
============ ============
</Table>
See Notes to Financial Statements 17
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
--------------------------------------
2003 2002 (d) 2001
--------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD............ $ 9.99 $ 9.62 $ 8.99
---------- ---------- ----------
Net Investment Income............................. .66 .70 .75
Net Realized and Unrealized Gain/Loss............. .70 .31 .66
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................. (.07) (.11) (.23)
---------- ---------- ----------
Total from Investment Operations.................... 1.29 .90 1.18
Distributions Paid to Common Shareholders:
Net Investment Income............................. (.55) (.53) (.55)
---------- ---------- ----------
NET ASSET VALUE, END OF THE PERIOD.................. $ 10.73 $ 9.99 $ 9.62
========== ========== ==========
Common Share Market Price at End of the Period...... $ 9.66 $ 8.85 $ 8.89
Total Return (e).................................... 15.76% 5.64% 8.88%
Net Assets Applicable to Common Shares at End of the
Period (In millions).............................. $ 307.9 $ 286.4 $ 276.0
Ratio of Expenses to Average Net Assets Applicable
to Common Shares (a).............................. 1.21% 1.25% 1.27%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (a)................... 6.35% 6.99% 7.94%
Portfolio Turnover.................................. 35% 41% 50%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (a).............................. .78% .79% .79%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b)................... 5.67% 5.92% 5.50%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.................. 330 330 330
Asset Coverage Per Preferred Share (c).............. $1,433,101 $1,368,316 $1,336,403
Involuntary Liquidating Preference Per Preferred
Share............................................. $ 500,000 $ 500,000 $ 500,000
Average Market Value Per Preferred Share............ $ 500,000 $ 500,000 $ 500,000
</Table>
(a) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(b) Ratios reflect the effect of dividend payments to preferred shareholders.
(c) 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.
(d) As required, effective July 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 June 30, 2002 was to increase net investment
income per share by $.01, decrease 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 .04%. Per shares, supplemental
data for the period prior to June 30, 2002 have not been restated to reflect
this change in presentation.
(e) 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.
18
<Table>
<Caption>
YEAR ENDED JUNE 30,
- --------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
$ 9.56 $ 10.26 $ 10.01 $ 9.76 $ 9.76 $ 9.92 $ 11.13
---------- ---------- ---------- ---------- ---------- ---------- ----------
.81 .84 .89 .92 .94 .96 1.00
(.55) (.70) .26 .26 .05 (.06) (1.21)
(.22) (.19) (.21) (.21) (.22) (.22) (.16)
---------- ---------- ---------- ---------- ---------- ---------- ----------
.04 (.05) .94 .97 .77 .68 (.37)
(.61) (.65) (.69) (.72) (.77) (.84) (.84)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 8.99 $ 9.56 $ 10.26 $ 10.01 $ 9.76 $ 9.76 $ 9.92
========== ========== ========== ========== ========== ========== ==========
$ 8.6875 $ 9.625 $ 10.875 $ 10.875 $ 9.875 $ 11.125 $ 11.125
-3.08% -5.68% 6.85% 18.32% -4.27% 8.59% -0.05%
$ 258.0 $ 274.1 $ 292.3 $ 283.2 $ 273.7 $ 271.1 $ 272.7
1.32% 1.24% 1.23% 1.28% 1.31% 1.33% 1.28%
9.06% 8.23% 8.69% 9.25% 9.47% 9.85% 9.30%
54% 98% 103% 53% 29% 38% 45%
.81% .79% .79% .80% .82% .83% .82%
6.59% 6.35% 6.64% 7.18% 7.26% 7.56% 7.86%
330 330 330 330 330 330 330
$1,281,820 $1,330,642 $1,385,892 $1,358,326 $1,329,390 $1,321,483 $1,326,388
$ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000
$ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000 $ 500,000
</Table>
See Notes to Financial Statements 19
NOTES TO
FINANCIAL STATEMENTS
June 30, 2003
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Income Trust (the "Trust") is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940 (the "1940 Act"), 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 August 26, 1988.
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 is considered
to approximate 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 June 30, 2003, the Trust had
$2,111,630 of 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.
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.
20
NOTES TO
FINANCIAL STATEMENTS
June 30, 2003
At June 30, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $428,939,343
============
Gross tax unrealized appreciation........................... $ 39,617,381
Gross tax unrealized depreciation........................... (290,836)
------------
Net tax unrealized appreciation on investments.............. $ 39,326,545
============
</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 to common shareholders. Distributions from net
realized gains for book purposes may include short-term capital gains and gains
on future transactions. All short-term capital gains and a portion of futures
gains are included as ordinary income for tax purposes.
