-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pn7MlQzb6lngzhYBASKF4sHXloOhQvYDqfxl88n6h9r0JvU9hP0xiNK01UbTFYLi DurGTfRoKuOh/MqmWFqHmQ== 0000912057-02-030111.txt : 20020806 0000912057-02-030111.hdr.sgml : 20020806 20020806163420 ACCESSION NUMBER: 0000912057-02-030111 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000809844 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04992 FILM NUMBER: 02720823 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 N-30D 1 a2085160zn-30d.txt N-30D [GRAPHIC] COLONIAL MUNICIPAL INCOME TRUST SEMIANNUAL REPORT MAY 31, 2002 PRESIDENT'S LETTER DEAR SHAREHOLDER: The environment for the municipal bond market has been shaped by economic events and investor uncertainties over the past six months. Although the Federal Reserve halted its string of interest rate cuts in December 2001, its presence on the sidelines was felt by the market as investors tried to guess the timing of its next move. A robust first quarter suggested that the Fed could act early in 2002 to begin to raise short-term interest rates; however, they remained at a 40-year low throughout the period. Indications of more moderate economic growth in the second quarter raised the possibility that the Fed may delay action until later in the year. The municipal bond market was one of the strongest bond market sectors during the six-month period. As cities and states face leaner times and tighter budgets, the volume of new municipal bonds increased somewhat. However, demand also increased as investors favored bonds over stocks, and that has helped support municipal bond returns. The following report will provide you with more detailed information about the trust's performance and the strategies used by portfolio manager Maureen G. Newman. For more information, contact your financial advisor. As always, we thank you for investing in Colonial Municipal Income Trust and for giving us the opportunity to help you build a strong financial future. /s/ Keith T. Banks Keith T. Banks President Colonial Management Associates, Inc. Not FDIC Insured May Lose Value No Bank Guarantee Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. PORTFOLIO MANAGER'S REPORT For the six-month period ended May 31, 2002, Colonial Municipal Income Trust generated a 2.17% total return, based on net asset value. The trust underperformed the Lehman Brothers Municipal Bond Index, which returned 2.56%. However, it outperformed its peer group, the Lipper Municipal Debt Funds Category average, which was 2.01%. Early in the period, financial data began to indicate that the economy was poised for recovery. While there was uncertainty about how strong the economic rebound would be, interest rates rose. In this environment, we began reducing the trust's commitment to defensive issues, which tend to perform well in a poor economy, and added cyclical securities which usually do well when economic growth picks up. In the cyclical area we invested in Cessna Citation Service Center (0.2% of net assets), the aircraft division of Textron Manufacturing Company.(1) We also established a position in Seminole Tribe Convention Center (0.2% of net assets), a Florida gaming company. Good security selection and a focus on yield benefited the trust. The trust's leverage, investing the proceeds from the sale of preferred shares in long-term bonds and paying out a short rate, boosted its income. As a result, the income available for distribution to common shareholders was enhanced. The trust's relatively large allocation to intermediate-term bonds also aided performance. Looking ahead, we believe interest rates have the potential to stabilize or rise as the economy slowly recovers. Therefore, we expect most of the trust's total return to come from income. We are seeking opportunities in sectors that were most affected by the economic downturn. For example, industrial bonds have performed poorly because of weak corporate earnings. Their prices are relatively low and they have attractive yields. As the economy strengthens and corporate profits rise, we believe industrial bonds have the potential to be strong performers. /s/ Maureen G. Newman MAUREEN G. NEWMAN Maureen G. Newman is the portfolio manager of Colonial Municipal Income Trust and a senior vice president of Colonial Management Associates, Inc., an affiliate of Columbia Management Group. Ms. Newman received her BA in economics from Boston College and her MBA from Babson College. She is a Chartered Financial Analyst, a member of the Boston Security Analysts Society and former chairman of the National Federation of Municipal Analysts. PRICE PER SHARE AS OF 5/31/02 ($) NAV 6.04 - ------------------------------------------- Market price 5.80 - -------------------------------------------
6-MONTH TOTAL RETURN, ASSUMING REINVESTMENT OF ALL DISTRIBUTIONS FOR THE PERIOD ENDED 5/31/02 (%) NAV 2.17 - ------------------------------------------- Market Price 6.27 - -------------------------------------------
DISTRIBUTIONS DECLARED PER COMMON SHARE, ($) 12/1/01 - 5/31/02 0.20 - -------------------------------------------
A portion of the trust's income may be subject to the alternative minimum tax. The trust may at times purchase tax-exempt securities at a discount from their original issue price. Some or all of this discount may be included in the trust's ordinary income, and any market discount is taxable when distributed. TOP 5 INDUSTRY SECTORS AS OF 5/31/02 (%) Hospitals 9.6 - ------------------------------------------- Nursing Homes 8.6 - ------------------------------------------- Airports 7.7 - ------------------------------------------- Water Sewer 7.1 - ------------------------------------------- Refunded/Escrowed 6.2 - -------------------------------------------
Sector breakdowns are calculated as a percentage of net assets representing both common shares and auction preferred shares. Quality breakdown as of 5/31/02 (%) AAA 36.8 - ------------------------------------------- AA 1.2 - ------------------------------------------- A 3.5 - ------------------------------------------- BBB 16.7 - ------------------------------------------- BB 4.6 - ------------------------------------------- B 0.3 - ------------------------------------------- CCC 0.3 - ------------------------------------------- Non-rated 35.6 - ------------------------------------------- Cash equivalents 1.0 - -------------------------------------------
Quality breakdowns are calculated as a percentage of total investments, including short-term obligations. Ratings shown in the quality breakdown represent the highest rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Investors Service, Inc. Because the trust is actively managed, there can be no guarantee the trust will continue to maintain these quality breakdowns or invest in these sectors in the future. (1) Holdings are disclosed as of May 31, 2002 and are subject to change. Past performance is no guarantee of future investment results. The principal value and investment returns will fluctuate, resulting in a gain or loss on sale. Tax-exempt investing offers current tax-exempt income, but it also involves certain risks. The value of the trust shares will be affected by interest rate changes and the creditworthiness of issues held in the trusts. Interest income from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. 1 INVESTMENT PORTFOLIO May 31, 2002 (Unaudited)
