N-CSRS 1 dncsrs.txt COLONIAL MUNICIPAL INCOME TRUST 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 811-4992 Colonial Municipal Income Trust -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) James R. Bordewick, Jr., Esq. Columbia Management Advisors, LLC One Financial Center Boston, MA 02111 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-617-426-3750 Date of fiscal year end: November 30, 2006 Date of reporting period: May 31, 2006 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. Item 1. Reports to Stockholders [PHOTO] COLONIAL MUNICIPAL INCOME TRUST Semiannual Report May 31, 2006 [LOGO] Not FDIC Insured May Lose Value No Bank Guarantee + [GRAPHIC] Dear Shareholder: The US stock and bond markets delivered positive, but modest, returns during the six month period ended May 31, 2006. After a weak fourth quarter, economic growth turned sharply higher in 2006 and job growth was steady, although somewhat slower at the end of the period. Confident consumers continued to pump dollars into US retail markets, despite higher energy prices, which boosted inflation. The housing market continued to cool as mortgage rates moved higher, but housing-market indicators--such as housing starts, sales of existing homes, and house prices--remained strong by historical measures. In this environment, the US fixed income markets faced the challenge of rising interest rates, especially within the short-and intermediate-maturity ranges and was generally flat for the period. The Federal Reserve Board, in an effort to balance economic growth and the forces of inflation, raised short-term interest rates by one full percentage point during the reporting period. The yield on the 10-year US Treasury note, a bellwether for the bond market, moved up from 4.5% to 5.1%. Lower quality bonds did better than higher quality bonds. In fact, high-yield bonds did better than either stocks or investment-grade bonds. A strong economy favored corporate high-yield bonds, as default rates remained low and corporate profits surprised investors with better-than-expected results. However, that trend showed signs of shifting near the end of the six-month period. The municipal sector generated respectable gains as economic growth helped buoy revenues and stabilize budgets in many states and municipalities. Within the municipal market, high-yield also outperformed high-grade bonds for the period. In the pages that follow, your fund's manager discusses key factors that influenced performance during this six-month reporting period. We urge you to read this report carefully and to discuss any questions you might have with your financial advisor. As always, we thank you for choosing Colonial Funds. We look forward to continuing to help you build toward your financial goals. Sincerely, /s/ Christopher L. Wilson Christopher L. Wilson President, Columbia Funds The views expressed in the President's Message and Portfolio Manager's Report reflect current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Colonial Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Colonial Fund. References to specific company securities should not be construed as a recommendation or investment advice. [GRAPHIC] [GRAPHIC] Price per share as of 05/31/06 ($) Market price 5.72 -------------------- Net asset value 5.80 --------------------
6-month (cumulative) total return as of 05/31/06 (%) Market price 10.12 --------------------------------- Net asset value 3.89 --------------------------------- Lipper High Yield Municipal Debt Funds Category average 4.41 ---------------------------------
Performance is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please call 800-730-6001 for the Trust's most recent performance. Total return based on net asset value reflects changes in the trust's net asset value during each period. Total return based on market value reflects changes in market value. These figures will differ depending on the level of any discount from or premium to during the period. Distributions declared per common share 12/01/05 - 05/31/06 ($) 0.18 --------
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 sectors as of 05/31/06 (%) Hospitals 10.6 ------------------------------- Congregate care retirement 10.4 ------------------------------- Refunded/escrowed 7.4 ------------------------------- Local general obligation 6.2 ------------------------------- Multi-family 6.0 -------------------------------
Quality breakdown as of 05/31/06 (%) AAA 28.7 --------------------- AA 2.6 --------------------- A 6.4 --------------------- BBB 23.3 --------------------- BB 3.7 --------------------- B 1.9 --------------------- CCC 0.3 --------------------- Non-rated 32.5 --------------------- Cash equivalents 0.6 ---------------------
Sector and quality breakdowns are calculated as a percentage of total investments. Ratings shown in the quality breakdown represent the rating assigned to a particular bond by one of the following nationally recognized rating agencies: Standard & Poor's, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. or Fitch Ratings, Ltd. Ratings are relative and subjective and are not absolute standards of quality. The fund's credit quality does not remove market risk. The majority of the bonds that are non-rated are considered by the advisor to be of non-investment grade quality. [GRAPHIC] PORTFOLIO MANAGER'S REPORT Summary . For the six-month period ended May 31, 2006, Colonial Municipal Income Trust generated a total return of 10.12%, based on its market price. During this period, the trust returned 3.89%, based on investment at net asset value. That was less than the 4.41% average return of the Lipper High Yield Municipal Debt Funds Category,/1/ and slightly behind the 4.30% average return of a customized Lipper peer group that consists of nine leveraged closed-end high-yield municipal funds. The trust's dividend yield declined as rising short-term interest rates cut into some of the income that the trust derived from leverage. However, we believe that the trust's leverage continued to give the common shareholders a higher dividend payment than would have been available without it. . The trust benefited from security selection across a variety of sectors. Top performers included Courthouse Commons, a multi-family housing bond, and US Airways, Inc. bonds, which emerged from bankruptcy protection. The trust also benefited from an above-average stake in zero coupon municipal bonds. In addition, a slightly longer duration (a measure of interest-rate sensitivity) also helped as long-term municipal yields dropped slightly. By contrast, the trust lost some ground because it had more exposure than its customized peer group to higher quality issues and because it had less exposure than its peers to the top-performing but volatile airline sector. . We believe the trust's emphasis on higher quality bonds could be a positive factor if the yield difference between higher and lower quality bonds widens. The trust's duration remains slightly longer than its peers because we do not expect long-term interest rates to move much higher. If the Federal Reserve Board remains vigilant on inflation, it could benefit long-term bonds. Portfolio Management Maureen G. Newman has been the portfolio manager of Colonial Municipal Income Trust since August 1998. