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, New York, New York 10020
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Ronald Robison
- --------------------------------------------------------------------------------
1221 Avenue of the Americas, New York, New York 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
Date of reporting period: 12/31/03
Item 1. Report to Shareholders.
The Trust's semi-annual report transmitted to shareholders pursuant to Rule
30e-1 under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen
Municipal Income Trust performed during the semiannual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the trust's financial statements and a list of trust investments
as of December 31, 2003.
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.
<Table>
<Caption>
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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</Table>
Performance Summary
AVERAGE ANNUAL TOTAL RETURNS
<Table>
<Caption>
MUNICIPAL INCOME TRUST
SYMBOL: VMT
- -------------------------------------------------------
AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS NAV MARKET PRICE
Since Inception (08/26/88) 8.29% 7.03%
10-year 6.50 4.84
5-year 6.96 3.85
1-year 7.72 11.99
6-month 2.04 1.84
- -------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return, net asset
value (NAV) and common share market price will fluctuate and trust shares, when
sold, may be worth more or less than their original cost.
As a result of recent market activity, current performance may vary from the
figures shown. For more up-to-date information, please visit vankampen.com or
speak with your financial advisor. The NAV per share is determined by dividing
the value of the trust's portfolio securities, cash and other assets, less all
liabilities, by the total number of common shares outstanding. The common share
market price is the price the market is willing to pay for shares of the trust
at a given time. Common share market price is influenced by a range of factors,
including supply and demand and market conditions. Total return assumes an
investment 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 end of the period.
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 SIX-MONTH PERIOD ENDED DECEMBER 31, 2003
Van Kampen Municipal Income Trust is managed by the adviser's Municipal Fixed
Income team.(1) Current members include Thomas Byron, Vice President; Robert
Wimmel, Vice President; and John Reynoldson, Executive Director.
MARKET CONDITIONS
The economic backdrop for the six months ended December 31, 2003 was marked by
mixed signals regarding the strength of the U.S. economy. While employment
strength was generally weak, the economy, as measured by gross domestic product
(GDP), grew by 8.2 percent in the third quarter. The beleaguered industrial
sector of the economy appeared to show signs of life and consumer spending
remained fairly strong. While generally positive for the stock market, none of
these improvements made a significant dent in the ongoing budgetary and fiscal
difficulties at the state and local levels, and many municipal bond issuers
experienced downgrades.
The Federal Reserve Board (the Fed) attempted to keep the economy moving in the
right direction by cutting the Fed Funds target rate on June 25 to 1.00 percent.
This rate cut, which was half of what many investors had hoped for, seemed to
signal that deflation was no longer a primary worry of the Fed, and as a result,
yields began to climb from their June lows. At the same time, investors shifted
their attention to the advancing equity market, which reduced demand for
municipal bonds. Interest from cross-over investors--investors who traditionally
favor taxable investments, but are drawn to the relatively attractive yields of
municipal bonds--also evaporated as the attractiveness of the taxable market
returned. Municipal-bond issuance was heavy through the first half of the
period, though it abated somewhat in the last three months of the year. These
forces combined to drive municipal-bond yields off of their historic lows,
ending the six-month period at levels higher than where they began.
PERFORMANCE ANALYSIS
A closed-end fund's return can be calculated based upon either the market price
or the net asset value (NAV) of its shares. NAV per share is determined by
TOTAL RETURN FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 2003
<Table>
<Caption>
- ---------------------------------------------------------
BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE MUNICIPAL BOND INDEX
2.04% 1.84% 1.45%
- ---------------------------------------------------------
</Table>
Past performance is no guarantee of future results. Investment return, net asset
value and common share market price will fluctuate and trust shares, when sold,
may be worth more or less than their original cost. See Performance Summary for
additional performance information and an index definition.
(1)Team members may change without notice at any time.
2
dividing the value of the trust's portfolio securities, cash and other assets,
less all liabilities, by the total number of common shares outstanding, while
market price reflects the supply and demand for the shares. As a result, the two
returns can differ significantly. On both a market price and NAV basis, Van
Kampen Municipal Income Trust outperformed its benchmark, the Lehman Brothers
Municipal Bond Index. (See performance table.)
The trust uses leverage to enhance its dividend to common shareholders. To
implement this approach, the trust borrows money at short-term rates through the
issuance of preferred shares. The proceeds are invested in longer-term
securities, taking advantage of the difference between short- and longer-term
rates. With short-term rates at historic lows during the period, the difference
between short- and longer-term rates was relatively high. This made using
leverage a particularly profitable approach during the period.
The trust also seemed to benefit from our conservative investment approach.
Given California's budgetary difficulties, as well as other states' fiscal
concerns, we chose to emphasize sectors such as public building, water and
sewer, and transportation. In economically challenging times, these sectors have
the benefit of being tied to revenues from ongoing projects, rather than to more
volatile general tax revenues. We also maintained the portfolio's credit quality
at a very high level, with more than 89 percent of long-term investments rated
AA by the end of the period. We also invested in some AAA-rated insured bonds
from several sectors in the market. Both of these strategies boosted
performance.
Our interest-rate strategy was largely defensive as well; we kept the
portfolio's duration (a measure of interest-rate sensitivity) below that of its
benchmark. We also moved to take advantage of compelling valuations in the
15- to 20-year segment of the yield curve. Our purchases were focused on bonds
with 10-year call dates that allow them to offer the benefits of strong income
and the lower downside vulnerability of shorter-duration securities. This also
added to
<Table>
TOP 5 SECTORS AS OF 12/31/03 RATING ALLOCATIONS AS OF 12/31/03
General Purpose 17.6% AAA/Aaa 78.6%
Public Building 15.9 AA/Aa 10.7
Transportation 12.8 A/A 4.6
Public Education 10.4 BBB/Baa 4.2
Water & Sewer 9.5 Not Rated 1.9
</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.