MUNICIPAL BONDS - 97.5% PAR VALUE ------------ ------------ EDUCATION - 4.2% CA Educational Facilities Authority, Loyola Marymount University, Series 2001, (a) 10/01/14 $ 1,250,000 $ 695,537 CA Statewide Community Development Authority, Crossroads School for Arts & Sciences, Series 1998, 6.000% 08/01/28 (b) 1,160,000 1,174,059 IL University of Illinois, Series 2001 A, 5.500% 08/15/17 600,000 633,198 MA Industrial Finance Agency, St. John's High School, Series 1998, 5.350% 06/01/28 300,000 275,004 MI Southfield Economic Development Corp., Lawrence University, Series 1998 A, 5.400% 02/01/18 750,000 706,523 NC Capital Facilities Finance Authority, Meredith College, Series 2001, 5.125% 06/01/15 1,000,000 1,038,350 VT Educational & Health Buildings Finance Agency, Norwich University, Series 1998, 5.500% 07/01/21 1,000,000 950,110 WA Higher Education Facilities Authority, Puget Sound University, Series 1998, 5.375% 10/01/30 5,000,000 5,007,500 WV University, Series 2000 A, (a) 04/01/25 750,000 210,165 ------------ 10,690,446 ------------ HEALTH CARE - 24.1% CONGREGATE CARE RETIREMENT - 4.5% CA Statewide Community Development Authority, Eskaton Village - Grass Valley, Series 2000, 8.250% 11/15/31 (b) 750,000 795,000 IL Health Facilities Authority, Lutheran Senior Ministries, Series 2001, 7.375% 08/15/31 250,000 250,625 KS Manhattan, Meadowlark Hills Retirement Home, Series 1999 A: 6.375% 05/15/20 250,000 248,437 6.500% 05/15/28 1,500,000 1,500,000 KY Economic Development Finance Authority, Christian Church Homes of Kentucky, Inc., Series 1998, 5.500% 11/15/30 $ 200,000 $ 178,220 MA Boston Industrial Development Finance Authority, Springhouse, Inc., Series 1988, 5.875% 07/01/20 500,000 423,125 MA Development Finance Agency, Loomis Communities: Series 1999 A, 5.625% 07/01/15 250,000 230,285 Series 2002 A, 6.900% 03/01/32 125,000 124,062 MN Columbia Heights, Crest View Corp., Series 1998, 6.000% 03/01/33 745,000 648,150 NH Higher Educational & Health Facilities Authority, Rivermead at Peterborough, Series 1998, 5.750% 07/01/28 1,100,000 944,625 NJ Economic Development Authority, Seabrook Village, Inc., Series 2000 A, 8.250% 11/15/30 500,000 533,750 PA Chartiers Valley Industrial & Commercial Development Authority, Asbury Health Center, Series 1999, 6.375% 12/01/24 1,000,000 928,750 PA Lancaster Industrial Development Authority: Baptist Home of Philadelphia, Series 1998 A: 5.500% 11/15/18 360,000 306,000 5.600% 11/15/28 500,000 408,750 Garden Spot Village, Series 2000 A, 7.625% 05/01/31 325,000 335,156 TN Metropolitan Government, Nashville and Davidson Counties, Blakeford at Green Hills, Series 1998, 5.650% 07/01/24 575,000 494,500 TX Abilene Health Facilities Development Corp., Sears Methodist Retirement Obligated Group: Series 1998 A, 5.900% 11/15/25 750,000 625,312 Series 1999, 5.875% 11/15/18 500,000 439,375 See notes to investment portfolio. 2 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ HEALTH CARE (continued) Congregate Care Retirement (continued) WI Health & Educational Facilities Authority: Attic Angel Obligated Group, 5.750% 11/15/27 $ 875,000 $ 707,656 Clement Manor, Series 1998, 5.750% 08/15/24 1,000,000 847,500 United Lutheran Program for Aging, Inc., 5.700% 03/01/28 750,000 630,000 ------------ 11,599,278 ------------ HEALTH SERVICES - 0.3% IL Health Facilities Authority, Midwest Physician Group Ltd., Series 1998, 5.500% 11/15/19 90,000 73,616 MA Development Finance Agency, Boston Biomedical Research Institute, Series 1999, 5.650% 02/01/19 120,000 112,481 MA Health & Educational Facilities Authority, Civic Investments, Inc., Series 2002 A, 9.000% 12/15/15 500,000 505,000 ------------ 691,097 ------------ HOSPITALS - 9.6% AR Conway Health Facilities Board, Conway Regional Medical Center: Series 1999 A, 6.400% 08/01/29 350,000 361,319 Series 1999 B, 6.400% 08/01/29 850,000 876,273 CA Health Facilities Financing Authority, Cedars-Sinai Medical Center, Series 1999 A, 6.125% 12/01/30 650,000 680,433 CO Health Care Facilities Authority, National Jewish Medical & Research Center, Series 1998: 5.375% 01/01/16 1,500,000 1,450,125 5.375% 01/01/23 840,000 781,175 FL Orange County Health Facilities Authority, Orlando Regional Healthcare, Series 2002, 5.750% 12/01/32 (c) 150,000 149,358 FL West Orange Healthcare District, Series 2001 A, 5.650% 02/01/22 400,000 399,492 GA Forsyth County Hospital Authority, Georgia Baptist Healthcare System, Series 1998, 6.000% 10/01/08 $ 1,000,000 $ 1,002,500 IL Health Facilities Authority: Swedish American Hospital, Series 2000, 6.875% 11/15/30 500,000 532,985 Thorek Hospital & Medical Center, 5.375% 08/15/28 500,000 429,485 IL Southwestern Development Authority, Anderson Hospital, Series 1999: 5.375% 08/15/15 500,000 468,910 5.500% 08/15/20 550,000 513,623 LA Public Facilities Authority, Touro Infirmary, Series 1999: 5.500% 08/15/19 250,000 246,425 5.625% 08/15/29 1,275,000 1,249,653 MA Health & Educational Facilities Authority, Milford-Whitinsville Regional Hospital, Series 1998 C, 5.250% 07/15/18 500,000 435,380 MI Dickinson County Healthcare System, Series 1999, 5.700% 11/01/18 770,000 723,107 MI Flint Hospital Building Authority, Hurley Medical Center, Series 1998 A, 5.375% 07/01/20 460,000 400,895 MI Hospital Finance Authority, Detroit Medical Center, Series 1998 A, 5.250% 08/15/28 600,000 474,654 MN St. Paul Housing & Redevelopment Authority, Healtheast Project, Series 2001 A, 5.700% 11/01/15 2,000,000 1,565,000 MN Washington County Housing & Redevelopment Authority, Healtheast, Inc., Series 1998, 5.250% 11/15/12 1,250,000 984,375 MS Business Finance Corp., Rush Medical Foundation, Inc., Series 1998, 5.625% 07/01/23 715,000 603,968 See notes to investment portfolio. 3 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ HEALTH CARE (continued) Hospitals (continued) NH Higher Educational & Health Facilities Authority: Littleton Hospital Association, Inc., Series 1998 A: 5.900% 05/01/18 $ 500,000 $ 405,625 5.900% 05/01/28 675,000 517,219 6.000% 05/01/28 625,000 485,938 NY Staten Island University Hospital, Series 2001 B, 6.375% 07/01/31 500,000 496,170 OH Belmont County, East Ohio Regional Hospital, Series 1998, 5.700% 01/01/13 1,500,000 1,335,000 OH Highland County Joint Township Hospital District, Series 1999, 6.750% 12/01/29 735,000 675,281 OH Miami County, Upper Valley Medical Center, Inc., Series 1996 A, 6.250% 05/15/16 665,000 676,391 OH Sandusky County, County Memorial Hospital, Series 1998, 5.150% 01/01/08 270,000 269,727 PA Allegheny County Hospital Development, Ohio Valley General Hospital, Series 1998 A, 5.450% 01/01/28 1,050,000 928,294 PA Pottsville Hospital Authority, Pottsville Hospital & Warner Clinic, Series 1998, 5.625% 07/01/24 755,000 637,613 TX Lufkin Health Facilities Development Corp., Memorial Health Systems of East Texas, Series 1998, 5.700% 02/15/28 750,000 585,097 TX Richardson Hospital Authority, Baylor Richardson Medical Center, Series 1998, 5.625% 12/01/28 850,000 811,215 TX Tyler Health Facilities Development Corp., Mother Frances Hospital, Series 2001, 6.000% 07/01/31 750,000 736,298 VT Educational & Health Buildings Finance Agency, Brattleboro Memorial Hospital, 5.375% 03/01/28 500,000 444,300 WI Health & Educational Facilities Authority, Wheaton Franciscan Services, Series 2002, 5.750% 08/15/30 $ 450,000 $ 449,330 WV Hospital Finance Authority, Charleston Area Medical Center, Series 2000 A, 6.750% 09/01/30 750,000 800,918 ------------ 24,583,551 ------------ INTERMEDIATE CARE FACILITIES - 1.1% IN Health Facilities Financing Authority, Hoosier Care, Inc., Series 1999 A, 7.125% 06/01/34 1,075,000 940,625 PA Economic Development Financing Authority, Northwestern Human Services, Inc., Series 1998 A, 5.250% 06/01/14 2,150,000 1,789,080 ------------ 2,729,705 ------------ NURSING HOMES - 8.6% AK Juneau, St. Ann's Care Center, Series 1999, 6.875% 12/01/25 1,000,000 998,750 CO Health Facilities Authority: American Housing Funding, Series 1990 A, 10.250% 12/01/20 (d) 1,500,000 555,000 Volunteers of America Care Facilities, Inc.: Series 1998 A: 5.450% 07/01/08 250,000 237,188 5.750% 07/01/20 700,000 594,125 Series 1999 A, 6.000% 07/01/29 350,000 294,437 DE Sussex County, Healthcare Facility, Delaware Health Corp., Series 1994 A, 7.600% 01/01/24 975,000 873,844 IA Finance Authority, Care Initiatives Project: Series 1996, 9.250% 07/01/25 1,000,000 1,196,250 Series 1998 B: 5.750% 07/01/18 550,000 495,000 5.750% 07/01/28 1,475,000 1,266,656 IN Gary Industrial Economic Development, West Side Health Care Center, Series 1987 A, 11.500% 10/01/17 2,290,000 2,310,564 See notes to investment portfolio. 