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the trust's shares is determined by a number of factors, several of which are beyond the control of the trust. Therefore, the trust cannot predict whether its shares will trade at, below or above net asset value. Performance data quoted represents past performance and current performance may be lower or higher. Past performance is no guarantee of future results. ----------- /1/Lipper Inc., a widely respected data provider in the industry, calculates an average total return (assuming reinvestment of distributions) for mutual funds with investment objectives similar to those of the fund. Lipper makes no adjustment for the effect of sales loads. 1 [GRAPHIC] PORTFOLIO MANAGER'S REPORT (continued) [GRAPHIC] Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Investing in high-yield or "junk" bonds offers the potential for higher income than investments in investment-grade bonds but they also have a higher degree of risk. Changes in economic conditions or other circumstances may adversely affect a high-yield bond issuer's ability to make timely principal and interest payments. Tax-exempt investing offers current tax-exempt income, but it also involves special risks. The value of the trust will be affected by interest rate changes and the creditworthiness of issues held in the fund. Interest income from certain tax-exempt bonds may be subject to certain state and local taxes and, if applicable, the alternative minimum tax. Capital gains are not exempt from income taxes. 2 [GRAPHIC] INVESTMENT PORTFOLIO May 31, 2006 (Unaudited)
MUNICIPAL BONDS - 152.5% PAR ($) VALUE ($) ----------------------------------------------------------- EDUCATION - 5.5% EDUCATION - 4.7% MI Southfield Economic Development Corp., Lawrence University, Series 1998 A, 5.400% 02/01/18 750,000 763,148 PA Higher Education Facilities Authority, Philadelphia University, Series 2004 A, 5.125% 06/01/25 570,000 576,150 VT Educational & Health Buildings Finance Agency, Norwich University, Series 1998, 5.500% 07/01/21 1,000,000 1,020,940 WV Higher Education Policy Commission, Series 2004 B, Insured: FGIC 5.000% 04/01/34 4,745,000 4,858,975 WV University, Series 2000 A, Insured: AMBAC (a) 04/01/25 750,000 301,380 --------- Education Total 7,520,593 --------- PREP SCHOOL - 0.8% CA Statewide Communities Development Authority, Crossroads School for Arts & Sciences, Series 1998, 6.000% 08/01/28(b) 1,070,000 1,106,466 MI Summit Academy North, Series 2005, 5.500% 11/01/35 250,000 230,892 --------- Prep School Total 1,337,358 --------- EDUCATION TOTAL 8,857,951 --------- ----------------------------------------------------------- HEALTH CARE - 42.5% CONTINUING CARE RETIREMENT - 16.2% CA La Verne, Brethren Hillcrest Homes, Series 2003 B, 6.625% 02/15/25 525,000 568,370 CO Health Facilities Authority, Covenant Retirement Communities, Inc., Series 2005, 5.000% 12/01/35 1,100,000 1,078,385 CT Development Authority, Elim Park Baptist, Inc., Series 2003, 5.850% 12/01/33 430,000 449,509 FL Capital Projects Finance Authority, Glenridge on Palmer Ranch, Series 2002 A, 8.000% 06/01/32 500,000 551,860 FL Lee County Industrial Development Authority, Shell Point Village Project, Series 1999 A, 5.500% 11/15/29 400,000 402,044
PAR ($) VALUE ($) -------------------------------------------------------- GA Fulton County Residential Care Facilities Authority, Canterbury Court, Series 2004 A, 6.125% 02/15/26 500,000 520,420 GA Savannah Economic Development Authority, Marshes of Skidaway, Series 2003 A, 7.400% 01/01/34 350,000 369,247 IL Finance Authority, Washington & Jane Smith Community, Series 2005 A, 6.250% 11/15/35 1,000,000 1,032,030 IL Health Facilities Authority: Lutheran Senior Ministries, Series 2001, 7.375% 08/15/31 650,000 706,088 Washington & Jane Smith Community, Series 2003 A, 7.000% 11/15/32 525,000 562,952 IN Health & Educational Facilities Financing Authority, Baptist Homes of Indiana, Inc., Series 2005, 5.250% 11/15/35 750,000 747,862 KS Manhattan, Meadowlark Hills Retirement Home, Series 1999 A, 6.375% 05/15/20 250,000 256,693 MA Boston Industrial Development Financing Authority, Springhouse, Inc., Series 1998, 5.875% 07/01/20 235,000 236,725 MA Development Finance Agency, Loomis Communities: Series 1999 A, 5.625% 07/01/15 250,000 254,928 Series 2002 A, 6.900% 03/01/32 125,000 135,533 MD Westminster Economic Development Authority, Carroll Lutheran Village, Inc., Series 2004 A, 6.250% 05/01/34 500,000 513,460 MO Cole County Industrial Development Authority, Lutheran Senior Services, Series 2004, 5.500% 02/01/35 750,000 772,087 NC Medical Care Commission, United Methodist Retirement Home, Inc. Series 2005 C, 5.250% 10/01/24 500,000 502,010 NH Higher Educational & Health Facilities Authority, Rivermead at Peterborough, Series 1998, 5.750% 07/01/28 1,100,000 1,101,903
See Accompanying Notes to Financial Statements. 3 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) ---------------------------------------------------------- HEALTH CARE (CONTINUED) CONTINUING CARE RETIREMENT (CONTINUED) NJ Economic Development Authority: Cranes Mill, Series 2005 A, 5.100% 06/01/27 325,000 317,951 Lions Gate, Series 2005 A: 5.750% 01/01/25 400,000 407,388 5.875% 01/01/37 300,000 305,547 Seabrook Village, Inc., Series 2000 A, 8.250% 11/15/30 700,000 774,914 Winchester Gardens, Series 2004 A, 5.750% 11/01/24 500,000 526,955 PA Bucks County Industrial Development Authority, Ann's Choice, Inc., Series 2005 A: 6.125% 01/01/25 500,000 510,410 6.250% 01/01/35 250,000 255,088 PA Chartiers Valley Industrial & Commercial Development Authority: Asbury Health Center, Series 1999, 6.375% 12/01/24 1,000,000 1,028,660 Friendship Village of South Hills, Series 2003 A, 5.750% 08/15/20 1,000,000 1,015,210 PA Delaware County Authority, Dunwoody Village, Series 2003 A, 5.375% 04/01/17 400,000 417,808 PA Montgomery County Industrial Development Authority, Whitemarsh Continuing Care Retirement Community, Series 2005: 6.125% 02/01/28 150,000 157,371 6.250% 02/01/35 600,000 631,434 PA Westmoreland County Industrial Development Authority, Redstone Highlands, Series 2005 A: 5.750% 01/01/26 1,250,000 1,262,312 5.875% 01/01/32 600,000 603,930 TN Johnson City Health & Educational Facilities Authority, Appalachian Christian Village, Series 2004 A, 6.250% 02/15/32 250,000 256,455 TN Metropolitan Government Nashville & Davidson County, Blakeford at Green Hills, Series 1998, 5.650% 07/01/24 575,000 562,062 TN Shelby County Health Educational & Housing Facilities Board: Germantown Village, Series 2003 A, 7.250% 12/01/34 300,000 318,444