Ratings allocation based upon ratings as issued by Standard and Poor's and
Moody's, respectively. Van Kampen is a wholly owned subsidiary of a global
securities firm which is engaged in a wide range of financial services
including, for example, securities trading and brokerage activities, investment
banking, research and analysis, financing and financial advisory services.
3
performance, as the 20-year segment of the curve outperformed its peers during
the period.
Several of the high-grade 30-year bonds in the portfolio reached their
performance targets. We used the proceeds from these sales to invest in issues
that we believed offered greater total-return prospects. We also realigned the
portfolio's holdings in the health-care sector in an attempt to take advantage
of those securities which we believed had the potential for attractive returns.
Going forward, we anticipate continuing with our disciplined investment
approach, and will monitor the market closely for compelling investment
opportunities.
PROXY VOTING POLICIES AND PROCEDURES
A description of the trust's policies and procedures with respect to the
voting of proxies relating to the trust'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
December 31, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MUNICIPAL BONDS 152.6%
ALABAMA 2.7%
$3,660 Alabama St Brd Ed Rev & Impt Southn Univ St
Cmnty Rfdg (MBIA Insd).......................... 5.250% 07/01/20 $ 3,969,819
1,865 Alabama St Univ Rev Gen Tuit & Fee Ser B (MBIA
Insd)........................................... 5.250 03/01/33 1,958,418
1,990 Jefferson Cnty, AL Wts Ser A (AMBAC Insd)....... 5.000 04/01/09 2,223,924
------------
8,152,161
------------
ALASKA 1.8%
3,650 Alaska St Intl Arpt Rev Ser B (AMBAC Insd)...... 5.250 10/01/27 3,807,826
1,575 Matanuska-Susitna Boro, AK Ctf Part Pub Safety
Bldg Lease (FSA Insd)........................... 5.750 03/01/16 1,783,467
------------
5,591,293
------------
ARIZONA 2.7%
1,000 Arizona Hlth Fac Auth Hosp John C Lincoln Hlth
Network......................................... 6.375 12/01/37 1,037,110
3,000 Arizona St Trans Brd Excise Tax Maricopa Cnty
Regl Area Rd Fd................................. 5.500 07/01/04 3,066,330
4,000 Arizona St Trans Brd Hwy Rev Sub Ser A Rfdg..... 4.750 07/01/11 4,146,200
------------
8,249,640
------------
CALIFORNIA 10.0%
4,500 California Infrastructure & Econ Dev Bk Rev Bay
Area Toll Brdgs First Lien A (AMBAC Insd)....... 5.000 07/01/33 4,614,615
1,000 California St Dept Wtr Res Ctr Wtr Sys Ser X
(FGIC Insd)..................................... 5.000 12/01/29 1,026,370
1,000 California St Dept Wtr Res Pwr Ser A............ 6.000 05/01/15 1,148,830
1,000 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.500 05/01/16 1,127,630
2,500 California St Dept Wtr Res Pwr Ser A (AMBAC
Insd)........................................... 5.375 05/01/18 2,754,725
5,000 California St Univ Rev & Co Systemwide Ser A
(AMBAC Insd).................................... 5.000 11/01/33 5,112,550
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(Escrowed to Maturity) (MBIA Insd).............. * 09/01/17 2,597,800
4,500 Los Angeles, CA Dept Wtr & Pwr Ser A (FGIC
Insd)........................................... 5.125 07/01/40 4,640,715
2,500 Los Angeles, CA Uni Sch Dist Ser A (FSA Insd)... 5.250 07/01/20 2,725,375
2,000 Los Angeles, CA Wtr & Pwr Rev Pwr Sys Ser B (FSA
Insd)........................................... 5.000 07/01/28 2,057,140
</Table>
See Notes to Financial Statements 5
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CALIFORNIA (CONTINUED)
$1,500 Metropolitan Wtr Dist Southn CA Auth Ser B 1
(FGIC Insd)..................................... 5.000% 10/01/33 $ 1,538,895
1,000 Santa Clara Cnty, CA Brd Ed Rfdg (MBIA Insd).... 5.000 04/01/25 1,029,410
------------
30,374,055
------------
COLORADO 3.7%
1,500 Arapahoe Cnty, CO Cap Impt Tr Fd Hwy Rev E-470
Proj (Prerefunded @ 08/31/05)................... 7.000 08/31/26 1,684,380
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 1,122,100
3,405 Colorado Ed & Cultural Fac Impt Charter Sch Rfdg
(XLCA Insd)..................................... 5.250 12/01/23 3,622,750
550 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives..................................... 5.250 09/01/21 570,504
1,000 Colorado Hlth Fac Auth Rev Catholic Hlth
Initiatives Ser A............................... 5.500 03/01/32 1,038,210
1,000 El Paso Cnty, CO Ctf Part Detention Fac Proj Ser
B (AMBAC Insd).................................. 5.375 12/01/18 1,109,760
1,850 Montrose Cnty, CO Ctf Part...................... 6.350 06/15/06 1,901,078
------------
11,048,782
------------
CONNECTICUT 1.0%
1,750 Connecticut St Spl Oblig Pkg Rev Bradley Intl
Arpt Ser A (ACA Insd)........................... 6.600 07/01/24 1,902,565
1,000 Hartford, CT Pkg Sys Rev Ser A.................. 6.500 07/01/25 1,036,910
------------
2,939,475
------------
DISTRICT OF COLUMBIA 1.0%
2,775 District of Columbia Hosp Rev Medlantic Hlthcare
Ser A Rfdg (Escrowed to Maturity) (MBIA Insd)
(a)............................................. 5.250 08/15/12 3,048,365
------------
FLORIDA 10.2%
2,775 Broward Cnty, FL Wtr & Swr Util Rfdg (MBIA