4 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ HEALTH CARE (continued) Nursing Homes (continued) IN Health Facilities Financing Authority, Metro Health Indiana, Inc., Series 1998, 6.400% 12/01/33 (d) $ 1,000,000 $ 400,000 IN Michigan City Health Facilities, Metropolitan Health Foundation Inc. Project, 11.000% 11/01/22 (d) 4,500,000 1,530,000 KY Jefferson County First Mortgage, American Housing Funding, Kentucky-Iowa, Inc. Project, Series 1990, 10.250% 01/01/20 890,000 534,000 KY Lexington-Fayette Urban County Government, First Mortgage, American Housing Funding, Kentucky-Iowa, Inc. Project, Series 1990, 10.250% 01/01/20 900,000 540,000 MA Development Finance Agency, Alliance Health Care Facilities, Series 1999, 7.100% 07/01/32 1,150,000 1,132,750 MA Development Finance Agency: American Health Woodlawn Manor, Inc.: Series 2000 A, 7.750% 01/01/28 380,000 339,625 Series 2000 B, 10.250% 07/01/27 80,000 76,000 GF/Massachusetts Inc., Series 1994, 8.300% 07/01/23 930,000 952,087 MI Cheboygan County Economic Development Corp., Metro Health Foundation Project, Series 1993, 11.000% 11/01/22 (d) 2,440,000 829,600 MN Carlton Inter-Faith Social Services, Inc., Series 2000: 7.500% 04/01/19 250,000 255,000 7.750% 04/01/29 250,000 257,188 MN New Hope, North Ridge Care Center, Inc., Series 1999, 5.875% 03/01/29 250,000 225,937 MN Sartell, Foundation for Healthcare, Series 1999 A, 6.625% 09/01/29 2,025,000 1,840,219 NJ Economic Development Authority, Geriatric and Medical Service, Inc., Series 1990 A, 10.500% 05/01/04 $ 265,000 $ 269,306 OH Montgomery County, Grafton Oaks LP, Series 1986, 9.750% 12/01/16 1,450,000 1,417,375 TN New Tazewell Health Education & Housing Facilities Board, New Tazewell Project, Series 1987, 10.000% 06/01/17 1,455,000 1,475,792 TX Kirbyville Health Facilities Development Corp., Heartway III Project: Series 1997 A, 10.000% 03/20/18 549,059 510,625 Series 1997 B, 6.000% 03/20/04 (d) 100,000 5,000 WA Kitsap County Housing Authority, Martha & Mary Nursing Home, 7.100% 02/20/36 643,000 730,544 ------------ 22,142,862 ------------ HOUSING - 9.5% ASSISTED LIVING/SENIOR - 3.7% DE Kent County, Heritage at Dover, Series 1999, 7.625% 01/01/30 1,240,000 1,102,050 GA Columbus Housing Authority, The Gardens at Calvary, Series 1999, 7.000% 11/15/19 500,000 442,500 IL Clarendon Hills Residential Facilities, Churchill Estate, Series 1998 A: 6.750% 03/01/24 (d) 1,050,000 787,500 6.750% 03/01/31 (d) 1,365,000 1,023,750 IL Development Finance Authority, Care Institute, Inc., 8.250% 06/01/25 1,460,000 1,472,775 MN Roseville, Care Institute, Inc., Series 1993, 7.750% 11/01/23 (d) 1,630,000 1,134,888 NC Medical Care Commission, DePaul Community Facilities Project, Series 1999, 7.625% 11/01/29 1,000,000 1,005,000 See notes to investment portfolio. 5 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ HOUSING (continued) Assisted Living/Senior (continued) NY Huntington Housing Authority, Gurwin Jewish Senior Center, Series 1999: 5.875% 05/01/19 $ 420,000 $ 373,800 6.000% 05/01/29 650,000 568,750 TX Bell County Health Facilities Development Corp., Care Institutes, Inc., 9.000% 11/01/24 1,465,000 1,523,600 ------------ 9,434,613 ------------ MULTI-FAMILY - 5.6% DE Wilmington, Electra Arms Senior Association Project, 6.250% 06/01/28 960,000 781,200 FL Broward County Housing Finance Authority, Chaves Lake Apartment Project, Series 2000, 7.500% 07/01/40 500,000 508,125 FL Clay County Housing Finance Authority, Madison Commons Apartments, Series 2000 A, 7.450% 07/01/40 500,000 508,125 GA Clayton County Housing Authority, Magnolia Park Apartments, Series 1999 A, 6.250% 06/01/30 750,000 683,475 IL Chicago, Michigan Boulevard Garden Apartment Rehabilitation Project, Series 1985, 12.000% 01/01/50 (d) 70,000 49,000 MN Washington County Housing & Redevelopment Authority, Cottages of Aspen, Series 1992, 9.250% 06/01/22 1,030,000 1,066,050 MN White Bear Lake, Birch Lake Townhomes Project: Series 1989 A, 10.250% 07/15/19 1,770,000 1,814,250 Series 1989 B, (a) 07/15/19 644,000 284,430 NC Eastern Carolina Regional Housing Authority, New River Apartments- Jacksonville, Series 1994, 8.250% 09/01/14 1,620,000 1,632,150 Resolution Trust Corp., Pass Through Certificates, Series 1993 A, 8.500% 12/01/16 (e) 1,168,885 1,174,636 SC Housing Finance & Development Multi-Family Housing Finance Revenue, Westbridge Apartments, Series 1990 A, 9.500% 09/01/20 $ 2,036,000 $ 2,036,000 TN Franklin Industrial Development Board, Landings Apartment Project, Series 1996 B, 8.750% 04/01/27 745,000 782,250 TX El Paso County Housing Finance Corp., American Village Communities: Series 2000 C, 8.000% 12/01/32 300,000 300,375 Series 2000 D, 10.000% 12/01/32 300,000 300,375 TX Galveston Housing Facilities Center, Driftwood Apartments, 8.000% 08/01/23 1,000,000 1,032,500 TX National Housing Trust Project, Series 2001 C, 10.000% 10/01/31 695,000 688,954 VA Alexandria Redevelopment & Housing Authority, Courthouse Commons Apartments, Series 1990 A, 10.000% 01/01/21 1,000,000 877,500 ------------ 14,519,395 ------------ SINGLE FAMILY - 0.2% AK Housing Finance Corp., Series 1996 A, 6.050% 12/01/17 560,000 587,675 KY Kentucky County Single Family Mortgage Revenue, Class A, 9.000% 09/01/16 30,000 30,070 ------------ 617,745 ------------ INDUSTRIAL - 5.1% FOOD PRODUCTS - 2.0% GA Cartersville Development Authority, Anheuser Busch Project, Inc., Series 2002, 5.950% 02/01/32 1,000,000 1,011,700 IN Hammond, American Maize Products Co., Series 1994, 8.000% 12/01/24 1,760,000 1,828,658 LA Port of New Orleans Industrial Development, Continental Grain Company, Series 1993, 7.500% 07/01/13 1,000,000 1,034,160 See notes to investment portfolio. 6 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ INDUSTRIAL (continued) Food Products (continued) LA Southern Louisiana Port Commission, Cargill, Inc. Project, 5.850% 04/01/17 $ 500,000 $ 523,010 MI Strategic Fund, Michigan Sugar Co., Sebewaing Project, Series 1998 A, 6.250% 11/01/15 1,000,000 700,000 ------------ 5,097,528 ------------ FOREST PRODUCTS - 1.3% AL Courtland Industrial Development Board, Champion International Corp., Series 1999, 6.000% 08/01/29 1,000,000 975,700 GA Effingham County Industrial Development Authority, Georgia- Pacific Corp., Series 2001, 6.500% 06/01/31 500,000 462,185 GA Rockdale County Development Authority, Solid Waste Disposal, Visy Paper, Inc., Series 1993, 7.500% 01/01/26 800,000 810,000 LA Beauregard Parish, Boise Cascade Corp. Project, Series 2002, 6.800% 02/01/27 1,000,000 993,960 ------------ 3,241,845 ------------ MANUFACTURING - 1.1% IL Will-Kankakee Regional Development Authority, Flanders Corp., Precisionaire Project, Series 1997, 6.500% 12/15/17 895,000 837,944 KS Wichita Airport Authority, Cessna Citation Service Center, Series 2002 A, 6.250% 06/15/32 475,000 477,052 MN Brooklyn Park, TL Systems Corp., Series 1991, 10.000% 09/01/16 715,000 771,306 TX Trinity River Authority, Texas Instruments Project, Series 1996, 6.200% 03/01/20 750,000 778,380 ------------ 2,864,682 ------------ METALS & MINING - 0.2% MD