PAR ($) VALUE ($) ------------------------------------------------------------- Trezevant Manor, Series 2006 A: 5.625% 09/01/26 500,000 494,230 5.750% 09/01/37 400,000 396,948 TX Abilene Health Facilities Development Corp., Sears Methodist Retirement Center: Series 1998 A, 5.900% 11/15/25 750,000 755,670 Series 2003 A, 7.000% 11/15/33 200,000 214,314 TX Houston Health Facilities Development Corp., Buckingham Senior Living Community, Inc., Series 2004 A, 7.000% 02/15/26 500,000 547,540 TX Tarrant County Cultural Education Facilities, Northwest Senior Housing-Edgemere, Series 2006 A, 6.000% 11/15/36 500,000 519,280 VA Virginia Beach Development Authority, Westminster-Canterbury of Hampton, Series 2005, 5.250% 11/01/26 450,000 452,174 WI Health & Educational Facilities Authority: Clement Manor, Series 1998, 5.750% 08/15/24 1,000,000 1,003,320 Eastcastle Place, Inc., Series 2004, 6.125% 12/01/34 300,000 302,652 Three Pillars Senior Living Communities, Series 2003, 5.750% 08/15/26 500,000 510,405 United Lutheran Program for the Aging, Series 1998, 5.700% 03/01/28 750,000 748,072 ---------- Continuing Care Retirement Total 26,058,650 ---------- HEALTH SERVICES - 2.8% CO Health Facilities Authority National Jewish Medical & Research Center, Series 1998: 5.375% 01/01/16 1,500,000 1,515,240 5.375% 01/01/23 340,000 340,476 MA Development Finance Agency, Boston Biomedical Research Institute, Series 1999, 5.650% 02/01/19 620,000 641,675 MA Health & Educational Facilities Authority, Civic Investments, Inc., Series 2002 A, 9.000% 12/15/15 750,000 902,813
See Accompanying Notes to Financial Statements. 4 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) ---------------------------------------------------------- HEALTH CARE (CONTINUED) HEALTH SERVICES (CONTINUED) MN Minneapolis & St. Paul Housing & Redevelopment Authority, Healthpartners Obligation Group, Series 2003, 5.625% 12/01/22 200,000 210,058 WI Health & Educational Facilities Authority, Blood Center Southeastern Wisconsin, Series 2004, 5.750% 06/01/34 750,000 794,625 --------- Health Services Total 4,404,887 --------- HOSPITALS - 16.4% AR Conway Health Facilities Board, Conway Regional Medical Center: Series 1999 A, 6.400% 08/01/29 350,000 371,119 Series 1999 B, 6.400% 08/01/29 850,000 901,289 AR Washington County, Regional Medical Center, Series 2005 B, 5.000% 02/01/30 600,000 590,148 CA Rancho Mirage Joint Powers Financing Authority, Eisenhower Medical Center, Series 2004, 5.625% 07/01/29 750,000 793,852 CA Turlock, Emanuel Medical Center, Inc., Series 2004, 5.375% 10/15/34 1,000,000 1,021,010 CO Health Facilities Authority: Parkview Medical Center, Series 2004, 5.000% 09/01/25 550,000 550,721 Vail Valley Medical Center, Series 2004, 5.000% 01/15/20 500,000 509,405 FL South Lake County Hospital District, South Lake Hospital, Inc., Series 2003, 6.375% 10/01/34 250,000 270,850 FL West Orange Healthcare District, Series 2001 A, 5.650% 02/01/22 400,000 416,184 IL Health Facilities Authority, Thorek Hospital & Medical Center, Series 1998, 5.375% 08/15/28 500,000 505,200 IL Southwestern Development Authority, Anderson Hospital, Series 1999: 5.375% 08/15/15 500,000 512,780 5.500% 08/15/20 550,000 562,699
PAR ($) VALUE ($) ------------------------------------------------------------- IN Health Facility Financing Authority, Community Foundation of Northwest Indiana, Inc., Series 2004 A, 6.000% 03/01/34 425,000 445,893 KS Salina Hospital Revenue, Salina Regional Health Center, Inc., Series 2005 A, 4.625% 10/01/31 400,000 381,320 LA Public Facilities Authority, Touro Infirmary, Series 1999 A: 5.500% 08/15/19 250,000 242,405 5.625% 08/15/29 525,000 504,903 MA Health & Educational Facilities Authority: Jordan Hospital, Series 2003 E, 6.750% 10/01/33 250,000 270,033 Milford Whitinsville Regional Hospital: Series 1998 C, 5.250% 07/15/18 500,000 496,165 Series 2002 D, 6.350% 07/15/32 250,000 262,335 MD Health & Higher Educational Facilities Authority, Adventist Healthcare, Series 2003 A: 5.000% 01/01/16 365,000 370,738 5.750% 01/01/25 400,000 421,300 MI Dickinson County, Series 1999, 5.700% 11/01/18 770,000 789,327 MI Flint Hospital Building Authority, Hurley Medical Center, Series 1998 A, 5.375% 07/01/20 460,000 452,842 MN St. Paul Housing & Redevelopment Authority, HealthEast, Inc., Series 2001 A, 5.700% 11/01/15 2,000,000 2,061,540 MO Saline County Industrial Development Authority, John Fitzgibbon Memorial Hospital, Series 2005, 5.625% 12/01/35 985,000 978,597 NH Higher Educational & Health Facilities Authority: Catholic Medical Center, Series 2002, 6.125% 07/01/32 200,000 212,986 Littleton Hospital Association, Inc.: Series 1998 A: 5.900% 05/01/18 500,000 509,725 6.000% 05/01/28 625,000 638,231 Series 1998 B, 5.900% 05/01/28 675,000 685,516
See Accompanying Notes to Financial Statements. 5 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) --------------------------------------------------------- HEALTH CARE (CONTINUED) HOSPITALS (CONTINUED) NJ Health Care Facilities Financing Authority, Capital Health Systems, Inc., Series 2003 A, 5.750% 07/01/23 500,000 526,835 NV Henderson, St. Rose Dominican Hospital, Series 1998 A, 5.375% 07/01/26 385,000 392,103 NY Dormitory Authority: Mt. Sinai - NYU Medical Center: Series 2000, 5.500% 07/01/26 175,000 177,452 Series 2000 C, 5.500% 07/01/26 575,000 583,056 North Shore - Long Island Jewish Medical Center, Series 2003, 5.500% 05/01/33 200,000 210,516 OH Highland County Joint Township, Hospital District, Series 1999, 6.750% 12/01/29 695,000 705,620 OH Lakewood, Lakewood Hospital Association, Series 2003, 5.500% 02/15/14 400,000 421,580 OH Miami County Hospital Facilities Authority, Upper Valley Medical Center, Inc., Series 1996 A, 6.250% 05/15/16 665,000 679,158 OH Sandusky, County Memorial Hospital, Series 1998, 5.150% 01/01/08 270,000 270,883 PA Allegheny County Hospital Development Authority, Ohio Valley General Hospital, Series 1998 A, 5.450% 01/01/28 1,050,000 1,061,298 SC Lexington County Health Services District Revenue, Lexington Medical Center Project, Refunding, Series 2003, 5.500% 11/01/23 750,000 779,655 SD Health & Educational Facilities Authority, Sioux Valley Hospital & Health System, Series 2004 A, 5.250% 11/01/34 525,000 538,361 TX Tyler Health Facilities Development Corp., Mother Frances Hospital, Series 2001, 6.000% 07/01/31 750,000 784,485 VA Prince William County Industrial Development Authority, Potomac Hospital Corp., Series 2003, 5.200% 10/01/30 350,000 360,889
PAR ($) VALUE ($) ------------------------------------------------------------ VT Educational & Health Buildings Finance Agency, Brattleboro Memorial Hospital, Series 1998, 5.375% 03/01/28 500,000 491,150 WI Health & Educational Facilities Authority: Aurora Health Care, Inc., Series 2003, 6.400% 04/15/33 350,000 382,687 Fort Healthcare, Inc., Series 2004, 6.100% 05/01/34 750,000 813,607 Wheaton Franciscan Services, Series 2002, 5.750% 08/15/30 450,000 473,963 ---------- Hospitals Total 26,382,411 ---------- INTERMEDIATE CARE FACILITIES - 0.6% IN Health Facilities Financing Authority, Hoosier Care, Inc., Series 1999 A, 7.125% 06/01/34 1,040,000 1,006,179 ---------- Intermediate Care Facilities Total 1,006,179 ---------- NURSING HOMES - 6.5% AK Juneau, St. Ann's Care Center, Inc., Series 1999, 6.875% 12/01/25 975,000 965,835 CO Health Facilities Authority: American Housing Foundation I, Inc., Series 2003 A, 8.500% 12/01/31 535,000 554,939 Evangelical Lutheran Good Samaritan Foundation, Series 2005, 5.000% 06/01/35 250,000 248,598 Volunteers of America Care Facilities: Series 1998 A: 5.450% 07/01/08 145,000 144,962 5.750% 07/01/20 700,000 706,174 Series 1999 A, 6.000% 07/01/29 350,000 348,733 IA Finance Authority, Care Initiatives: Series 1996, 9.250% 07/01/25 960,000 1,134,557 Series 1998 B: 5.750% 07/01/18 550,000 540,612 5.750% 07/01/28 1,475,000 1,345,731 IN Gary Industrial Economic Development West Side Health Care Center, Series 1987 A, 11.500% 10/01/17(c) 2,230,000 602,100 IN Michigan City Health Facilities Authority, Metro Health Foundation, Inc. Project, Series 1993, 11.000% 11/01/22(d) 3,346,355 37,646