Insd)........................................... 5.000 10/01/21 2,936,144
2,000 Escambia Cnty, FL Hlth Fac Auth Rev (AMBAC
Insd)........................................... 5.950 07/01/20 2,115,540
1,000 Florida St Brd Ed Lottery Rev Ser A (FGIC
Insd)........................................... 5.750 07/01/11 1,161,440
2,000 Florida St Dept Environmental Prot Preservtn Rev
Ser A (FGIC Insd)............................... 5.750 07/01/10 2,338,700
1,745 Hillsborough Cnty, FL Port Dist Tampa Port Auth
Proj Ser A (MBIA Insd).......................... 5.375 06/01/27 1,833,105
1,000 Jea, FL Elec Sys Rev Ser 3 Ser A................ 5.500 10/01/41 1,071,580
2,105 Lake Cnty, FL Sch Brd Ctf Part (AMBAC Insd)..... 5.375 07/01/15 2,377,345
1,000 Marion Cnty, FL Sch Brd Ctf (FSA Insd).......... 5.250 06/01/18 1,105,100
1,500 Miami Beach, FL Stormwtr Rev (FGIC Insd)........ 5.250 09/01/25 1,579,620
1,720 Miami-Dade Cnty, FL Aviation Rev Miami Intl Arpt
(FGIC Insd)..................................... 5.375 10/01/32 1,798,226
3,000 Orange Cnty, FL Sch Brd Ctf Part Ser A (AMBAC
Insd)........................................... 5.250 08/01/14 3,388,260
</Table>
6 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<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 $ 4,570,320
2,000 Orange Cnty, FL Tourist Dev Tax Rev (AMBAC
Insd)........................................... 5.500 10/01/31 2,176,600
1,090 Plantation, FL Impt Proj Rfdg (FSA Insd)........ 5.000 08/15/20 1,159,716
1,115 Tallahassee, FL Lease Rev FL St Univ Proj Ser A
(MBIA Insd)..................................... 5.500 08/01/19 1,245,578
------------
30,857,274
------------
GEORGIA 7.9%
4,499 Fulton Cnty, GA Lease Rev (Acquired 12/23/94,
Cost $4,499,036) (b)............................ 7.250 06/15/10 4,750,262
2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd)........................................... 6.500 01/01/20 3,334,145
3,000 Georgia Muni Elec Auth Pwr Rev Ser B Rfdg (FGIC
Insd)........................................... 6.250 01/01/17 3,691,110
2,500 Georgia St Ser D................................ 6.000 10/01/05 2,699,650
2,335 Georgia St Ser D................................ 6.000 10/01/06 2,603,245
1,405 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)............................... 5.250 11/01/14 1,577,323
2,000 Municipal Elec Auth GA Combustion Turbine Proj
Ser A (MBIA Insd)............................... 5.250 11/01/22 2,143,620
800 Royston, GA Hosp Auth Hosp Rev Ctf Hlthcare Sys
Inc............................................. 6.700 07/01/16 794,528
2,500 Royston, GA Hosp Auth Hosp Rev Ctf Hlthcare Sys
Inc............................................. 6.500 07/01/27 2,402,450
------------
23,996,333
------------
ILLINOIS 18.2%
4,000 Chicago, IL Brd Ed Chicago Sch Reform Ser A
(AMBAC Insd).................................... 5.250 12/01/27 4,159,640
1,400 Chicago, IL Brd Ed Ser A (MBIA Insd)............ 5.500 12/01/28 1,495,774
2,250 Chicago, IL Neighborhoods Alive 21 Ser A (FGIC
Insd)........................................... 5.500 01/01/13 2,549,632
1,500 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien C-2 Rfdg (FSA Insd)........................ 5.250 01/01/30 1,547,700
1,500 Chicago, IL O'Hare Intl Arpt Rev Gen Arpt Third
Lien C-2 Rfdg (XLCA Insd)....................... 5.250 01/01/34 1,542,915
1,000 Chicago, IL O'Hare Intl Arpt Rev Second Lien
Passenger Fac Ser B (AMBAC Insd)................ 5.500 01/01/16 1,111,640
1,000 Chicago, IL Proj Ser C Rfdg (FGIC Insd)......... 5.750 01/01/14 1,153,280
1,000 Chicago, IL Proj Ser C Rfdg (FGIC Insd)......... 5.750 01/01/15 1,148,150
4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A
(Escrowed to Maturity) (MBIA Insd).............. * 01/01/07 4,593,566
1,000 Chicago, IL Ser B Rfdg (AMBAC Insd) (a)......... 5.125 01/01/15 1,118,700
2,000 Chicago, IL Wastewtr Transmission Rev Second
Lien (MBIA Insd)................................ 5.750 01/01/25 2,220,840
1,960 Cook Cnty, IL Cmnty Cons Sch Dist (FSA Insd).... 5.500 12/01/13 2,276,716
1,000 Cook Cnty, IL Ser A (FGIC Insd)................. 5.500 11/15/31 1,066,290
</Table>
See Notes to Financial Statements 7
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ILLINOIS (CONTINUED)
$3,230 Cook Cnty, IL Ser A Rfdg (MBIA Insd)............ 5.625% 11/15/16 $ 3,614,919
2,310 Illinois Dev Fin Auth Rev Adventist Hlth Ser A
(MBIA Insd)..................................... 5.500 11/15/13 2,638,413
2,500 Illinois Dev Fin Auth Rev Adventist Hlth Ser A
(MBIA Insd)..................................... 5.500 11/15/15 2,837,600
1,335 Illinois Dev Fin Auth Rev Bradley Univ Proj
(Prerefunded @ 08/01/09) (AMBAC Insd)........... 5.375 08/01/24 1,539,255
2,000 Illinois Ed Fac Auth Rev Lewis Univ............. 6.125 10/01/26 1,961,300
3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg............................................ 6.000 11/15/23 3,266,248
1,500 Illinois St First Ser (FGIC Insd)............... 5.375 11/01/14 1,691,820
1,900 Kendall, Kane & Will Cntys, IL Cmnty Unit Sch
Dist No. 308 Ser B (FGIC Insd).................. 5.250 10/01/21 2,042,538
2,500 Metropolitan Pier & Expo Auth IL Dedicated St
Tax Rev McCormick Pl Expn Ser A (MBIA Insd)..... 5.250 06/15/42 2,610,725