Baltimore County, Bethlehem Steel Corp. Project, Series 1994 B, 7.500% 06/01/15 (d) 500,000 35,000 NV Department of Business & Industry, Wheeling-Pittsburgh Steel Corp., Series 1999 A, 8.000% 09/01/14 (d) $ 250,000 $ 175,000 VA Greensville County Industrial Development Authority, Wheeling-Pittsburgh Steel Corp., Series 1999 A: 6.375% 04/01/04 (d) 70,000 49,000 7.000% 04/01/14 (d) 375,000 262,500 ------------ 521,500 ------------ OIL & GAS - 0.5% WA Pierce County Economic Development Corp., Occidental Petroleum Co., 5.800% 09/01/29 1,500,000 1,420,455 ------------ OTHER - 7.8% OTHER - 0.6% CA Tobacco Securitization Authority, Series 2002 B, 6.000% 06/01/43 900,000 864,324 MD Baltimore, Park Charles Project, Series 1986, 8.000% 01/01/15 613,558 620,804 ------------ 1,485,128 ------------ POOL/BOND BANK - 1.0% IN Indianapolis Local Public Improvement Bond Bank, Series 1999 E, 5.750% 02/01/29 2,000,000 2,003,440 MI Municipal Bond Authority, Local Government Loan Project, Series 2001 A, 5.375% 11/01/17 550,000 577,110 ------------ 2,580,550 ------------ REFUNDED/ESCROWED (f) - 6.2% CA San Joaquin Hills Transportation Corridor Agency, Series 1993, (a) 01/01/25 10,000,000 2,923,800 CT Development Authority, Sewer Sludge Disposal Facilities, Series 1996, 8.250% 12/01/06 855,000 965,081 FL Clearwater Housing Authority, Hampton Apartments, Series 1994, 8.250% 05/01/24 2,390,000 2,706,675 ID Health Facilities Authority, IHC Hospitals, Inc., 6.650% 02/15/21 2,750,000 3,289,440 See notes to investment portfolio. 7 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ OTHER (continued) Refunded/Escrowed (f) (continued) MA Health & Educational Facilities Authority, Corp. for Independent Living, 8.100% 07/01/18 $ 640,000 $ 696,109 MN Mille Lacs Capital Improvement Authority, Mille Lacs Band of Chippewa, Series 1992 A, 9.250% 11/01/12 865,000 915,654 NC Lincoln County, Lincoln County Hospital, 9.000% 05/01/07 305,000 354,562 PA Delaware County Authority, Mercy Health Corp., Series 1996: 6.000% 12/15/16 1,400,000 1,576,554 6.000% 12/15/26 500,000 549,920 PA Montgomery County Industrial Development Authority, Assisted Living Facility, Series 1993 A, 8.250% 05/01/23 750,000 806,925 TN Shelby County, Health, Education & Housing Facilities Board, Open Arms Development Center: Series 1992 A, 9.750% 08/01/19 485,000 618,375 Series 1992 C, 9.750% 08/01/19 490,000 624,750 ------------ 16,027,845 ------------ OTHER REVENUE - 2.4% HOTELS - 0.8% PA Philadelphia Authority for Industrial Development, Doubletree Project, 6.500% 10/01/27 2,000,000 1,987,500 ------------ RECREATION - 1.0% CT Mohegan Tribe Indians, Series 2001, 6.250% 01/01/31 200,000 203,154 FL Capital Trust Agency, Seminole Tribe Convention Center, Series 2002 A, 10.000% 10/01/33 500,000 498,750 NM Red River Sports Facility, Red River Ski Area Project, Series 1998, 6.450% 06/01/07 830,000 824,813 NY New York City Cultural Trust, Museum of Modern Art, Series 2001 D, 5.125% 07/01/31 1,000,000 982,880 ------------ 2,509,597 ------------ RETAIL - 0.6% NJ Economic Development Authority, Glimcher Properties LP Project, 6.000% 11/01/28 $ 1,000,000 $ 976,250 OH Lake County, North Madison Properties, Series 1993, 8.819% 09/01/11 695,000 661,988 ------------ 1,638,238 ------------ RESOURCE RECOVERY - 1.2% DISPOSAL - 0.5% MA Industrial Finance Agency, Peabody Monofill Associates, Inc., Series 1995, 9.000% 09/01/05 690,000 727,087 UT Carbon County, Laidlaw Environmental, Series 1997 A, 7.450% 07/01/17 500,000 515,000 ------------ 1,242,087 ------------ RESOURCE RECOVERY - 0.7% MA Industrial Finance Agency, Ogden Haverhill Project, Series 1998 A, 5.500% 12/01/13 1,000,000 820,830 PA Delaware County Industrial Development Authority, BFI Project, Series 1988 A, 6.200% 07/01/19 1,000,000 1,012,500 ------------ 1,833,330 ------------ TAX-BACKED - 12.5% LOCAL APPROPRIATED - 0.4% CA Compton, Civic Center Project, 5.500% 09/01/15 1,000,000 1,025,730 ------------ LOCAL GENERAL OBLIGATIONS - 5.6% CA Los Angeles Unified School District: Series 1997 E, 5.125% 01/01/27 3,750,000 3,736,837 Series 2002, 5.750% 07/01/16 600,000 680,274 LA New Orleans, Series 1991, (a) 09/01/15 4,000,000 2,055,080 NY New York City, Series 1998 H, 5.125% 08/01/25 5,000,000 4,942,850 TX Irving Independent School District, Series 1997: (a) 02/15/15 1,500,000 791,055 (a) 02/15/16 1,000,000 494,810 See notes to investment portfolio. 8 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ TAX-BACKED (continued) Local Appropriated (continued) WA Clark County School District No. 37, Series 2001 C, (a) 12/01/18 $ 4,000,000 $ 1,655,160 ------------ 14,356,066 ------------ SPECIAL NON-PROPERTY TAX - 2.9% CA San Diego Redevelopment Agency, Series 2001, (a) 09/01/18 1,015,000 433,811 IL Metropolitan Pier & Exposition Authority, McCormick Project: (a) 06/15/14 5,000,000 2,749,350 (a) 06/15/15 3,000,000 1,549,830 Series 1996 A, (a) 12/15/13 5,000,000 2,853,650 ------------ 7,586,641 ------------ SPECIAL PROPERTY TAX - 2.7% CA Huntington Beach Community Facilities District, Grand Coast Resort, Series 2001, 6.450% 09/01/31 500,000 504,375 CA Orange County Community Facilities District, Ladera Ranch, Series 1999 A, 6.500% 08/15/21 1,000,000 1,038,750 CA Yorba Linda Redevelopment Agency, Series 1998 A, (a) 09/01/24 1,325,000 382,726 FL Heritage Palms Community Development District, Series 1999, 6.250% 11/01/04 815,000 825,187 FL Heritage Springs Community Development District, Series 1999 B, 6.250% 05/01/05 200,000 203,000 FL Lexington Oaks Community Development District: Series 1998 A, 6.125% 05/01/19 735,000 735,919 Series 2000 D, 6.700% 05/01/07 235,000 242,637 FL Northern Palm Beach County Improvement District, Series 1999, 5.900% 08/01/19 500,000 502,500 FL Orlando, Conroy Road Interchange Project, Series 1998 A: 5.500% 05/01/10 125,000 124,375 5.800% 05/01/26 300,000 288,000 FL Stoneybrook Community Development District: Series 1998 A, 6.100% 05/01/19 $ 250,000 $ 250,313 Series 1998 B, 5.700% 05/01/08 430,000 431,075 MI Pontiac Finance Authority, Development Area, No. 3, Series 2002, 6.375% 06/01/31 450,000 439,875 MI Taylor Tax Increment Finance Authority, Series 2001, 5.375% 05/01/17 1,000,000 1,043,480 ------------ 7,012,212 ------------ STATE APPROPRIATED - 0.8% MI Building Authority, Series 2001 I, 5.000% 10/15/24 1,000,000 974,960 PR Commonwealth of Puerto Rico Public Finance Corp., Series 2002 E, 6.000% 08/01/26 900,000 1,000,125 ------------ 1,975,085 ------------ STATE GENERAL OBLIGATIONS - 0.1% TX Board of Regents University, Series 2001 B, 5.375% 08/15/18 350,000 363,752 ------------ TRANSPORTATION - 13.9% AIR TRANSPORTATION - 3.1% CA Los Angeles Regional Airports Improvement, Laxfuel Corp.: 5.250% 01/01/23 500,000 484,090 Series 2002 C, 7.500% 12/01/24 500,000 487,500 IN Indianapolis Airport Authority: FedEx Corp., Series 1994, 7.100% 01/15/17 2,000,000 2,102,260 United Airlines Project, Series 1995 A, 6.500% 11/15/31 1,000,000 675,000 KY Kenton County Airport Board, Delta Airlines, Inc., Series 1992 A, 7.500% 02/01/20 2,500,000 2,487,050 MN Minneapolis & St. Paul Metropolitan Airport Commission, Northwest Airlines, Inc.: Series 2001 A, 7.000% 04/01/25 325,000 291,688 Series 2001 B, 6.500% 04/01/25 250,000 245,625 See notes to investment portfolio. 