The tax character of distributions paid during the years ended June 30, 2003
and 2002 was as follows:
<Table>
<Caption>
2003 2002
Distributions paid from:
Ordinary income........................................... $18,900 $85,634
Long-term capital gain.................................... -0- -0-
------- -------
$18,900 $85,634
======= =======
</Table>
Due to inherent differences in the recognition of income, expenses, and
realized gain/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent difference
relating to book to tax amortization differences totaling $151,466 was
reclassified from accumulated undistributed net investment income to accumulated
net realized gain.
As of June 30, 2003, the components of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income............................... $56,043
Undistributed long-term capital gain........................ 14,865
</Table>
Net realized gains or losses may differ for financial and tax reporting
purposes primarily as a result of gains or losses recognized for tax purposes on
open futures transactions at June 30, 2003.
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.
21
NOTES TO
FINANCIAL STATEMENTS
June 30, 2003
For the year ended June 30, 2003, the Trust recognized expenses of
approximately $22,800 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 year ended June 30,
2003, the Trust recognized expenses of approximately $47,000 representing Van
Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") 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 $164,150,292 and $161,476,320,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate,
or index.
In order to seek to manage the interest rate exposure of the Trust's
portfolio in a changing interest rate environment, the Trust may purchase or
sell financial futures contracts or engage in transactions involving interest
rate swaps, caps, floors, or collars. The Trust expects to enter into these
transactions primarily as a hedge 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 or agreements.
During the period, the Trust invested in futures contracts, a type of
derivative. A futures contract is an arrangement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Trust
generally invests in exchange traded futures on U.S. Treasury Bonds and Notes
and typically closes the contract prior to the delivery date. Upon entering into
futures contracts, the Trust maintains an amount of cash or liquid
22
NOTES TO
FINANCIAL STATEMENTS
June 30, 2003
securities with a value equal to a percentage of the contract amount with either
a futures commission merchant pursuant to the rules and regulations promulgated
under the 1940 Act, as amended, or with its custodian in an account in the
broker's name. This amount is known an initial margin. During the period the
futures contract is open, payments are received from or made to the broker based
upon changes in the value of the contract (the variation margin). The risk of
loss associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
Transactions in futures contracts for the year ended June 30, 2003, were as
follows:
<Table>
<Caption>
CONTRACTS
Outstanding at June 30, 2002................................ -0-
Futures Opened.............................................. 849
Futures Closed.............................................. (779)
----
Outstanding at June 30, 2003................................ 70
====
</Table>
The futures contracts outstanding as of June 30, 2003, and the description
and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
10-Year U.S. Treasury Note-- September 2003
(Current Notional Value of $117,438 per contract)......... 13 $ 6,851
5-Year U.S. Treasury Note-- September 2003
(Current Notional Value of $115,125 per contract)......... 57 7,804
-- -------
70 $14,655
== =======
</Table>
5. PREFERRED SHARES
The Trust has outstanding 330 shares of Rate Adjusted Tax-Exempt Shares
("Rates") in three series of 110 shares each. Dividends are cumulative and the
dividend rate is currently reset every 28 days through an auction process. The
average rate in effect on June 30, 2003, was 0.893%. During the year ended June
30, 2003, the rates ranged from 0.700% to 1.700%.
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 Rates are redeemable at the option of the Trust in whole or in part at a
price of $500,000 per share plus accumulated and unpaid dividends. The Trust is
subject to certain asset coverage tests, and the Rates are subject to mandatory
redemption if the tests are not met.
23
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
Van Kampen Municipal Income Trust
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Income Trust (the "Trust"), including the portfolio of
investments, as of June 30, 2003, the related statement of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The Trust's financial highlights for the periods ended
prior to June 30, 2000, were audited by other auditors whose report, dated
August 5, 1999, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2003, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Income Trust as of June 30, 2003, the results of its operations
for the year then ended, the changes in its net assets and the financial
highlights for the respective stated periods, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 6, 2003
24
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be
re-registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued
on the valuation date, generally at the lower of market price or net asset
value, except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common
25
Shares than if the dividend or distribution had been paid in Common Shares
issued by the Trust. All reinvestments are in full and fractional Common shares
and are carried to three decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA
02266-8200. If you withdraw, you will receive, without charge, a share
certificate issued in your name for all full Common Shares credited to your
account under the Plan and a cash payment will be made for any fractional Common
Share credited to your account under the Plan. You may again elect to
participate in the Plan at any time by calling 1-800-341-2929 or writing to the
Trust at:
Van Kampen Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
26
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN(1)
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*(1)
THEODORE A. MYERS
JACK NELSON(1)
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
SUZANNE H WOOLSEY
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
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
June 30, 2003. The Trust designated 99.9% of the income distributions as a
tax-exempt income distribution. In January, the Trust provides tax information
to shareholders for the preceding calendar year.