1,250 Sangamon Cnty, IL Ctf Part...................... 10.000 12/01/06 1,522,550
7,455 Will Cnty, IL Fst Presv Dist Ser B (FGIC
Insd)........................................... * 12/01/12 5,265,839
------------
54,976,050
------------
INDIANA 2.3%
2,420 Brownsburg, IN Sch Bldg Corp First Mtg
Brownsburg Cmnty Sch (MBIA Insd)................ 5.550 02/01/24 2,641,769
1,000 Clark Pleasant, IN Cmnty Sch First Mtg (AMBAC
Insd)........................................... 5.500 07/15/18 1,106,220
2,000 Indiana Trans Fin Auth Toll Rfdg (AMBAC Insd)... 5.375 07/01/09 2,198,760
1,000 Petersburg, IN Pollutn Ctl Rev IN Pwr & Lt...... 6.375 11/01/29 990,520
------------
6,937,269
------------
KANSAS 2.7%
3,810 Kansas St Dev Fin Auth Rev KS Proj Ser N (AMBAC
Insd)........................................... 5.250 10/01/22 4,064,203
1,250 Kansas St Dev Fin Auth Rev KS St Proj (AMBAC
Insd)........................................... 5.500 03/01/16 1,407,188
2,235 Sedgwick Cnty, KA Uni Sch Dist No. 259 Wichita
(MBIA Insd)..................................... 5.500 09/01/11 2,551,096
------------
8,022,487
------------
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 2,500,389
5,000 Kentucky St Ppty & Bldgs Commn Proj No. 74 Rfdg
(FSA Insd)...................................... 5.375 02/01/16 5,567,450
2,000 Kentucky St Tpk Auth Econ Dev Revitalization
Proj Rfdg (FSA Insd)............................ 5.500 07/01/07 2,232,260
------------
10,300,099
------------
</Table>
8 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
LOUISIANA 2.1%
$4,395 Ernest N Morial New Orleans, LA Sr Sub Ser A
(AMBAC Insd).................................... 5.250% 07/15/22 $ 4,713,462
1,500 Louisiana St Ser A (FGIC Insd).................. 5.500 11/15/08 1,709,610
------------
6,423,072
------------
MARYLAND 0.9%
2,180 Baltimore, MD Cap Apprec Ser A (FGIC Insd)...... * 10/15/09 1,650,107
1,265 Maryland St Econ Dev Corp Student Hsg Rev
Salisbury Univ Proj............................. 5.000 06/01/34 1,189,049
------------
2,839,156
------------
MASSACHUSETTS 2.5%
4,000 Massachusetts St Cons Ln Ser B (Prerefunded @
03/01/12) (FSA Insd)............................ 5.500 03/01/17 4,602,720
1,500 Massachusetts St Fed Hwy Gnt Antic Nt Ser A..... 5.750 06/15/15 1,746,870
1,000 Massachusetts St Indl Fin Agy Rev Higher Ed
Hampshire College Proj.......................... 5.625 10/01/12 1,058,840
------------
7,408,430
------------
MICHIGAN 2.9%
1,000 Grand Rapids, MI Wtr Supply Sys Rfdg (FGIC
Insd)........................................... 5.750 01/01/13 1,149,330
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale
Cmnty Hlth Ctr.................................. 5.750 05/15/18 1,114,014
650 Macomb Cnty, MI Hosp Fin Auth Hosp Rev Mt
Clemens Gen Hosp Ser B.......................... 5.750 11/15/25 626,847
1,000 Michigan Muni Bd Auth Rev Clean Wtr Rev Fd...... 5.250 10/01/18 1,102,710
1,000 Michigan St Strategic Fd Detroit Edison Co Proj
C Rfdg (XLCA Insd).............................. 5.450 12/15/32 1,046,840
1,000 Michigan St Strategic Fd Detroit Edison Pollutn
Ctl Ser B Rfdg.................................. 5.650 09/01/29 1,030,940
2,500 Michigan St Strategic Fd Ltd Oblig Rev Detroit
Ed Conv Rfdg (AMBAC Insd)....................... 4.850 09/01/30 2,767,100
------------
8,837,781
------------
MISSISSIPPI 0.5%
1,500 Mississippi Hosp Equip & Fac MS Baptist Med Ctr
Rfdg (MBIA Insd)................................ 6.000 05/01/13 1,613,280
------------
MISSOURI 3.7%
2,530 Bi State Dev Agy MO IL Met Metrolink Cross Cnty
Proj B (FSA Insd)............................... 5.250 10/01/18 2,797,092
3,400 Missouri St Hwys & Trans Commn Rd Rev Ser A..... 5.500 02/01/08 3,829,862
1,405 Saint Louis, MO Direct Dep Ser A Rfdg (FSA
Insd)........................................... 5.000 04/01/19 1,506,483
1,605 Saint Louis, MO Direct Dep Ser A Rfdg (FSA
Insd)........................................... 5.000 04/01/20 1,706,901
1,250 Saint Charles, MO Ctf Part Ser B................ 5.500 05/01/18 1,326,225
------------
11,166,563
------------
</Table>
See Notes to Financial Statements 9
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NEVADA 1.5%
$3,965 Clark Cnty, NV Bd Bk (FGIC Insd)................ 5.500% 06/01/09 $ 4,531,599
------------
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 1,979,873
1,000 New Jersey St Trans Corp Cap Grant Antic Nt Ser
B (AMBAC Insd).................................. 5.500 02/01/08 1,122,270
2,000 New Jersey St Trans Corp Ctf Fed Trans Admin
Grants Ser A (AMBAC Insd)....................... 5.500 09/15/13 2,316,120
2,095 New Jersey St Trans Tr Fd Auth Trans Sys Ser
A............................................... 5.750 06/15/17 2,448,552
------------
7,866,815
------------
NEW MEXICO 1.5%
4,000 Santa Fe, NM Gross Rcpt Tax Impt (AMBAC Insd)... 5.250 06/01/13 4,512,000
------------
NEW YORK 17.8%
3,000 Metropolitan Trans Auth NY Ser A Rfdg (AMBAC
Insd)........................................... 5.500 11/15/18 3,382,110
2,500 Metropolitan Trans Auth NY Ser A Rfdg (FGIC
Insd)........................................... 5.250 11/15/31 2,642,325
2,500 Nassau Cnty, NY Interim Fin Auth Sales Tax Secd
Ser A........................................... 5.750 11/15/13 2,891,725