9 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ TRANSPORTATION (continued) Air Transportation (continued) NC Charlotte, Special Facilities Revenue, US Airways, Inc.: Series 1998, 5.600% 07/01/27 $ 250,000 $ 126,562 Series 2000, 7.750% 02/01/28 500,000 273,125 PA Philadelphia Authority for Industrial Development, Aero Philadelphia LLC, Series 1999, 5.250% 01/01/09 400,000 369,500 WA Port Seattle, Northwest Airlines, Inc., Series 2000, 7.250% 04/01/30 425,000 390,469 ------------ 7,932,869 ------------ AIRPORTS - 7.7% MI Wayne Charter County, Detroit Metropolitan Airport, Series 1998 A, 5.000% 12/01/28 1,250,000 1,176,788 OH Cleveland Airport, Series 2001 A, 5.000% 01/01/31 10,515,000 10,127,627 PA Philadelphia Airport Authority for Industrial Development, Series 1998 A, 5.125% 07/01/28 8,750,000 8,400,788 ------------ 19,705,203 ------------ TOLL FACILITIES - 2.6% CA San Joaquin Hills Transportation Corridor Agency, Series 1993 A, (a) 01/15/15 3,000,000 1,620,360 CO Northwest Parkway Public Highway Authority, Series 2001 D, 7.125% 06/15/41 750,000 765,000 CO Public Highway Authority, Arapahoe County, E-470, Series 2000 B: (a) 09/01/18 3,000,000 1,274,100 (a) 09/01/35 8,750,000 748,650 MA Turnpike Authority, Series 1999 A, 5.000% 01/01/39 2,500,000 2,344,850 ------------ 6,752,960 ------------ TRANSPORTATION - 0.5% NV Department of Business & Industry, Las Vegas Monorail Project, Series 2000, 7.375% 01/01/40 750,000 729,375 NY Metropolitan Transportation Authority Project, Series 2002 A, 5.000% 11/15/30 $ 650,000 $ 623,337 ------------ 1,352,712 ------------ UTILITY - 16.8% INDEPENDENT POWER PRODUCER - 2.7% MI Midland County Economic Development Corp., Series 2000, 6.875% 07/23/09 1,000,000 1,038,750 NY Port Authority of New York & New Jersey, KIAC Partners, Series 1996 IV, 6.750% 10/01/11 2,000,000 2,107,500 PA Economic Development Finance Authority, Colver Project, Series 1994 D: 7.125% 12/01/15 500,000 522,750 7.150% 12/01/18 1,500,000 1,565,550 PR Commonwealth of Puerto Rico Industrial, Educational, Medical & Environmental Cogeneration Facilities, AES Project, Series 2000, 6.625% 06/01/26 325,000 336,684 VA Pittsylvania County Industrial Development Authority, Multi-trade of Pittsylvania, Series 1994 A: 7.450% 01/01/09 1,000,000 1,018,750 7.550% 01/01/19 250,000 253,438 ------------ 6,843,422 ------------ INVESTOR OWNED - 2.9% AZ Pima County Industrial Development Authority, Tucson Electric Power Co., Series 1997 A, 6.100% 09/01/25 750,000 706,875 CT Development Authority, Connecticut Light & Power Co., Series 1993 B, 5.950% 09/01/28 300,000 304,482 IL Bryant Pollution Control Revenue, Central Illinois Light Co., Series 1993, 5.900% 08/01/23 1,000,000 977,470 LA Calcasieu Parish Industrial Development Board, Entergy Gulf States, Inc., Series 1999, 5.450% 07/01/10 500,000 491,875 LA West Feliciana Parish, Entergy Gulf States, Inc., Series 1999 B, 6.600% 09/01/28 500,000 503,750 See notes to investment portfolio. 10 MUNICIPAL BONDS (CONTINUED) PAR VALUE - --------------------------- ------------ ------------ UTILITY (continued) Investor Owned (continued) MS Business Finance Corp., Systems Energy Resources Project, Series 1998, 5.875% 04/01/22 $ 1,500,000 $ 1,436,250 NV Clark County, Nevada Power Co., Series 1997 A, 5.900% 11/01/32 3,000,000 2,343,750 TX Brazos River Authority Pollution Control, Series 2001, 5.750% 05/01/36 800,000 803,016 ------------ 7,567,468 ------------ MUNICIPAL ELECTRIC - 4.1% NY Long Island Power Authority, Series 1998 A, 5.250% 12/01/26 1,550,000 1,545,768 PR Puerto Rico Electric Power Authority, Series 2002 II, 5.125% 07/01/26 1,500,000 1,501,815 TX Austin Utilities System, Series 1994: (a) 05/15/17 6,600,000 3,031,710 (a) 05/15/18 5,000,000 2,150,000 WA Seattle Light & Power, Series 2001, 5.500% 03/01/17 2,250,000 2,367,855 ------------ 10,597,148 ------------ WATER & SEWER - 7.1% CA Castaic Lake Water Agency, Series 1999 A: (a) 08/01/25 10,445,000 2,860,050 (a) 08/01/26 10,445,000 2,691,885 LA Public Facility Authority, Belmont Water, 9.000% 03/15/24 (d) 730,000 584,000 MA Water Resources Authority, Series 1997 D, 5.000% 08/01/24 (g) 10,000,000 9,789,500 MS Five Lakes Utility District, 8.250% 07/15/24 500,000 463,125 TX Houston Water & Sewer System, Series 1991 C, (a) 12/01/12 3,000,000 1,832,520 ------------ 18,221,080 ------------ TOTAL MUNICIPAL BONDS (cost of $259,396,574) 250,751,325 ------------ MUNICIPAL PREFERRED STOCK - 0.2% SHARES ------------ MULTI-FAMILY - 0.2% Charter Mac Equity Issue Trust, 7.600% 11/30/50 (b) (cost of $500,000) 500,000 531,875 ------------ SHORT-TERM OBLIGATIONS - 1.1% PAR VALUE ------------ ------------ VARIABLE RATE DEMAND NOTE (h) - 1.1% FL Dade County Industrial Development Authority, Dolphins Stadium Project, Series 1985 A, 1.450% 01/01/16 $ 800,000 $ 800,000 IA Higher Education Loan Authority, St. Ambrose University, Series 1999, 1.400% 10/01/09 200,000 200,000 MN Maple Grove, Multi-family Revenue, Series 1991 B, 1.350% 11/01/17 765,000 765,000 NV Washoe County, Sierra Nevada College Project, Series 2000, 1.500% 07/01/25 177,625 177,625 WI Health & Educational Facilities Authority, Meriter Retirement Services, Inc., Series 2002 A, 1.200% 05/01/25 700,000 700,000 ------------ TOTAL SHORT-TERM OBLIGATIONS (cost of $2,642,625) 2,642,625 ------------ TOTAL INVESTMENTS - 98.8% (cost of $262,539,199) (i) 253,925,825 ------------ OTHER ASSETS & LIABILITIES, NET - 1.2% 3,154,704 ============ NET ASSETS* - 100.0% $257,080,529 ------------
NOTES TO INVESTMENT PORTFOLIO: (a) Zero coupon bond. (b) Denotes a restricted security, which is subject to restrictions on resale under federal securities laws. At May 31, 2002, these securities amounted to $2,500,934, which represents 1.0% of net assets. Additional information on these restricted securities is as follows:
ACQUISITION ACQUISITION SECURITY DATE COST --------------------------------------------------------------------------- CA Statewide Community Development Authority: Crossroad School of Arts & Science: 6.000% 08/01/28 08/21/98 $ 460,000 6.000% 08/01/28 08/31/98 700,000 Eskaton Village - Grass Valley, Series 2000, 8.250% 11/15/31 09/08/00 750,000 Charter Mac Equity Issue Trust, 7.600%, 11/30/50 07/06/00 500,000
(c) Settlement of this security is on a delayed delivery basis. (d) This issuer is in default of certain debt covenants. Income is not being fully accrued. See notes to financial statements. 11 (e) This security is exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration normally to qualified institutional buyers. At May 31, 2002, this security amounted to $1,174,636, which represents 0.5% of net assets. (f) The Trust has been informed that each issuer has placed direct obligations of the U.S. Government in an irrevocable trust, solely for the payment of the principal and interest. (g) This security, or a portion thereof with a total market value of $2,024,469, is being used to collateralize open future contracts. (h) Variable rate demand notes are considered short-term obligations. Interest rates change periodically on specified dates. These securities are payable on demand and are secured by either letters of credit or other credit support agreements from banks. The rates listed are as of May 31, 2002. (i) Cost for generally accepted accounting principles is $262,539,199. Cost for federal income tax purposes is $262,453,036. The difference between cost for generally accepted accounting principles and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. Short futures contracts open at May 31, 2002:
PAR VALUE UNREALIZED COVERED BY EXPIRATION APPRECIATION TYPE CONTRACTS MONTH (DEPRECIATION) - --------------------------------------------------------------------- Municipal Bond Index $ 35,000,000 September $ (107,519) 10 Year U.S. Treasury Note 26,700,000 September (188,964) 30 Year U.S. Treasury Bond 32,500,000 September 106,064 ---------- $ (190,419) ----------