See Accompanying Notes to Financial Statements. 6 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) --------------------------------------------------------- HEALTH CARE (CONTINUED) NURSING HOMES (CONTINUED) KY Kentucky Economic Development Finance Authority, Series 2003, 6.500% 01/01/29 395,000 399,412 MA Development Finance Agency: AHF/Alliance Health Care Facilities, Series 1999 A, 7.100% 07/01/32 1,120,000 1,134,202 AHF/Woodlawn Manor, Inc.: Series 2000 A, 7.350% 12/01/27(c) 364,000 163,800 Series 2000 B, 1.250% 06/01/27(c) 113,186 5,659 MA Industrial Finance Agency, First Mortgage GF/Massachusetts, Inc., Series 1994 A, 8.300% 07/01/23 855,000 837,438 MI Cheboygan County Economic Development Corp., Metro Health Foundation, Series 1993, 11.000% 11/01/22(d) 1,814,584 20,414 MN Carlton, Inter-Faith Social Services, Inc., Series 2000, 7.500% 04/01/19 250,000 262,665 MN Sartell, Foundation for Health Care, Series 1999 A, 6.625% 09/01/29 1,025,000 1,042,917 ---------- Nursing Homes Total 10,496,394 ---------- HEALTH CARE TOTAL 68,348,521 ---------- --------------------------------------------------------- HOUSING - 18.1% ASSISTED LIVING/SENIOR - 4.8% DE Kent County, Heritage at Dover, Series 1999, AMT, 7.625% 01/01/30 1,180,000 1,061,540 GA Columbus Housing Authority, The Gardens at Calvary, Series 1999, 7.000% 11/15/19 480,000 464,971 IL Development Finance Authority, Care Institute, Inc., Series 1995, 8.250% 06/01/25 1,380,000 1,413,865 MN Roseville, Care Institute, Inc., Series 1993, 7.750% 11/01/23 1,630,000 1,371,792 NC Medical Care Commission, DePaul Community Facilities, Series 1999, 7.625% 11/01/29 960,000 1,001,818 NY Huntington Housing Authority, Gurwin Jewish Senior Center, Series 1999 A: 5.875% 05/01/19 420,000 427,967 6.000% 05/01/29 650,000 664,105
PAR ($) VALUE ($) -------------------------------------------------------- TX Bell County Health Facility Development Corp., Care Institute, Inc., Series 1994, 9.000% 11/01/24 1,355,000 1,322,886 --------- Assisted Living/Senior Total 7,728,944 --------- MULTI-FAMILY - 9.4% DC Housing Finance Agency, Henson Ridge, Series 2004 E, AMT, Insured: FHA 5.100% 06/01/37 655,000 660,712 DE Wilmington, Electra Arms Senior Association Project, Series 1998, AMT, 6.250% 06/01/28 910,000 874,091 FL Broward County Housing Finance Authority, Chaves Lake Apartment Project, Series 2000 A, AMT, 7.500% 07/01/40 500,000 514,885 FL Capital Trust Agency, Atlantic Housing Foundation, Inc., Series 2005 C, 5.875% 01/01/28 660,000 655,571 FL Clay County Housing Finance Authority, Madison Commons Apartments, Series 2000 A, AMT, 7.450% 07/01/40 500,000 514,160 MA Housing Finance Agency: Series 2004 A, AMT, Insured: FSA 5.250% 07/01/25 2,000,000 2,053,420 Series 2005 E, AMT, 5.000% 12/01/28 500,000 501,375 MN Minneapolis Student Housing Riverton Community Housing, Inc., Series 2006 A, 5.700% 08/01/40 500,000 483,370 MN Washington County Housing & Redevelopment Authority, Cottages of Aspen, Series 1992, AMT, 9.250% 06/01/22 950,000 971,689 MN White Bear Lake, Birch Lake Townhome: Series 1989 A, AMT, 10.250% 07/15/19 1,770,000 1,681,500 Series 1989 B, (a) 07/15/19 624,000 180,960 NC Medical Care Commission ARC Projects, Series 2004 A, 5.800% 10/01/34 800,000 842,328 NM Mortgage Finance Authority Series 2005 E, AMT, Insured: FHA 4.800% 09/01/40 1,000,000 961,120 NY New York City Housing Development Corp., Series 2005 F-1, 4.650% 11/01/25 750,000 749,018
See Accompanying Notes to Financial Statements. 7 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) --------------------------------------------------------- HOUSING (CONTINUED) MULTI-FAMILY (CONTINUED) OH Montgomery County, Series 2005, AMT, Insured: FHLMC 4.950% 11/01/35 250,000 248,260 Resolution Trust Corp., Pass-Through Certificates, Series 1993 A, 8.500% 12/01/16(e) 455,481 443,370 TN Franklin Industrial Development Board, Landings Apartment Project, Series 1996 B, 8.750% 04/01/27 670,000 678,355 TX El Paso County Housing Finance Corp., American Village Communities: Series 2000 C, 8.000% 12/01/32 295,000 302,177 Series 2000 D, 10.000% 12/01/32 300,000 307,842 VA Alexandria Redevelopment & Housing Authority, Courthouse Commons Apartments, Series 1990 A, AMT, 10.000% 01/01/21 1,000,000 1,000,000 WA Seattle Housing Authority, High Rise Rehabilitation Phase I LP, Series 2005, AMT, Insured: FSA 5.000% 11/01/25 500,000 502,215 ---------- Multi-Family Total 15,126,418 ---------- SINGLE-FAMILY - 3.9% KY Kentucky County, Series 1987 A, AMT, Insured: MBIA 9.000% 09/01/16 5,000 5,013 MA Housing Finance Agency: Series 2005 118, AMT, 4.850% 12/01/35 1,160,000 1,122,196 Series 2005 B, 5.000% 06/01/30 500,000 510,575 ME Housing Authority, Series 2005 D-2, AMT, 4.800% 11/15/36 500,000 489,100 MN Minneapolis/St. Paul Housing Finance Board, Series 2006, AMT, 5.000% 12/01/38(f) 750,000 749,280 ND Housing Finance Agency, Series 2006 A, AMT, 4.850% 07/01/21(f) 500,000 504,255 OK Housing Finance Agency, Series 2006 C, AMT, 4.900% 09/01/21(f) 1,000,000 1,011,650
PAR ($) VALUE ($) --------------------------------------------------------- PA Pittsburgh Urban Redevelopment Authority, Series 2006 C, Insured: GNMA 4.800% 04/01/28 1,000,000 985,300 WI Housing & Economic Development Authority, Series 2005 C, AMT, 4.875% 03/01/36 985,000 966,265 ---------- Single-Family Total 6,343,634 ---------- HOUSING TOTAL 29,198,996 ---------- --------------------------------------------------------- INDUSTRIALS - 7.8% FOOD PRODUCTS - 1.6% GA Cartersville Development Authority, Anheuser Busch Project, Inc., Series 2002, AMT, 5.950% 02/01/32 1,000,000 1,074,330 LA Southern Louisiana Port Commission, Cargill, Inc., Series 1997, 5.850% 04/01/17 500,000 510,015 MI Strategic Fund, Imperial Holly Corp., Series 1998 A, 6.250% 11/01/15 1,000,000 1,020,160 ---------- Food Products Total 2,604,505 ---------- FOREST PRODUCTS & PAPER - 2.3% AL Camden Industrial Development Board, Weyerhaeuser Co., Series 2003 B, AMT, 6.375% 12/01/24 400,000 434,440 AL Courtland Industrial Development Board, Champion International Corp., Series 1999, AMT, 6.000% 08/01/29 1,000,000 1,036,240 AL Phenix City Industrial Development Board, Meadwestvaco Corp., Series 2002 A, AMT, 6.350% 05/15/35 400,000 427,760 GA Rockdale County Development Authority, Visy Paper, Inc., Series 1993, AMT, 7.500% 01/01/26 800,000 800,376 MS Lowndes County, Weyerhaeuser Co. Project, Series 1992 B, 6.700% 04/01/22 595,000 700,374 VA Bedford County Industrial Development Authority, Nekoosa Packaging Corp., Series 1998, AMT, 5.600% 12/01/25 400,000 394,324 ---------- Forest Products & Paper Total 3,793,514 ----------