5,700 New York City Muni Wtr Fin Auth Ser A (FSA
Insd)........................................... 5.375 06/15/17 6,367,983
5,900 New York City Ser A............................. 7.000 08/01/04 6,097,296
4,500 New York City Ser B (AMBAC Insd)................ 7.250 08/15/07 5,283,450
445 New York City Ser C............................. 7.000 08/15/08 446,927
1,000 New York City Ser H............................. 5.750 03/15/13 1,119,470
6,930 New York City Trans Auth Trans Fac Livingston
Plaza Proj Rfdg (Escrowed to Maturity) (FSA
Insd)........................................... 5.400 01/01/18 7,956,749
3,000 New York City Transitional Fin Auth Rev Future
Tax Secd Ser A.................................. 5.500 11/01/26 3,416,010
2,000 New York St Dorm Auth Rev Sch Dist Fin Pgm Ser D
(MBIA Insd)..................................... 5.500 10/01/17 2,264,480
3,000 New York St Urban Dev Corp Rev Personal Income
Tax Ser C (FGIC Insd)........................... 5.500 03/15/18 3,394,110
3,000 New York St Urban Dev Corp Rev Personal Income
Tax Ser C....................................... 5.000 03/15/33 3,063,060
2,635 New York St Urban Dev Corp Rev Youth Fac
(Prerefunded @ 04/01/04)........................ 5.875 04/01/08 2,719,478
2,680 Port Auth NY & NJ Cons 119th Ser (FGIC Insd).... 5.500 09/15/17 2,909,247
------------
53,954,420
------------
</Table>
10 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<Table>
<Caption>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
NORTH CAROLINA 5.8%
$2,000 Charlotte, NC Ctf Part Convention Fac Proj Ser A
Rfdg............................................ 5.500% 08/01/19 $ 2,242,840
3,000 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev
Ser D........................................... 6.750 01/01/26 3,336,870
10,000 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev Rfdg (MBIA Insd)............................ 6.000 01/01/12 11,865,500
------------
17,445,210
------------
OHIO 4.6%
1,000 Cuyahoga Cnty, OH Hosp Fac Rev Canton Inc
Proj............................................ 7.500 01/01/30 1,111,920
3,000 Franklin Cnty, OH Convention Fac Auth Tax &
Lease Rev Antic Bds Rfdg (AMBAC Insd)........... 5.250 12/01/19 3,279,990
1,000 Lorain Cnty, OH Hosp Rev Catholic Hlthcare...... 5.375 10/01/30 1,015,960
2,000 Lorain, OH City Sch Dist Classroom Fac Impt
(MBIA Insd)..................................... 5.250 12/01/20 2,186,540
1,000 Ohio St Air Quality Dev Auth Rev JMG Fdg Ltd
Part Proj Rfdg (AMBAC Insd)..................... 6.375 04/01/29 1,054,370
1,500 Ohio St Bldg Auth St Fac Admin Bldg Fd Proj A
(FSA Insd)...................................... 5.500 04/01/15 1,701,210
3,000 University Cincinnati OH Gen Ser A (FGIC
Insd)........................................... 5.500 06/01/09 3,433,440
------------
13,783,430
------------
OKLAHOMA 0.8%
1,130 Central, OK Trans & Pkg Auth Pkg Sys (AMBAC
Insd)........................................... 5.000 07/01/18 1,214,422
1,000 Tulsa Cnty, OK Indl Auth Ser B.................. 5.000 05/15/10 1,119,800
------------
2,334,222
------------
OREGON 2.5%
1,000 Clackamas Cnty, OR Sch Dist..................... 5.500 06/01/10 1,154,310
1,350 Oregon Hlth Sciences Univ Insd Ser A (MBIA
Insd)........................................... 5.250 07/01/22 1,448,523
2,060 Oregon St Dept Admin Ser C Rfdg (MBIA Insd)..... 5.250 11/01/17 2,263,054
1,250 Portland, OR Cmnty College Dist Ser B........... 5.250 06/01/12 1,411,625
1,135 Portland, OR Swr Sys Rev Second Lien Ser A Rfdg
(FSA Insd)...................................... 5.250 06/01/19 1,243,971
------------
7,521,483
------------
PENNSYLVANIA 7.5%
1,500 Allegheny Cnty, PA San Auth Swr (MBIA Insd)..... 5.500 12/01/30 1,626,165
1,000 Allegheny Cnty, PA Ser C-53 Rfdg (FGIC Insd).... 5.500 11/01/14 1,138,020
1,000 Greensburg Salem, PA Sch Dist Rfdg (FGIC
Insd)........................................... 5.375 09/15/15 1,125,620
2,000 Harrisburg, PA Auth Res Gtd Sub Ser D 2 (FSA
Insd)........................................... 5.000 12/01/33 2,191,500
1,200 Harrisburg, PA Cap Apprec Nt Ser F Rfdg (AMBAC
Insd)........................................... * 09/15/14 773,136
2,600 Philadelphia, PA Auth Indl Ser B (FSA Insd)..... 5.500 10/01/16 2,914,496
2,400 Philadelphia, PA Gas Wks Rev 1998 Gen Ordinance
Fourth Ser (FSA Insd)........................... 5.250 08/01/22 2,592,120
</Table>
See Notes to Financial Statements 11
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<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 $ 5,048,342
2,000 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A
(Escrowed to Maturity).......................... 6.000 12/01/13 2,332,920
3,000 State Pub Sch Bldg Auth PA Sch Rev Lease
Philadelphia Sch Dist Proj (FSA Insd)........... 5.000 06/01/33 3,082,680
------------
22,824,999
------------
SOUTH CAROLINA 0.7%
1,000 Chesterfield Cnty, SC Sch Dist (FSA Insd)....... 5.375 03/01/18 1,103,360
1,000 South Carolina Jobs Econ Dev Auth Indl Rev Elec
& Gas Co Proj Ser A (AMBAC Insd)................ 5.200 11/01/27 1,047,750
------------
2,151,110
------------
SOUTH DAKOTA 0.3%
875 Deadwood, SD Ctf Partn (ACA Insd)............... 6.375 11/01/20 947,564
------------