* Net assets represent both Common Shares and Auction Preferred Shares. See notes to financial statements. 12 STATEMENT OF ASSETS AND LIABILITIES May 31, 2002 (Unaudited) ASSETS: Investments, at cost $ 262,539,199 -------------- Investments, at value $ 253,925,825 Cash 85,277 Receivable for: Investments sold 80,005 Interest 4,330,158 Deferred Trustees' compensation plan 7,022 Other assets 96,297 -------------- Total Assets 258,524,584 -------------- LIABILITIES: Payable for: Investments purchased on a delayed delivery basis 146,006 Distributions--common shares 1,022,869 Distributions--preferred shares 22,696 Management fee 140,416 Pricing and bookkeeping fees 11,578 Transfer agent fee 22,922 Trustees' fee 1,269 Futures variation margin 6,321 Deferred Trustees' fee 7,022 Other liabilities 62,956 -------------- Total Liabilities 1,444,055 -------------- Auction Preferred Shares (3,600 shares issued and outstanding at $25,000 per share) 90,000,000 -------------- COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHARES: Paid-in capital--common shares $ 220,206,191 Undistributed net investment income 505,736 Accumulated net realized loss (44,827,605) Net unrealized depreciation on: Investments (8,613,374) Futures contracts (190,419) -------------- Net assets at value applicable to 27,645,113 common shares of beneficial interest outstanding $ 167,080,529 -------------- Net asset value per common share $ 6.04 ==============
STATEMENT OF OPERATIONS For the Six Months Ended May 31, 2002 (Unaudited) INVESTMENT INCOME: Interest $ 8,117,821 -------------- EXPENSES: Management fee 838,387 Pricing and bookkeeping fees 61,624 Trustees' fee 7,614 Preferred shares remarketing commissions 112,320 Transfer agent fee 68,548 Other expenses 62,232 -------------- Total Expenses 1,150,725 Custody earnings credit (1,004) -------------- Net Expenses 1,149,721 -------------- Net Investment Income 6,968,100 -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS: Net realized gain (loss) on: Investments (193,551) Futures contracts 2,608,213 -------------- Net realized gain 2,414,662 -------------- Net change in unrealized appreciation/ depreciation on: Investments (2,018,154) Futures contracts (3,178,053) -------------- Net change in unrealized appreciation/depreciation (5,196,207) -------------- Net Loss (2,781,545) -------------- Net Increase in Net Assets from Operations 4,186,555 -------------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (698,452) -------------- Increase in Net Assets from Operations Applicable to Common Shares $ 3,488,103 --------------
See notes to financial statements. 13 STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, INCREASE (DECREASE) IN NET ASSETS: 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 6,968,100 $ 14,607,706 Net realized gain (loss) on investments and futures contracts 2,414,662 (10,760,964) Net change in unrealized appreciation/depreciation on investments and futures contracts (5,196,207) 11,360,310 ---------------- ------------- Net Increase from Operations 4,186,555 15,207,052 ---------------- ------------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (698,452) (2,721,317) ---------------- ------------- Increase in Net Assets from Operations Applicable to Common Shares 3,488,103 12,485,735 ---------------- ------------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (5,487,372) (10,670,628) ---------------- ------------- Total Increase (Decrease) in Net Assets Applicable to Common Shares (1,999,269) 1,815,107 NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of period 169,079,798 167,264,691 ---------------- ------------- End of period (including undistributed net investment income and overdistributed net investment income of $505,736 and $(339,824), respectively) $ 167,080,529 $ 169,079,798 ================ ============= NUMBER OF FUND SHARES: Common Shares: Outstanding at end of period 27,645,113 27,645,113 ---------------- ------------- Preferred Shares: Outstanding at end of period 3,600 3,600 ---------------- -------------
See notes to financial statements. 14 NOTES TO FINANCIAL STATEMENTS May 31, 2002 (Unaudited) NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Colonial Municipal Income Trust (the "Trust") is a Massachusetts business trust, registered under the Investment Company Act of 1940 (the "Act") as amended, as a non-diversified, closed-end management investment company. The Trust's primary investment goal is to provide high current income, generally exempt from federal income taxes. The Trust's secondary goal is to seek total return. The Trust is authorized to issue an unlimited number of common shares of beneficial interest and 3,600 Auction Preferred Shares ("APS"). The preparation of financial statements in conformity with generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a pricing service based upon market transactions for normal, institutional-size trading units of similar securities. When management deems it appropriate, an over-the-counter or exchange bid quotation is used. Futures contracts are valued based on the difference between the last sale price and the opening price of the contract. Options are valued at the last reported sale price, or in the absence of a sale, the mean between the last quoted bid and asking price. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. Investments for which market quotations are not readily available are valued at fair value under procedures approved by the Board of Trustees. Security transactions are accounted for on the date the securities are purchased, sold or mature. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. The Trust may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Trust to subsequently invest at less advantageous prices. FEDERAL INCOME TAXES: Consistent with the Trust's policy to qualify as a regulated investment company and to distribute all of its taxable and tax-exempt income, no federal income tax has been accrued. At November 30, 2001, capital loss carryforwards available (to the extent provided in regulations) to offset future realized gains were as follows:
YEAR OF EXPIRATION CAPITAL LOSS CARRYFORWARD ------------------ ------------------------- 2002 $ 5,301,224 2003 7,498,926 2004 4,074 2005 7,196,783 2007 3,490,821 2008 13,036,764 2009 3,114,307 ------------ $ 39,642,899 ------------
Expired capital loss carryforwards, if any, are recorded as a reduction of paid-in capital. INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the accrual basis. Original issue discount is accreted to interest income over the life of the security with a corresponding increase in the cost basis. Premium is amortized against interest income with a corresponding decrease in the cost basis. Effective December 1, 2001, the Trust adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on all debt securities. The cumulative effect of this accounting change did not impact total net assets, but resulted in a $63,284 increase in cost of securities and a corresponding $63,284 increase in net unrealized depreciation, based on securities held by the Trust on December 1, 2001. The effect of this change for the six months ended May 31, 2002 was to increase net investment income by $22,879 and increase net unrealized depreciation by $22,879. The Statement of Changes in Net Assets and Financial Highlights for prior periods have not been restated to reflect this change. DISTRIBUTIONS TO SHAREHOLDERS: Distributions to common shareholders are recorded on the ex-date. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the Trust's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. Distributions to preferred shareholders are recorded daily and are payable at the end of each dividend period. Each dividend payment period for APS is generally seven days. The applicable dividend rate for the APS on May 31, 2002 was 1.55%. For the six months ended May 31, 2002, the Trust declared dividends to Auction Preferred shareholders amounting to $698,452, representing an average APS dividend rate of 1.53%. 