See Accompanying Notes to Financial Statements. 8 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) ---------------------------------------------------------- INDUSTRIALS (CONTINUED) MANUFACTURING - 0.5% IL Will-Kankakee Regional Development Authority, Flanders Corp., Precisionaire Project, Series 1997, AMT, 6.500% 12/15/17 745,000 749,202 ---------- Manufacturing Total 749,202 ---------- METALS & MINING - 0.5% NV Department of Business & Industry, Wheeling-Pittsburgh Steel Corp., Series 1999 A, AMT, 8.000% 09/01/14 205,000 210,517 VA Greensville County Industrial Development Authority, Wheeling-Pittsburgh Steel Corp., Series 1999 A, AMT, 7.000% 04/01/14 545,000 533,724 ---------- Metals & Mining Total 744,241 ---------- OIL & GAS - 2.9% NJ Middlesex County Pollution Control Authority, Amerada Hess Corp., Series 2004, 6.050% 09/15/34 115,000 123,970 NV Clark County Industrial Development Authority, Southwest Gas Corp., Series 2005 A, AMT, Insured: AMBAC 4.850% 10/01/35 3,000,000 2,930,940 TX Gulf Coast Industrial Development Authority, Citgo Petroleum, Series 1998, AMT, 8.000% 04/01/28 375,000 422,572 VI Virgin Islands Public Finance Authority, Hovensa LLC: Series 2003, AMT, 6.125% 07/01/22 425,000 465,936 Series 2004, AMT, 5.875% 07/01/22 400,000 433,808 VI Virgin Islands, Hovensa LLC, Series 2002, AMT, 6.500% 07/01/21 250,000 280,625 ---------- Oil & Gas Total 4,657,851 ---------- INDUSTRIALS TOTAL 12,549,313 ---------- ---------------------------------------------------------- OTHER - 15.9% OTHER - 0.8% NY Convention Center Operating Corp., Yale Building Project, Series 2003, (a) 06/01/08 1,000,000 927,140
PAR ($) VALUE ($) ---------------------------------------------------------- PR Commonwealth of Puerto Rico Government Development Bank, Series 2006 B, 5.000% 12/01/15 400,000 413,852 --------- Other Total 1,340,992 --------- POOL/BOND BANK - 0.8% MI Municipal Bond Authority, Local Government Loan, Series 2001 A, Insured: AMBAC 5.375% 11/01/17 550,000 588,225 OH Summit County Port Authority, Twinsburg Township, Series 2005 D, 5.125% 05/15/25 655,000 653,016 --------- Pool/Bond Bank Total 1,241,241 --------- REFUNDED/ESCROWED(G) - 11.5% CA Golden State Tobacco Securitization Corp., Series 2003 B, Pre-refunded 06/01/13, 5.500% 06/01/43 500,000 549,335 CA Orange County Community Facilities District, Ladera Ranch, Series 1999 A, Pre-refunded 08/15/09, 6.500% 08/15/21 1,000,000 1,099,440 CA Statewide Communities Development Authority, Eskaton Village - Grass Valley, Series 2000, Pre-refunded 11/15/10, 8.250% 11/15/31 725,000 853,223 CO E-470 Public Highway Authority, Series 2000 B, Pre-refunded 09/01/10, Insured: MBIA (a) 09/01/35 8,750,000 1,128,925 CT Development Authority, Sewer Sludge Disposal Facilities New Haven Residuals LP, Series 1996, AMT, Escrowed to Maturity, 8.250% 12/01/06 240,000 245,299 FL Northern Palm Beach County Improvement District, Series 1999, Pre-refunded 08/01/09, Insured: MBIA 5.900% 08/01/19 500,000 537,025 FL Orange County Health Facilities Authority, Orlando Regional Healthcare System, Series 2002, Pre-refunded 12/01/12, 5.750% 12/01/32 150,000 165,554
See Accompanying Notes to Financial Statements. 9 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) ------------------------------------------------------------- OTHER - (CONTINUED) REFUNDED/ESCROWED(G) - (CONTINUED) GA Forsyth County Hospital Authority, Georgia Baptist Health Care System, Series 1998, Escrowed to Maturity, 6.000% 10/01/08 480,000 492,518 ID Health Facilities Authority, IHC Hospitals, Inc., Series 1992, Escrowed to Maturity, 6.650% 02/15/21 2,750,000 3,419,295 IL Health Facilities Authority, Swedish American Hospital, Series 2000, Pre-refunded 05/15/10, 6.875% 11/15/30 500,000 554,035 IL Metropolitan Pier & Exposition Authority, McCormick Place Expansion, Series 1993 A, Escrowed to Maturity, Insured: FGIC (a) 06/15/14 1,010,000 715,979 IL University of Illinois, Series 2001 A, Pre-refunded 08/15/11, Insured: AMBAC 5.500% 08/15/17 600,000 648,462 MA Development Finance Agency, Western New England College, Series 2002, Pre-refunded 12/01/12, 6.125% 12/01/32 200,000 226,558 NC Lincoln County, Lincoln County Hospital, Series 1991, Escrowed to Maturity, 9.000% 05/01/07 75,000 78,455 NV Henderson, St. Rose Dominican Hospital, Series 1998 A, Pre-refunded 07/01/08, 5.375% 07/01/26 115,000 119,116 NY New York, Series 1998 H, Escrowed to Maturity, Insured: MBIA 5.125% 08/01/25 185,000 192,426 PA Delaware County Authority, Mercy Health Corp., Series 1996, Escrowed to Maturity: 6.000% 12/15/16 1,400,000 1,445,220 6.000% 12/15/26 500,000 516,120 PA Lancaster Industrial Development Authority, Garden Spot Village, Series 2000 A, Pre-refunded 05/01/10, 7.625% 05/01/31 325,000 372,769 PA Philadelphia Authority for Industrial Development, Doubletree Project, Series 1997 A, Pre-refunded 02/01/07, 6.500% 10/01/27 2,000,000 2,075,260
PAR ($) VALUE ($) ------------------------------------------------------------ PR Commonwealth of Puerto Rico Public Finance Corp., Series 2002 E, Escrowed to Maturity, 6.000% 08/01/26 80,000 97,228 TN Shelby County Health, Educational & Housing Facilities Board, Open Arms Development Centers: Series 1992 A, Pre-refunded 08/01/07, 9.750% 08/01/19 435,000 481,993 Series 1992 C, Pre-refunded 08/01/12, 9.750% 08/01/19 440,000 487,533 TX Board of Regents, University of Texas, Series 2001 B, Escrowed to Maturity, 5.375% 08/15/18 350,000 375,025 WI Health & Educational Facilities Authority, Attic Angel Obligated Group, Series 1998, Pre-refunded 11/17/08, 5.750% 11/15/27 875,000 931,770 WV Hospital Finance Authority, Charleston Area Medical Center, Series 2000 A, Pre-refunded 09/01/10, 6.750% 09/01/30 605,000 679,875 ---------- Refunded/Escrowed Total 18,488,438 ---------- TOBACCO - 2.8% CA County Tobacco Securitization Agency, Series 2006, (a) 06/01/46 3,500,000 256,060 CA Golden State Tobacco Securitization Corp., Series 2003 A-1, 6.250% 06/01/33 1,600,000 1,731,616 CA Tobacco Securitization Authority, Series 2006, (a) 06/01/46 6,000,000 513,300 NJ Tobacco Settlement Financing Corp., Series 2003, 6.750% 06/01/39 1,000,000 1,114,780 NY Nassau County Tobacco Settlement Corp., Series 2006, (a) 06/01/60 10,000,000 326,400 WA Tobacco Settlement Authority, Series 2002, 6.625% 06/01/32 500,000 545,125 ---------- Tobacco Total 4,487,281 ---------- OTHER TOTAL 25,557,952 ---------- ------------------------------------------------------------
See Accompanying Notes to Financial Statements. 10 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) --------------------------------------------------------- OTHER REVENUE - 3.9% HOTELS - 0.6% NJ Middlesex County Improvement Authority, Heldrich Associates LLC, Series 2005 B, 6.250% 01/01/37 1,000,000 1,013,340 --------- Hotels Total 1,013,340 --------- RECREATION - 1.8% CA Agua Caliente Band of Cahuilla Indians, Series 2003, 5.600% 07/01/13 775,000 803,349 CA Cabazon Band Mission Indians, Series 2004: 8.375% 10/01/15(e) 205,000 207,554 8.750% 10/01/19(e) 720,000 731,794 CT Mashantucket Western Pequot, Series 1999 B, (a) 09/01/18(e) 1,100,000 558,723 CT Mohegan Tribe Gaming Authority, Series 2001, 6.250% 01/01/31(e) 200,000 211,444 NM Red River Sports Facility, Red River Ski Area, Series 1998, 6.450% 06/01/07 350,000 350,357 --------- Recreation Total 2,863,221 --------- RETAIL - 1.5% LA Beauregard Parish, Office Max, Series 2002, 6.800% 02/01/27 1,000,000 1,087,800 NY New York City Industrial Development Agency, IAC/Interactive Corp., Series 2005, 5.000% 09/01/35 750,000 752,145 OH Lake County, North Madison Properties, Series 1993, 8.819% 09/01/11 545,000 553,028 --------- Retail Total 2,392,973 --------- OTHER REVENUE TOTAL 6,269,534 --------- --------------------------------------------------------- RESOURCE RECOVERY - 2.1% DISPOSAL - 0.8% CA Pollution Control Financing Authority, Republic Services, Series 2002 C, AMT, 5.250% 06/01/23 500,000 519,260 UT Carbon County, Laidlaw Environmental: Series 1995 A, AMT, 7.500% 02/01/10 250,000 253,360 Series 1997 A, AMT, 7.450% 07/01/17 500,000 523,435 --------- Disposal Total 1,296,055 ---------