(1) Appointed to the Board of Trustees effective July 23, 2003.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
27
RESULTS OF
SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 24, 2003, where
shareholders voted on the election of trustees.
1) With regards to the election of the following trustees by common shareholders
of the Trust:
<Table>
<Caption>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------------------------
Jerry D. Choate........................................... 24,342,785 379,940
Linda Hutton Heagy........................................ 24,347,685 375,016
R. Craig Kennedy.......................................... 24,318,485 404,215
Wayne W. Whalen........................................... 24,310,685 411,982
Suzanne H. Woolsey........................................ 24,325,685 397,029
</Table>
2) With regards to the election of the following trustee by preferred
shareholders of the Trust:
<Table>
<Caption>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------------------------
Rod Dammeyer.............................................. 325 5
</Table>
The other trustees of the Trust whose terms did not expire in 2003 are David C.
Arch, Rod Dammeyer, Howard J Kerr, Theodore A. Meyers, Richard F. Powers, and
Hugo F Sonnenschein.
28
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory
Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds
Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp.
and Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and
Asset Management sometimes are referred to herein collectively as the
"Advisers." The term "Fund Complex" includes each of the investment companies
advised by the Advisers or their affiliates as of the date of this Statement of
Additional Information. Trustees serve until reaching their retirement age or
until their successors are duly elected and qualified. Officers are annually
elected by the trustees.
INDEPENDENT TRUSTEES
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (58) Trustee Trustee Chairman and Chief 91 Trustee/Director/Managing
Blistex Inc. since 1998 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Former
Director of the World
Presidents
Organization-Chicago
Chapter. Director of the
Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago.
J. Miles Branagan (71) Trustee Trustee Private investor. 89 Trustee/Director/Managing
1632 Morning Mountain Road since 2003 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
</Table>
29
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (64) Trustee Trustee Prior to January 1999, 89 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
Rod Dammeyer (62) Trustee Trustee President of CAC, llc., a 91 Trustee/Director/Managing
CAC, llc. since 1998 private company offering General Partner of funds
4350 LaJolla Village Drive capital investment and in the Fund Complex.
Suite 980 management advisory Director of TeleTech
San Diego, CA 92122-6223 services. Prior to July Holdings Inc.,
2000, Managing Partner of Stericycle, Inc.,
Equity Group Corporate TheraSense, Inc., GATX
Investment (EGI), a Corporation, Arris Group,
company that makes Inc. and Trustee of the
private investments in University of Chicago
other companies. Hospitals and Health
Systems. Prior to May
2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Vice Chairman and
Director of Anixter
International, Inc. and
IMC Global Inc. Prior to
July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Director of Metal
Management, Inc.
</Table>
30
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 89 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (51) Trustee Trustee Director and President of 89 Trustee/Director/Managing
11 DuPont Circle, N.W. since 2003 the German Marshall Fund General Partner of funds
Washington, D.C. 20016 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (67) Trustee Trustee Prior to 1998, President 91 Trustee/Director/Managing
736 North Western Avenue since 1992 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation
</Table>
31
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Theodore A. Myers (72) Trustee Trustee Financial consultant. 36 Director of Met Life
550 Washington Avenue since 1988 Trustee or Managing Investors (formerly known
Glencoe, IL 60022 General Partner of other as COVA Financial Life
funds in the Closed-End Insurance). Prior to
Fund Complex. Prior to 1997, Director of McLouth
1998, Senior Financial Steel.
Advisor (and, prior to
1997, an Executive Vice
President, Chief
Financial Officer and
Director) of Qualitech
Steel Corporation, a
producer of high quality
engineered steels for
automotive,
transportation and
capital goods industries.
Prior to 1997, member of
the Arthur Andersen Chief
Financial Officers'
Advisory Committee.
Jack E. Nelson (67) Trustee Trustee President of Nelson 89 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (62) Trustee Trustee President Emeritus and 91 Trustee/Director/Managing
1126 E. 59th Street since 1994 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
</Table>
32
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey (61) Trustee Trustee Chief Communications 89 Trustee/Director/Managing
2101 Constitution Ave., N.W. since 2003 Officer of the National General Partner of funds
Room 285 Academy of in the Fund Complex.
Washington, D.C. 20418 Sciences/National Director of Neurogen
Research Council, an Corporation, a
independent, federally pharmaceutical company,
chartered policy since January 1998.
institution, since 2001
and previously Chief
Operating Officer from
1993 to 2001. Director of
the Institute for Defense
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, and
Trustee of Colorado
College. Prior to 1993,
Executive Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
</Table>
33
INTERESTED TRUSTEES*
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (50) Trustee and Trustee President of funds in the 89 Trustee/Director/Managing
1221 Avenue of the Americas President since 2003 Fund Complex. Chairman, General Partner of funds
New York, NY 10020 President, Chief in the Fund Complex.