15 NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: Colonial Management Associates, Inc. (the "Advisor") is the investment advisor of the Trust and furnishes accounting and other services and office facilities for a monthly fee equal to 0.65% annually of the Trust's average weekly net assets. BOOKKEEPING FEE: The Advisor is responsible for providing pricing and bookkeeping services to the Trust under a Pricing and Bookkeeping Agreement. Under a separate agreement (the "Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Trust, the Advisor receives from the Trust an annual flat fee of $10,000, paid monthly, and in any month that the Trust's average weekly net assets are more than $50 million, a monthly fee equal to the average weekly net assets of the Trust for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. OTHER: The Trust pays no compensation to its officers, all of whom are employees of the Advisor or its affiliates. The Trust's Independent Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Trust's assets. The Trust has an agreement with its custodian bank under which $1,004 of custody fees were reduced by balance credits for the six months ended May 31, 2002. The Trust could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. NOTE 3. PREFERRED SHARE OFFERING The Trust currently has outstanding 3,600 APS. The APS are redeemable at the option of the Trust on any dividend payment date at the redemption price of $25,000 per share, plus an amount equal to any dividends accumulated on a daily basis unpaid through the redemption date (whether or not such dividends have been declared). Under the Act, the Trust is required to maintain asset coverage of at least 200% with respect to the APS as of the last business day of each month in which any APS are outstanding. Additionally, the Trust is required to meet more stringent asset coverage requirements under the terms of the APS and in accordance with the guidelines prescribed by the rating agencies. Should these requirements not be met, or should dividends accrued on the APS not be paid, the Trust may be restricted in its ability to declare dividends to common shareholders or may be required to redeem certain of the APS. At May 31, 2002, there were no such restrictions on the Trust. Certain reclassifications have been made relating to the presentation of the APS in the Statement of Changes in Net Assets for the year ending November 30, 2001 and the financial highlights for the year ending November 30, 2001 and 2000 to conform to current requirements. NOTE 4. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: For the six months ended May 31, 2002, purchases and sales of investments, other than short-term obligations, were $19,315,019 and $15,813,371, respectively. Unrealized appreciation (depreciation) at May 31, 2002, based on cost of investments for federal income tax purposes, was: Gross unrealized appreciation $ 9,778,007 Gross unrealized depreciation (18,305,218) ------------- Net unrealized depreciation $ (8,527,211) =============
OTHER: There are certain risks arising from geographic concentration in any state. Certain revenue or tax related events in a state may impair the ability of certain issuers of municipal securities to pay principal and interest on their obligations. The Trust may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. The Trust may invest in municipal and Treasury bond futures contracts and purchase and write options on futures. The Trust will invest in these instruments to hedge against the effects of changes in the value of portfolio securities due to anticipated changes in interest rates and/or market conditions, for duration management, or when the transactions are economically appropriate to the reduction of risk inherent in the management of the Trust and not for trading purposes. The use of futures contracts and options involves certain risks which include (1) imperfect correlation between the price movement of the instruments and the underlying securities, (2) inability to close out a position due to different trading hours, or the temporary absence of a liquid market for either the instrument or the underlying securities or (3) an inaccurate prediction by the Advisor of the future direction of interest rates. Any of these risks may involve amounts exceeding the variation margin recorded in the Trust's Statement of Assets and Liabilities at any given time. Upon entering into a futures contract, the Trust deposits cash or securities with its custodian in an amount sufficient to meet the initial margin requirement. Subsequent payments are made or received by the Trust equal to the daily change in the contract value and are recorded as variation margin payable or receivable and offset in unrealized gains or losses. The Trust recognizes a realized gain or loss when the contract is closed or expires. Refer to the Trust's Investment Portfolio for a summary of open futures contracts at May 31, 2002. Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale at the issuer's expense either upon demand by the Trust or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Trust will not incur any registration costs upon such resales. The Trust's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in good faith using methods approved by the Board of Trustees. 16 FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period is as follows (common shares unless otherwise noted):
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, MAY 31, --------------------------------------------------------- 2002 2001 2000 1999 1998 1997 ----------- --------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.12 $ 6.05 $ 6.51 $ 7.57 $ 7.41 $ 7.41 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.25(a)(b) 0.53(a) 0.55(c) 0.46 0.47 0.51 Net realized and unrealized gain (loss) on investments and futures contracts (0.10)(b) 0.03 (0.44) (0.97) 0.18 --(d) -------- -------- -------- -------- -------- -------- Total from Investment Operations 0.15 0.56 0.11 (0.51) 0.65 0.51 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (0.03) (0.10) (0.14) (0.04) -- -- -------- -------- -------- -------- -------- -------- Total from Investment Operations Applicable to Common Shareholders 0.12 0.46 (0.03) (0.55) 0.65 0.51 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (0.20) (0.39) (0.43) (0.42) (0.48) (0.51) In excess of net investment income -- -- -- (0.04) (0.01) -- -------- -------- -------- -------- -------- -------- Total Distributions Declared to Common Shareholders (0.20) (0.39) (0.43) (0.46) (0.49) (0.51) LESS SHARE TRANSACTIONS: Commission and offering costs -- preferred shares -- -- --(d) (0.05) -- -- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 6.04 $ 6.12 $ 6.05 $ 6.51 $ 7.57 $ 7.41 ======== ======== ======== ======== ======== ======== Market price per share -- common shares $ 5.80 $ 5.65 $ 5.38 $ 5.75 $ 8.13 $ 7.56 ======== ======== ======== ======== ======== ======== Total return -- based on market value -- common shares (e) 6.27%(f) 12.05% 0.84% (24.33)% 14.57% 11.67% ======== ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS: Expenses (g)(h) 1.37%(i) 1.45% 1.33% 1.08% 0.82% 0.86% Net investment income (g)(h) 8.28%(b)(i) 8.55% 8.88% 7.00% 6.20% 6.83% Net investment income (g)(h) 7.45%(b)(i)(j) 6.94%(j) 6.68%(j) 6.36%(j) 6.20% 6.83% Portfolio turnover rate 6%(f) 12% 12% 20% 34% 15% Net assets, end of period (000's)-- common shares $167,081 $169,080 $167,265 $180,082 $208,931 $203,533