PAR ($) VALUE ($) -------------------------------------------------------- RESOURCE RECOVERY - 1.3% MA Industrial Finance Agency, Ogden Haverhill Associates, Series 1998 A, AMT, 5.500% 12/01/13 1,000,000 1,037,850 PA Delaware County Industrial Development Authority, American REF-Fuel Co., Series 1997 A, 6.200% 07/01/19 1,000,000 1,042,580 --------- Resource Recovery Total 2,080,430 --------- RESOURCE RECOVERY TOTAL 3,376,485 --------- -------------------------------------------------------- TAX-BACKED - 28.0% LOCAL APPROPRIATED - 1.6% CA Compton Civic Center & Capital Improvements, Series 1997 A, 5.500% 09/01/15 1,000,000 1,034,460 SC Dorchester County School District No. 2, Series 2004, 5.250% 12/01/29 500,000 513,480 SC Laurens County School District No. 55, Series 2005, 5.250% 12/01/30 700,000 714,224 SC Newberry County School District, Series 2005, 5.000% 12/01/30 400,000 398,320 --------- Local Appropriated Total 2,660,484 --------- LOCAL GENERAL OBLIGATIONS - 9.6% CA East Side Union High School District, Series 2003 B, Insured: MBIA 5.100% 02/01/20 750,000 811,477 CA Fresno Unified School District, Series 2002 A, Insured: MBIA 6.000% 02/01/18 1,245,000 1,448,694 CA Los Angeles Unified School District, Series 2002 E, Insured: MBIA 5.750% 07/01/16 600,000 681,600 CA Vallejo City Unified School District, Series 2002 A, Insured: MBIA 5.900% 08/01/25 1,000,000 1,168,690 CO Northwest Metropolitan District No. 3, Series 2005, 6.250% 12/01/35 500,000 521,670 LA Greystone Community Development Livingston Parish, Series 2005, 7.148% 08/01/36 812,734 726,197 LA New Orleans, Series 1991, Insured: AMBAC (a) 09/01/15 4,000,000 2,578,640
See Accompanying Notes to Financial Statements. 11 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) ----------------------------------------------------------- TAX-BACKED - (CONTINUED) LOCAL GENERAL OBLIGATIONS - (CONTINUED) NJ Bergen County Improvement Authority, Series 2005, 5.000% 11/15/24 1,000,000 1,077,900 NY New York, Series 1998 H, Insured: MBIA 5.125% 08/01/25 4,815,000 4,964,217 TX Dallas County Flood Control District, Series 2002, 7.250% 04/01/32 750,000 790,448 TX Irving Independent School District, Series 1997 A, Insured: PSFG (a) 02/15/16 1,000,000 646,690 ---------- Local General Obligations Total 15,416,223 ---------- SPECIAL NON-PROPERTY TAX - 6.5% CA San Diego Redevelopment Agency, Series 2001, Insured: FSA (a) 09/01/18 1,015,000 575,424 IL Bolingbrook Sales Tax Revenue, Series 2005, (h) 01/01/24 (6.250% 01/01/08) 500,000 448,685 IL Metropolitan Pier & Exposition Authority, McCormick Place Expansion: Series 1994 A, Insured: MBIA (a) 06/15/15 3,000,000 2,019,090 Series 1996 A, Insured: MBIA (a) 12/15/13 5,000,000 3,642,000 Series 2002 A, Insured: FGIC (a) 06/15/14 3,990,000 2,828,471 KS Wyandotte County, Series 2005, 5.000% 12/01/20 225,000 230,299 NJ Economic Development Authority, Cigarette Tax, Series 2004: 5.500% 06/15/31 120,000 124,572 5.750% 06/15/29 500,000 530,675 ---------- Special Non-Property Tax Total 10,399,216 ---------- SPECIAL PROPERTY TAX - 8.8% CA Huntington Beach Community Facilities District, Grand Coast Resort, Series 2001-1, 6.450% 09/01/31 500,000 533,445 CA Lincoln Community Facilities District No. 2003-1, Series 2004, 5.550% 09/01/18 500,000 518,105 CA Oakdale Public Financing Authority, Central City Redevelopment Project, Series 2004, 5.375% 06/01/33 1,125,000 1,154,408
PAR ($) VALUE ($) ---------------------------------------------------------- CA Orange County Improvement Bond Act 1915, Phase IV, No. 01-1-B, Series 2003, 5.750% 09/02/33 500,000 509,770 CA Redwood City Community Facilities District No. 1, Series 2003 B, 6.000% 09/01/33 300,000 308,259 CA Temecula Valley Unified School District No. 1, Series 2003, 6.125% 09/01/33 355,000 362,579 CA Yorba Linda Redevelopment Agency, Series 1998 A, Insured: MBIA (a) 09/01/24 1,325,000 546,708 FL Celebration Community Development District, Series 2003 A, 6.400% 05/01/34 730,000 765,018 FL Colonial Country Club Community Development District, Series 2003, 6.400% 05/01/33 485,000 512,650 FL Double Branch Community Development District, Series 2002 A, 6.700% 05/01/34 490,000 528,156 FL Islands at Doral Southwest Community Development District, Series 2003, 6.375% 05/01/35 245,000 256,206 FL Lexington Oaks Community Development District, Series 1998 A, 6.125% 05/01/19 685,000 689,412 FL Orlando, Conroy Road Interchange, Series 1998 A: 5.500% 05/01/10 85,000 86,276 5.800% 05/01/26 300,000 304,368 FL Seven Oaks Community Development District, Series 2004 B, 5.000% 05/01/09 790,000 789,305 FL Stoneybrook Community Development District: Series 1998 A, 6.100% 05/01/19 215,000 216,411 Series 1998 B, 5.700% 05/01/08 25,000 25,016 FL West Villages Improvement District, Series 2006, 5.500% 05/01/37 500,000 501,975 FL Westchester Community Development District No.1, Series 2003, 6.125% 05/01/35 275,000 287,529 FL Westridge Community Development District, Series 2005, 5.800% 05/01/37 1,000,000 994,580
See Accompanying Notes to Financial Statements. 12 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) ----------------------------------------------------------- TAX-BACKED - (CONTINUED) SPECIAL PROPERTY TAX- (CONTINUED) GA Atlanta, Eastside Project, Series 2005 B, 5.400% 01/01/20 500,000 506,250 IL Chicago, Pilsen Redevelopment, Series 2004 B, 6.750% 06/01/22 310,000 318,658 IL Lincolnshire Special Services Area No. 1, Sedgebrook Project, Series 2004, 6.250% 03/01/34 250,000 258,725 IL Plano Special Service Area No.4, Series 2005 5-B, 6.000% 03/01/35 1,500,000 1,454,100 IN City of Portage, Series 2006, 5.000% 01/15/27 260,000 253,422 MI Pontiac Tax Increment Finance Authority, Development Area No. 3, Series 2002, 6.375% 06/01/31 450,000 480,141 MI Taylor Tax Increment Finance Authority, Series 2001, Insured: FSA 5.375% 05/01/17 1,000,000 1,061,840 ---------- Special Property Tax Total 14,223,312 ---------- STATE APPROPRIATED - 1.2% MI Building Authority, Series 2001 I, 5.000% 10/15/24 1,000,000 1,030,360 PR Commonwealth of Puerto Rico Public Finance Corp., Series 2002 E, 6.000% 08/01/26 820,000 935,776 ---------- State Appropriated Total 1,966,136 ---------- STATE GENERAL OBLIGATIONS - 0.3% CA State, Series 2003, 5.250% 02/01/23 380,000 412,676 ---------- State General Obligations Total 412,676 ---------- TAX-BACKED TOTAL 45,078,047 ---------- ----------------------------------------------------------- TRANSPORTATION - 12.9% AIR TRANSPORTATION - 4.4% CA Los Angeles Regional Airport, LAXfuel Corp., Series 2001, AMT, Insured: AMBAC 5.250% 01/01/23 500,000 510,640 CO Denver City & County Airport, United Air Lines, Inc., Series 1992 A, AMT, 6.875% 10/01/32(d) 645,000 665,085 FL Capital Trust Agency, Air Cargo- Orlando, Series 2003, AMT, 6.750% 01/01/32 350,000 372,288