TENNESSEE 1.8%
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 2,535,540
2,500 Memphis, TN (Prerefunded @ 10/01/06)............ 5.250 10/01/14 2,763,050
------------
5,298,590
------------
TEXAS 15.0%
2,050 Austin, TX Wtr & Wastewtr Rfdg (MBIA Insd)...... 5.750 05/15/12 2,341,223
1,000 Austin, TX Wtr & Wastewtr Rfdg (MBIA Insd)...... 5.250 11/15/19 1,093,990
750 Brazos Cnty, TX Hlth Fac Dev Oblig Grp.......... 5.375 01/01/32 755,190
1,430 Cameron Cnty, TX Ctf Oblig (AMBAC Insd)......... 5.750 02/15/15 1,621,792
1,500 Corpus Christi, TX Util Sys Rev Impt Rfdg (FSA
Insd)........................................... 5.250 07/15/19 1,630,515
2,000 Fort Worth, TX Wtr & Swr Rev Impt Rfdg.......... 5.500 02/15/05 2,096,700
1,000 Harris Cnty, TX Hlth Fac Dev Mem Hermann
Hlthcare Ser A.................................. 6.375 06/01/29 1,074,810
2,000 Harris Cnty, TX Perm Impt & Rfdg................ 5.000 10/01/11 2,188,360
4,820 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09)
(AMBAC Insd).................................... * 08/15/18 2,204,620
1,000 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09)
(AMBAC Insd).................................... * 08/15/21 372,090
2,105 Houston, TX Hotel Occupancy Tax & Spl Rev
Convention & Entmt Ser B (AMBAC Insd)........... 5.750 09/01/15 2,408,773
1,000 Houston, TX Pub Impt Rfdg (FSA Insd)............ 5.750 03/01/15 1,141,640
2,000 Houston, TX Wtr & Swr Sys Rev Jr Lien Ser B Rfdg
(FGIC Insd)..................................... 6.250 12/01/05 2,179,280
1,500 Mesquite, TX Hlth Fac Dev Retirement Fac
Christian A..................................... 7.500 02/15/18 1,570,290
1,100 Metropolitan Hlth Fac Dev Corp TX Wilson N Jones
Mem Hosp Proj................................... 7.200 01/01/21 1,050,346
1,000 North Cent TX Hlth Fac Dev Hosp Baylor Hlthcare
Sys Proj Ser A.................................. 5.125 05/15/29 1,014,030
</Table>
12 See Notes to Financial Statements
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<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 $ 1,827,718
2,805 Tarrant Regl Wtr Dist TX Wtr Impt Rfdg (FSA
Insd)........................................... 5.250 03/01/19 3,063,817
3,332 Texas Mun Pwr Agy Rev (AMBAC Insd).............. * 09/01/07 3,049,613
193 Texas Mun Pwr Agy Rev (Escrowed to Maturity)
(AMBAC Insd).................................... * 09/01/07 177,477
4,300 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (FSA Insd)..................... 5.500 09/01/13 4,414,122
1,565 Texas St Univ Sys Fin Rev Rfdg (FSA Insd)....... 5.000 03/15/20 1,644,940
1,000 Texas Tech Univ Rev Fin Sys Seventh Ser (MBIA
Insd)........................................... 5.000 08/15/25 1,025,780
1,500 Texas Wtr Dev Brd Rev St Revolving Fd Sr Lien
Ser B........................................... 5.250 07/15/17 1,645,170
1,000 Trinity River Auth TX Rev Tarrant Cnty Wtr Proj
Impt & Rfdg (MBIA Insd)......................... 5.500 02/01/21 1,106,440
2,500 University TX Univ Rev Fin Sys Ser B............ 5.250 08/15/20 2,723,475
------------
45,422,201
------------
UTAH 0.4%
1,000 Salt Lake Cnty, UT College Rev Westminster
College Proj.................................... 5.750 10/01/27 1,014,190
165 Utah St Hsg Fin Agy Single Family Mtg Ser B
Class 2 (FHA/VA Gtd)............................ 6.250 07/01/14 168,026
------------
1,182,216
------------
VIRGINIA 0.8%
2,275 Virginia Comwlth Trans Brd Northn VA Trans Dist
Pgm Ser A....................................... 5.375 05/15/15 2,548,410
------------
WASHINGTON 5.4%
3,410 Clark Cnty, WA Pub Util Dist Rfdg (FSA Insd).... 5.500 01/01/08 3,822,644
2,595 Clark Cnty, WA Pub Util Dist Rfdg (FSA Insd).... 5.500 01/01/09 2,946,363
1,300 Energy Northwest WA Elec Rev Proj No 3 Ser A
Rfdg (FSA Insd)................................. 5.500 07/01/17 1,447,004
4,400 King Cnty, WA Ser B Rfdg (MBIA Insd)............ 5.250 01/01/34 4,559,368
1,000 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)...... 5.750 12/01/20 1,150,460
2,100 Spokane, WA Pub Fac Dist Hotel (MBIA Insd)...... 5.750 12/01/21 2,404,815
------------
16,330,654
------------
WISCONSIN 2.1%
2,345 Appleton, WI Wtrwks Rev Rfdg (FGIC Insd)........ 5.375 01/01/19 2,564,727
3,500 Milwaukee, WI Redev Auth Rev Milwaukee Pub Schs
(AMBAC Insd).................................... 5.125 08/01/22 3,710,035
------------
6,274,762
------------
GUAM 1.0%
2,800 Guam Pwr Auth Rev Ser A (AMBAC Insd)............ 5.250 10/01/34 2,930,508
------------
</Table>
See Notes to Financial Statements 13
YOUR TRUST'S INVESTMENTS
December 31, 2003 (Unaudited)
<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 $ 1,034,160
------------
TOTAL INVESTMENTS 152.6%
(Cost $428,050,198)....................................................... 461,675,918
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%................................. 5,925,942
PREFERRED SHARES (INCLUDING ACCRUED DISTRIBUTIONS) (54.6%)................. (165,072,645)
------------
NET ASSETS APPLICABLE TO COMMON SHARES 100.0%.............................. $302,529,215
============
</Table>
* Zero coupon bond
(a) All or a portion of these securities have been physically segregated in
connection with open futures contracts.