(a) Per share data was calculated using average shares outstanding for the period. (b) Effective December 1, 2001, the Trust adopted the provision of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on all debt securities. The effect of this change, for the six months ended May 31, 2002 was to increase the ratio of net investment income to average net assets from 8.26% to 8.28%, and increase the ratio of net investment income (adjusted for dividend payments to preferred shareholders) from 7.43% to 7.45%. The impact to net investment income and net realized and unrealized loss per share was less than $0.01. Per share data and ratios for periods prior to May 31, 2002 have not been restated to reflect this change in presentation. (c) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (d) Represents less than $0.01 per share. (e) Total return at market value assuming all distributions reinvested at prices calculated in accordance with the Dividend Reinvestment Plan. (f) Not annualized. (g) The benefits derived from custody credits and directed brokerage arrangement, if applicable, had no impact. (h) Ratios reflect average net assets available to common shares only. (i) Annualized. (j) Ratios reflect reduction for dividend payments to preferred shareholders. ASSET COVERAGE REQUIREMENTS
INVOLUNTARY LIQUIDATING AVERAGE TOTAL AMOUNT ASSET COVERAGE PREFERENCE MARKET VALUE OUTSTANDING PER SHARE PER SHARE PER SHARE - --------------------------------------------------------------------------------------------------------------------------- 05/31/02* $ 90,000,000 $ 71,411 $ 25,006 $ 25,000 11/30/01 90,000,000 71,967 25,007 25,000 11/30/00 90,000,000 71,462 25,011 25,000 11/30/99** 90,000,000 50,023 25,006 25,000
* Unaudited. ** On July 20, 1999, the Trust began offering Auction Preferred Shares. 17 Selected data for a share outstanding throughout each period is as follows (common shares unless otherwise noted):
YEAR ENDED NOVEMBER 30, ---------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 7.48 $ 7.15 $ 7.83 $ 7.89 $ 8.06 --------- --------- --------- --------- --------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.51 0.55 0.61 0.64 0.64 Net realized and unrealized gain (loss) on investments and futures contracts (0.07) 0.33 (0.71) (0.06) (0.17) --------- --------- --------- --------- --------- Total Income from Investment Operations 0.44 0.88 (0.10) 0.58 0.47 --------- --------- --------- --------- --------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (0.51) (0.55) (0.58) (0.64) (0.64) --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 7.41 $ 7.48 $ 7.15 $ 7.83 $ 7.89 --------- --------- --------- --------- --------- Market price per share -- common shares $ 7.25 $ 6.75 $ 6.75 $ 8.00 $ 7.88 --------- --------- --------- --------- --------- Total return -- based on market value -- common shares (a) 15.36% 8.04% (10.06)% 11.56% 1.82% --------- --------- --------- --------- --------- RATIOS TO AVERAGE NET ASSETS: Expenses (b) 0.91% 0.98% 0.90% 0.87% 0.87% Net investment income (b) 6.87% 7.47% 8.12% 8.03% 7.99% Portfolio turnover rate 22% 24% 24% 21% 10% Net assets, end of period (000's) -- common shares $ 202,793 $ 204,666 $ 195,444 $ 213,292 $ 213,420
(a) Total return at market value assuming all distributions reinvested at prices calculated in accordance with the Dividend Reinvestment Plan. (b) The benefits derived from custody credit and directed brokerage arrangement, if applicable, had no impact. 18 SHAREHOLDER MEETING RESULTS RESULTS OF ANNUAL MEETING OF SHAREHOLDERS On May 22, 2002, the Annual Meeting of Shareholders of the Trust was held to conduct a vote for or against the approval of the following Items listed on the Trust's Proxy Statement for said Meeting. On March 1, 2002, the record date for the Meeting, the Trust had 27,645,113 common shares outstanding. The votes cast were as follows:
PROPOSAL 1 FOR WITHHELD ---------- -------- ELECTION OF TRUSTEES: William E. Mayer 21,999,186 541,843 Joseph R. Palombo 22,053,212 487,817 Anne-Lee Verville 22,022,228 518,801
On March 1, 2002, the record date for the Meeting, the Trust had 3,600 preferred shares outstanding. The votes cast were as follows:
PROPOSAL 1 FOR WITHHELD -------- -------- ELECTION OF TRUSTEES: Salvatore Macera 3,088.00 2.00 William E. Mayer 3,088.00 2.00 Joseph R. Palombo 3,088.00 2.00 Thomas E. Stitzel 3,088.00 2.00 Anne-Lee Verville 3,088.00 2.00
19 DIVIDEND REINVESTMENT PLAN As a shareholder in the Trust you are eligible to participate in the Dividend Reinvestment Plan. The Trust generally distributes net investment income monthly and capital gains annually. Under the Trust's Dividend Reinvestment Plan (the "Plan") all distributions will be reinvested automatically in additional shares of the Trust, unless the shareholder elects to receive cash or the shares are held in broker or nominee name and a reinvestment service is not provided by the broker or nominee. All cash distributions will be mailed by check directly to the record holder by the dividend paying agent. If the market price of the shares on the distribution payment date is equal to or greater than the net asset value, Plan participants will be issued shares at the higher of net asset value or 95% of the market price. The aggregate market value of the shares may constitute income to shareholders for federal income tax purposes. However, if the market price of the shares is less than the net asset value, shares will be bought as soon as practicable (but no more than 30 days after the distribution, except as may be required to comply with federal securities laws) in the open market for the accounts of Plan participants. If, during this purchase period, the market price surpasses the net asset value, the average per share price paid may exceed the net asset value of the shares, resulting in the acquisition of fewer shares than if the distribution had been in newly-issued shares. All Plan accounts receive written confirmations of all transactions. Shares purchased under the Plan are held in uncertificated form. Each shareholder's proxy includes shares purchased pursuant to the Plan. The automatic reinvestment of distributions does not relieve participants of any income tax payable on the distributions. Fees and expenses of the Plan other than brokerage charges are incurred on shares issued directly by the Trust. Participants will bear a pro-rata share of brokerage charges incurred on open market purchases. A Plan participant may terminate his or her participation by written notice to the Plan agent. The Plan may be amended or terminated on 30 days written notice to the Plan participants. All correspondence concerning the Plan should be directed to State Street Bank and Trust Company*, the Plan agent, by mail at P.O. Box 8200, Boston, MA 02266-8200 or by phone at 1-800-426-5523. * EquiServe Trust Company, N.A. currently serves as Agent under the Dividend Reinvestment Plan. 20 TRANSFER AGENT IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Colonial Municipal Income Trust is: EquiServe Trust Company, N.A. 150 Royall Street Canton, MA 02021 1-800-426-5523 The trust mails one shareholder report to each shareholder address. Shareholders can order additional reports by calling 800-345-6611. In addition, representatives at that number can provide shareholders information about the trust. Financial advisors who want additional information about the trust may speak to a representative at 800-426-3750. This report has been prepared for shareholders of Colonial Municipal Income Trust. COLONIAL MUNICIPAL INCOME TRUST SEMIANNUAL REPORT 101-03/963J-0502(07/02)02/1220 -----END PRIVACY-ENHANCED MESSAGE-----