PAR ($) VALUE ($) --------------------------------------------------------- IN Indianapolis Airport Authority, FedEx Corp., Series 2004, AMT, 5.100% 01/15/17 500,000 514,775 NC Charlotte/Douglas International Airport, US Airways, Inc.: Series 1998, AMT, 5.600% 07/01/27 250,000 231,407 Series 2000, AMT, 7.750% 02/01/28 500,000 526,765 NJ Economic Development Authority, Continental Airlines, Inc., Series 2003, AMT, 9.000% 06/01/33 1,250,000 1,360,637 NY New York City Industrial Development Agency, Terminal One Group-JFK International Airport, Series 2005, AMT, 5.500% 01/01/21 500,000 528,975 NY New York City Industrial Development Authority, JFK International Airport, American Airlines, Inc., Series 2002 B, AMT, 8.500% 08/01/28 500,000 559,410 PA Philadelphia Authority for Industrial Development Aero Philadelphia, Series 1999, AMT, 5.250% 01/01/09 220,000 220,568 TX Alliance Airport Authority, Inc., Federal Express Corp., Series 2006, AMT, 4.850% 04/01/21 250,000 246,835 TX Dallas-Fort Worth International Airport, American Airlines, Inc., Series 2000 A, AMT, 9.000% 05/01/29 750,000 803,100 TX Houston Industrial Development Corp., United Parcel Service, Series 2002, AMT, 6.000% 03/01/23 510,000 528,095 --------- Air Transportation Total 7,068,580 --------- AIRPORTS - 2.0% GA Augusta Airport, Series 2005 B, AMT, 5.350% 01/01/28 215,000 216,430 TX Dallas Fort Worth International Airport, Series 2004 B, AMT, Insured: FSA 5.000% 11/01/25 3,000,000 3,041,010 --------- Airports Total 3,257,440 ---------
See Accompanying Notes to Financial Statements. 13 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) -------------------------------------------------------- TRANSPORTATION - (CONTINUED) TOLL FACILITIES - 3.2% CA San Joaquin Hills Transportation Corridor Agency, Series 1997 A, Insured: MBIA (a) 01/15/15 3,000,000 2,062,890 CO E-470 Public Highway Authority, Series 2000 B, Insured: MBIA (a) 09/01/18 3,000,000 1,694,670 CO Northwest Parkway Public Highway Authority, Series 2001 D, 7.125% 06/15/41 1,000,000 921,320 PR Commonwealth of Puerto Rico Highway & Transportation Authority, Series 2003 AA, Insured: MBIA 5.500% 07/01/18 375,000 417,424 ---------- Toll Facilities Total 5,096,304 ---------- TRANSPORTATION - 3.3% NV Department of Business & Industry, Las Vegas Monorail Project, Series 2000, 7.375% 01/01/40 750,000 768,840 NY Port Authority of New York & New Jersey, Series 2004, AMT, Insured: FSA 5.125% 07/15/30(i) 4,450,000 4,582,254 ---------- Transportation Total 5,351,094 ---------- TRANSPORTATION TOTAL 20,773,418 ---------- -------------------------------------------------------- UTILITIES - 15.8% INDEPENDENT POWER PRODUCERS - 1.9% NY Port Authority of New York & New Jersey, KIAC Partners, Series 1996 IV, AMT, 6.750% 10/01/11 2,000,000 2,037,000 NY Suffolk County Industrial Development Authority, Nissequogue Cogeneration Partners Facilities, Series 1998, AMT, 5.500% 01/01/23 550,000 506,396 PA Carbon City Industrial Development Authority, Panther Creek Partners Project, Series 2000, AMT, 6.650% 05/01/10 115,000 121,554
PAR ($) VALUE ($) ---------------------------------------------------------- PR Commonwealth of Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Cogeneration Facilities, AES Project, Series 2000, AMT, 6.625% 06/01/26 320,000 348,950 --------- Independent Power Producers Total 3,013,900 --------- INVESTOR OWNED - 7.9% AZ Pima County Industrial Development Authority, Tucson Electric Power Co., Series 1997 A, AMT, 6.100% 09/01/25 750,000 752,205 CA Chula Vista Industrial Development Authority, San Diego Gas & Electric Co., Series 1996 B, AMT, 5.500% 12/01/21 475,000 506,260 FL Polk County Industrial Development Authority, Tampa Electric Co., Series 1996, AMT, 5.850% 12/01/30 800,000 815,648 IL Bryant, Central Illinois Light Co., Series 1993, 5.900% 08/01/23 1,000,000 1,005,680 IN Petersburg, Indianapolis Power & Light Co., Series 1995, 6.625% 12/01/24 750,000 765,630 LA Calcasieu Parish Industrial Development Board, Entergy Gulf States, Inc., Series 1999, 5.450% 07/01/10 500,000 506,260 LA West Feliciana Parish, Entergy Gulf States, Inc., Series 1999 B, 6.600% 09/01/28 500,000 502,655 MS Business Finance Corp., Systems Energy Resources, Series 1998, 5.875% 04/01/22 1,500,000 1,509,180 MT Forsyth: Northwestern Corp., Series 2006, Insured: AMBAC 4.650% 08/01/23 1,000,000 1,000,580 Portland General, Series 1998 A, 5.200% 05/01/33 225,000 231,563 NV Clark County Industrial Development Authority, Nevada Power Co., Series 1997 A, AMT, 5.900% 11/01/32 1,500,000 1,499,925 OH Air Quality Development Authority, Cleveland Electric Illuminating Co., Series 2002 A, 6.000% 12/01/13 650,000 673,393
See Accompanying Notes to Financial Statements. 14 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($) -------------------------------------------------------- UTILITIES - (CONTINUED) INVESTOR OWNED - (CONTINUED) PA Economic Development Financing Authority, Reliant Energy, Inc., Series 2001 A, AMT, 6.750% 12/01/36 400,000 428,116 TX Brazos River Authority, TXU Energy Co., LLC: Series 2001 C, AMT, 5.750% 05/01/36 220,000 232,668 Series 2003 C, AMT, 6.750% 10/01/38 555,000 623,171 VA Pittsylvania County Industrial Development Authority, Virginia Electric & Power Co., Series 1994 A, AMT, 7.450% 01/01/09 600,000 607,386 WY Campbell County, Black Hills Power, Inc., Series 2004, 5.350% 10/01/24 1,000,000 1,029,610 ----------- Investor Owned Total 12,689,930 ----------- JOINT POWER AUTHORITY - 0.3% NC Eastern Municipal Power Agency, Series 2003 F, 5.500% 01/01/16 430,000 456,006 ----------- Joint Power Authority Total 456,006 ----------- MUNICIPAL ELECTRIC - 2.8% CA Department of Water Resources, Series 2002 A, Insured: AMBAC 5.500% 05/01/14 2,000,000 2,186,460 WA Seattle Light & Power, Series 2001, Insured: FSA 5.500% 03/01/17 2,250,000 2,391,233 ----------- Municipal Electric Total 4,577,693 ----------- WATER & SEWER - 2.9% MA Water Resources Authority, Series 1997 D, Insured: MBIA 5.000% 08/01/24 2,000,000 2,059,780 MS V Lakes Utility District, Series 1994, 8.250% 07/15/24(j) 485,000 383,572 TX Houston Water & Sewer System, Series 1991 C, Insured: AMBAC (a) 12/01/12 3,000,000 2,294,850 ----------- Water & Sewer Total 4,738,202 ----------- UTILITIES TOTAL 25,475,731 ----------- TOTAL MUNICIPAL BONDS (cost of $245,190,678) 245,485,948 -----------
SHARES VALUE ($) ------------------------------------------------------ MUNICIPAL PREFERRED STOCKS - 2.0% ------------------------------------------------------ HOUSING - 2.0% MULTI-FAMILY - 2.0% Charter Mac Equity Issuer Trust, AMT: 6.000% 04/30/19(e) 1,000,000 1,071,960 Series 2000, 7.600% 11/30/10(e) 500,000 554,115 GMAC Municipal Mortgage Trust, AMT, 5.600% 10/31/39(e) 500,000 509,970 MuniMae Trust, AMT, 5.800% 06/30/49(e) 1,000,000 1,013,020 --------- Multi-Family Total 3,149,065 --------- HOUSING TOTAL 3,149,065 --------- TOTAL MUNICIPAL PREFERRED STOCKS (cost of $3,000,000) 3,149,065 --------- INVESTMENT COMPANY - 0.0% ------------------------------------------------------ Dreyfus Tax-Exempt Cash Management Fund 3,912 3,912 --------- TOTAL INVESTMENT COMPANY (cost of $3,912) 3,912 --------- SHORT-TERM OBLIGATIONS - 1.0% PAR ($) ------------------------------------------------------ VARIABLE RATE DEMAND NOTES (K) - 1.0% FL Orange County School Board: Series 2000 B, SPA: SunTrust Bank N.A. 3.550% 08/01/25 300,000 300,000 Series 2002 B, 3.550% 08/01/27 300,000 300,000 KY Shelby County Lease Revenue, Series 2004 A, LOC: U.S. Bank N.A. 3.570% 09/01/34 100,000 100,000 MA Water Resources Authority, Series 2002 D, LOC: Landesbank Baden- Wurttemberg 3.520% 08/01/17 100,000 100,000 MN Mankato, Bethany Lutheran College, Inc., Series 2000 B, LOC: Wells Fargo Bank 3.630% 11/01/15 100,000 100,000 WI Health & Educational Facilities Authority, ProHealth Care, Inc., Series 2001 B, 3.580% 08/15/30 400,000 400,000