(b) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers. Restricted securities comprise .02% of net
assets applicable to common shares.
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
December 31, 2003 (Unaudited)
<Table>
ASSETS:
Total Investments (Cost $428,050,198)....................... $461,675,918
Receivables:
Interest.................................................. 6,710,315
Investments Sold.......................................... 511,810
Other....................................................... 6,270
------------
Total Assets............................................ 468,904,313
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 492,727
Investment Advisory Fee................................... 236,911
Income Distributions--Common Shares....................... 106,690
Capital Gain Distributions--Common Shares................. 98,462
Other Affiliates.......................................... 13,445
Variation Margin on Futures............................... 4,062
Trustees' Deferred Compensation and Retirement Plans........ 230,932
Accrued Expenses............................................ 119,224
------------
Total Liabilities....................................... 1,302,453
Preferred Shares (including accrued distributions).......... 165,072,645
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $302,529,215
============
NET ASSET VALUE PER COMMON SHARE ($302,529,215 divided by
28,684,985 shares outstanding)............................ $ 10.55
============
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................................. 33,622,464
Accumulated Undistributed Net Investment Income............. 2,790,953
Accumulated Net Realized Loss............................... (567)
------------
NET ASSETS APPLICABLE TO COMMON SHARES...................... $302,529,215
============
PREFERRED SHARES ($.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....................... $467,529,215
============
</Table>
See Notes to Financial Statements 15
Statement of Operations
For the Six Months Ended December 31, 2003 (Unaudited)
<Table>
INVESTMENT INCOME:
Interest.................................................... $11,209,687
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,394,889
Preferred Share Maintenance................................. 219,845
Trustees' Fees and Related Expenses......................... 43,193
Legal....................................................... 25,692
Custody..................................................... 14,908
Other....................................................... 145,355
-----------
Total Expenses.......................................... 1,843,882
-----------
NET INVESTMENT INCOME....................................... $ 9,365,805
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,194,541
Futures................................................... 63,936
-----------
Net Realized Gain........................................... 1,258,477
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 38,927,157
-----------
End of the Period:
Investments............................................. 33,625,720
Futures................................................. (3,256)
-----------
33,622,464
-----------
Net Unrealized Depreciation During the Period............... (5,304,693)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(4,046,216)
===========
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS..................... $ (753,809)
===========
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES FROM
OPERATIONS................................................ $ 4,565,780
===========
</Table>
16 See Notes to Financial Statements
Statements of Changes in Net Assets
(Unaudited)
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 2003 JUNE 30, 2003
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 9,365,805 $ 18,981,992
Net Realized Gain....................................... 1,258,477 3,743,147
Net Unrealized Appreciation/Depreciation During the
Period................................................ (5,304,693) 16,417,441
Distributions to Preferred Shareholders:
Net Investment Income................................. (753,809) (2,032,221)
------------ ------------
Change in Net Assets Applicable to Common Shares from
Operations............................................ 4,565,780 37,110,359
Distributions to Common Shareholders:
Net Investment Income................................. (8,605,086) (15,661,138)
Net Realized Gain..................................... (1,325,246) -0-
------------ ------------
NET CHANGE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM INVESTMENT ACTIVITIES............................ (5,364,552) 21,449,221
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of the Period................................. 307,893,767 286,444,546
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $2,790,953 and $2,784,043,
respectively)......................................... $302,529,216 $307,893,767
============ ============
</Table>
See Notes to Financial Statements 17
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<Table>
<Caption>
SIX MONTHS
ENDED
DECEMBER 31, ------------------------
2003 2003 2002 (d)
----------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD............ $ 10.73 $ 9.99 $ 9.62
---------- ---------- ----------
Net Investment Income............................. .33 .66 .70
Net Realized and Unrealized Gain/Loss............. (.13) .70 .31
Common Share Equivalent of Distributions Paid to
Preferred Shareholders:
Net Investment Income............................. (.03) (.07) (.11)
---------- ---------- ----------
Total from Investment Operations.................... .17 1.29 .90
Distributions Paid to Common Shareholders:
Net Investment Income............................. (.30) (.55) (.53)
Net Realized Gain................................. (.05) -0- -0-
---------- ---------- ----------
NET ASSET VALUE, END OF THE PERIOD.................. $ 10.55 $ 10.73 $ 9.99
========== ========== ==========
Common Share Market Price at End of the Period...... $ 9.48 $ 9.66 $ 8.85
Total Return (e).................................... 1.84%* 15.76% 5.64%
Net Assets Applicable to Common Shares at End of the
Period (In millions).............................. $ 302.5 $ 307.9 $ 286.4
Ratio of Expenses to Average Net Assets Applicable
to Common Shares (a).............................. 1.23% 1.21% 1.25%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (a)................... 6.26% 6.35% 6.99%