Executive Officer and
Director of the Advisers
and VK Advisors Inc.
since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
</Table>
34
<Table>
<Caption>
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 91 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 91 Trustee/Director/Managing
333 West Wacker Drive since 1988 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom in the Fund Complex.
(Illinois), legal counsel
to funds in the Fund
Complex.
</Table>
* Such trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Advisers by reason
of their current or former positions with Morgan Stanley or its affiliates.
35
OFFICERS
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Stephen L. Boyd (62) Vice President Officer Managing Director of Global Research Investment Management.
2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to
45th Floor December 2002, Chief Investment Officer of Van Kampen
Houston, TX 77056 Investments and President and Chief Operations Officer of
the Advisers and Van Kampen Advisors Inc. Prior to May 2002,
Executive Vice President and Chief Investment Officer of
funds in the Fund Complex. Prior to May 2001, Managing
Director and Chief Investment Officer of Van Kampen
Investments, and Managing Director and President of the
Advisers and Van Kampen Advisors Inc. Prior to December
2000, Executive Vice President and Chief Investment Officer
of Van Kampen Investments, and President and Chief Operating
Officer of the Advisers. Prior to April 2000, Executive Vice
President and Chief Investment Officer for Equity
Investments of the Advisers. Prior to October 1998, Vice
President and Senior Portfolio Manager with AIM Capital
Management, Inc. Prior to February 1998, Senior Vice
President and Portfolio Manager of Van Kampen American
Capital Asset Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American Capital
Management, Inc.
Stefanie V. Chang (36) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Advisers and Van Kampen
Advisors Inc. since December 2002.
John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers
1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the
P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of
Oakbrook Terrace, IL 60181 the Fixed Income Department of the Advisers and Van Kampen
Advisors Inc. Prior to December 2000, Senior Vice President
of the Advisers and Van Kampen Advisors Inc. Prior to May
2000, Senior Vice President of the investment grade taxable
group for the Advisers. Prior to June 1999, Senior Vice
President of the government securities bond group for Asset
Management.
</Table>
36
<Table>
<Caption>
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services.
1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of
New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer
Officer and Managing Director of Morgan Stanley Investment
Management Inc. Managing Director of Morgan Stanley.
Managing Director and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company Inc. Chief
Executive Officer and Director of Morgan Stanley Trust. Vice
President of the Morgan Stanley Funds.
A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and
1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the
New York, NY 10020 Advisers, Van Kampen Advisors Inc., the Distributor,
Investor Services and certain other subsidiaries of Van
Kampen Investments. Managing Director and General
Counsel-Mutual Funds of Morgan Stanley Investment Advisors,
Inc. Vice President and Secretary of funds in the Fund
Complex. Prior to July 2001, Managing Director, General
Counsel, Secretary and Director of Van Kampen Investments,
the Advisers, the Distributor, Investor Services, and
certain other subsidiaries of Van Kampen Investments. Prior
to December 2000, Executive Vice President, General Counsel,
Secretary and Director of Van Kampen Investments, the
Advisers, Van Kampen Advisors Inc., the Distributor,
Investor Services and certain other subsidiaries of Van
Kampen Investments. Prior to January 1999, Vice President
and Associate General Counsel to New York Life Insurance
Company ("New York Life"), and prior to March 1997,
Associate General Counsel of New York Life. Prior to
December 1993, Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior Associate, Willkie
Farr & Gallagher. Prior to January 1989, Staff Attorney at
the Securities and Exchange Commission, Division of
Investment Management, Office of Chief Counsel.
John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments,
1 Parkview Plaza Financial Officer and since 1996 the Advisers, Van Kampen Advisors Inc. and certain other
P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President,
Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund
Complex. Head of Fund Accounting for Morgan Stanley
Investment Management. Prior to December 2002, Executive
Director of Van Kampen Investments, the Advisers and Van
Kampen Advisors Inc.
</Table>
37
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 conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "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 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.
Member NASD/SIPC. 920, 919, 107
VMT ANR 8/03 11612H03-AS-8/03
Item 2. Code of Ethics.
Applicable only for reports covering fiscal years ending on or after July 15,
2003.
Item 3. Audit Committee Financial Expert.
Applicable only for reports covering fiscal years ending on or after July 15,
2003.
Item 4. Principal Accountant Fees and Services.
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Trust invests in exclusively non-voting securities and therefore this item
is not applicable to the Trust.
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 - Applicable only for reports covering fiscal years ending on
or after July 15, 2003.
(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 Income Trust
-----------------------------------------------------------
By: /s/Ronald E. Robison
-------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 19, 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: August 19, 2003
By: /s/ John L. Sullivan
-------------------------------------------------------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: August 19, 2003