Portfolio Turnover.................................. 10%* 35% 41%
SUPPLEMENTAL RATIOS:
Ratio of Expenses to Average Net Assets Including
Preferred Shares (a).............................. .79% .78% .79%
Ratio of Net Investment Income to Average Net Assets
Applicable to Common Shares (b)................... 5.76% 5.67% 5.92%
SENIOR SECURITIES:
Total Preferred Shares Outstanding.................. 330 330 330
Asset Coverage Per Preferred Share (c).............. $1,416,975 $1,433,101 $1,368,316
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>
* Non-Annualized
(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,
- ----------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
$ 8.99 $ 9.56 $ 10.26 $ 10.01 $ 9.76 $ 9.76 $ 9.92 $ 11.13
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
.75 .81 .84 .89 .92 .94 .96 1.00
.66 (.55) (.70) .26 .26 .05 (.06) (1.21)
(.23) (.22) (.19) (.21) (.21) (.22) (.22) (.16)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1.18 .04 (.05) .94 .97 .77 .68 (.37)
(.55) (.61) (.65) (.69) (.72) (.77) (.84) (.84)
-0- -0- -0- -0- -0- -0- -0- -0-
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 9.62 $ 8.99 $ 9.56 $ 10.26 $ 10.01 $ 9.76 $ 9.76 $ 9.92
========== ========== ========== ========== ========== ========== ========== ==========
$ 8.89 $ 8.6875 $ 9.625 $ 10.875 $ 10.875 $ 9.875 $ 11.125 $ 11.125
8.88% -3.08% -5.68% 6.85% 18.32% -4.27% 8.59% -0.05%
$ 276.0 $ 258.0 $ 274.1 $ 292.3 $ 283.2 $ 273.7 $ 271.1 $ 272.7
1.27% 1.32% 1.24% 1.23% 1.28% 1.31% 1.33% 1.28%
7.94% 9.06% 8.23% 8.69% 9.25% 9.47% 9.85% 9.30%
50% 54% 98% 103% 53% 29% 38% 45%
.79% .81% .79% .79% .80% .82% .83% .82%
5.50% 6.59% 6.35% 6.64% 7.18% 7.26% 7.56% 7.86%
330 330 330 330 330 330 330 330
$1,336,403 $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 $ 500,000 $ 500,000
</Table>
See Notes to Financial Statements 19
NOTES TO
FINANCIAL STATEMENTS
December 31, 2003 (Unaudited)
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, 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. Effective
November 30, 2003, the Trust's investment adviser, Van Kampen Investment
Advisory Corp. merged into its affiliate, Van Kampen Asset Management.
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
segregate assets with the custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
payment is made. At December 31, 2003, the Trust did not have any 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
December 31, 2003 (Unaudited)
At December 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
<Table>
Cost of investments for tax purposes........................ $427,697,092
============
Gross tax unrealized appreciation........................... $ 34,264,362
Gross tax unrealized depreciation........................... (285,536)
------------
Net tax unrealized appreciation on investments.............. $ 33,978,826
============
</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 year ended June 30, 2003
was as follows:
<Table>
<Caption>
2003
Distributions paid from:
Ordinary income........................................... $18,900
Long-term capital gain.................................... -0-
-------
$18,900
=======
</Table>
As of June 30, 2003, the component of distributable earnings on a tax basis
were as follows:
<Table>
Undistributed ordinary income............................... $56,043
Undistributed long-term capital gain........................ 14,865
</Table>
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Asset
Management (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.
For the six months ended December 31, 2003, the Trust recognized expenses of
approximately $15,800 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 six months ended
December 31, 2003, the Trust recognized expenses of approximately $24,100
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.
21
NOTES TO
FINANCIAL STATEMENTS
December 31, 2003 (Unaudited)
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 $47,287,078 and $48,478,555,
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 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.
22
NOTES TO
FINANCIAL STATEMENTS
December 31, 2003 (Unaudited)
Transactions in futures contracts for the six months ended December 31,
2003, were as follows:
<Table>
<Caption>
CONTRACTS
Outstanding at June 30, 2003................................ 70
Futures Opened.............................................. 107
Futures Closed.............................................. (146)
----
Outstanding at December 31, 2003............................ 31
====
</Table>
The futures contracts outstanding as of December 31, 2003, and the
description and unrealized appreciation/depreciation are as follows:
<Table>
<Caption>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
SHORT CONTRACTS:
10-Year U.S. Treasury Notes-March 2004
(Current Notional Value of $112,266 per contract)......... 6 $ 1,662
5-Year U.S. Treasury Notes-March 2004
(Current Notional Value of $111,625 per contract)......... 25 (4,918)
-- -------
31 $(3,256)
== =======
</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 December 31, 2003 was 1.084%. During the six months
ended December 31, 2003, the rates ranged from 0.700% to 1.112%.
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
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANANGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK NELSON
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
SUZANNE H WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
1221 Avenue of the Americas
New York, New York 10020
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
24
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 Asset Management, Van
Kampen Advisors 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)2004 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC. 920, 919, 107
VMT SAR 2/04 13606B04-AS-2/04
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) 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.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's most recent fiscal half-year
(the registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) Code of Ethics - Not applicable for semi-annual reports.
(b)(1) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(b)(2) A certification for the Principal Financial Officer of the registrant is
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: February 18, 2004
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: February 18, 2004
By: /s/ John L. Sullivan
--------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: February 18, 2004