See Accompanying Notes to Financial Statements. 15 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
SHORT-TERM OBLIGATIONS - 1.0% PAR ($) VALUE ($) ---------------------------------------------------- VARIABLE RATE DEMAND NOTES (K) (CONTINUED) WY Uinta County, Chevron Corp., Series 1997, 3.540% 04/01/10 300,000 300,000 ----------- VARIABLE RATE DEMAND NOTES TOTAL 1,600,000 ----------- TOTAL SHORT-TERM OBLIGATIONS (cost of $1,600,000) 1,600,000 ----------- TOTAL INVESTMENTS - 155.5% (cost of $249,794,590)(l) 250,238,925 ----------- AUCTION PREFERRED SHARES PLUS CUMULATIVE UNPAID DISTRIBUTIONS - (55.9)% (90,035,496) OTHER ASSETS & LIABILITIES, NET - 0.4% 763,446 ----------- NET ASSETS - 100.0% 160,966,875 -----------
NOTES TO INVESTMENT PORTFOLIO: -------------------------------------------------------------------------------- (a)Zero coupon bond. (b)Denotes a restricted security, which is subject to registration with the SEC or is required to be exempted from such registration prior to resale. At May 31, 2006, the value of these securities amounted to $5,301,950, which represents 3.3% of net assets. Additional information on these restricted securities is as follows:
Acquisition Acquisition Security Date Cost ---------------------------------------------------------------- CA Statewide Communities Development Authority, Crossroads School for Arts & Sciences, Series 1998, 6.00% 08/01/28 08/21/98 $1,070,000
(c)The issuer is in default of certain debt covenants. Income is not being accrued. At May 31, 2006, the value of these securities amounted to $771,559, which represents 0.5% of net assets. (d)The issuer has filed for bankruptcy protection under Chapter 11, and is in default of certain debt covenants. Income is not being accrued. At May 31, 2006, the value of these securities amounted to $723,145, which represents 0.4% of net assets. (e)Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At May 31, 2006, these securities, which did not include any illiquid securities except for the following, amounted to $5,301,950, which represents 3.3% of net assets.
Acquisition Security Date Par Cost Value ------------------------------------------------------------------ Resolution Trust Corp., Pass-Through Certificates, Series 1993 A, 8.500% 12/01/16 08/27/93 $455,481 $455,481 $443,370
(f)Security purchased on a delayed delivery basis. (g)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 principal and interest. (h)Step bond. This security is currently not paying a coupon. Shown parenthetically is the next interest rate to be paid and the date the Trust will begin accruing at this rate. (i)Security purchased as collateral for open futures contracts. (j)The issuer is in default of certain debt covenants. Income is being accrued. At May 31, 2006, the value of this security represents 0.2% of net assets. (k)Variable rate demand notes. These securities are payable upon demand and is secured by letters of credit or other credit support agreements from banks. The interest rate changes periodically and the interest rate shown reflect the rate as of May 31, 2006. (l)Cost for federal income tax purposes is $249,667,851. At May 31, 2006 the Trust held the following open short futures contracts:
Aggregate Expiration Unrealized Type Contracts Value Face Value Date Appreciation ----------------------------------------------------------------------- U.S. Treasury Bonds 71 $7,554,843 $8,011,675 Jun-06 $456,832 10 Yr. U.S. Treasury Notes 85 $8,931,640 $9,080,113 Jun-06 $148,473 -------- $605,305 --------
At May 31, 2006, the Trust held the following forward swap contract:
Net Unrealized Notional Effective Expiration Counter- Receive Fixed Variable Depre- Amount Date Date party (Pay) Rate Rate ciation ------------------------------------------------------------------------------- $20,000,000 08/08/06 08/08/16 JPMorgan (Pay) 4.158% BMA $(92,383) Chase Index Bank
At May 31, 2006, the composition of the Trust by revenue source is as follows:
% of Holdings by Revenue Source Net Assets ------------------------------------------ Health Care 42.5% Tax-Backed 28.0 Housing 20.1 Other 15.9 Utilities 15.8 Transportation 12.9 Industrial 7.8 Education 5.5 Other Revenue 3.9 Resource Recovery 2.1 Investment Company -* Short-Term Obligations 1.0 Auction Preferred Shares (55.9) Other Assets & Liabilities, Net 0.4 ----- 100.0% ----- *Rounds to less than 0.1%
See Accompanying Notes to Financial Statements. 16 [GRAPHIC] INVESTMENT PORTFOLIO (CONTINUED) May 31, 2006 (Unaudited)
Acronym Name ------------------------------------------ AMBAC Ambac Assurance Corp. AMT Alternative Minimum Tax BMA Bond Market Association FGIC Financial Guaranty Insurance Co. FHA Federal Housing Administration FHLMC Federal Home Loan Mortgage Corporation FSA Financial Security Assurance, Inc. GNMA Government National Mortgage Association LOC Letter of Credit MBIA MBIA Insurance Corp. SPA Stand-by Purchase Agreement PSFG Permanent School Fund Guaranteed
See Accompanying Notes to Financial Statements. 17 STATEMENT OF ASSETS AND LIABILITIES May 31, 2006 (Unaudited) ASSETS: Investments, at cost $249,794,590 ------------ Investments, at value $250,238,925 Cash 97,954 Receivable for: Interest 3,929,796 Futures variation margin 48,750 Deferred Trustees' compensation plan 20,974 ------------ Total Assets 254,336,399 ------------ LIABILITIES: Net unrealized depreciation on swap contracts 92,383 Payable for: Investments purchased on a delayed delivery basis 2,252,492 Distributions - common shares 751,952 Distributions - preferred shares 35,496 Investment advisory fee 137,084 Pricing and bookkeeping fees 22,168 Custody fee 5,052 Audit fee 13,990 Preferred shares remarketing commissions 2,880 Chief compliance officer expenses (See Note 4) 749 Deferred Trustees' fees 20,974 Other liabilities 34,304 ------------ Total Liabilities 3,369,524 ------------ 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 $202,592,667 Overdistributed net investment income (143,445) Accumulated net realized loss (42,439,604) Net unrealized appreciation (depreciation) on: Investments 444,335 Swap contracts (92,383) Futures contracts 605,305 ------------ Net assets at value applicable to 27,750,678 common shares of beneficial interest outstanding $160,966,875 ------------ Net asset value per common share $ 5.80 ------------
STATEMENT OF OPERATIONS For the Six Months Ended May 31, 2006 (Unaudited) INVESTMENT INCOME: Interest $ 7,300,215 ----------- EXPENSES: Investment advisory fee 814,308 Transfer agent fee 29,681 Pricing and bookkeeping fees 67,524 Trustees' fees 8,692 Preferred shares remarketing commissions 112,114 Custody fee 8,827 Chief compliance officer expenses (See Note 4) 2,337 Other expenses 72,694 ----------- Total Expenses 1,116,177 Custody earnings credit (1,515) ----------- Net Expenses 1,114,662 ----------- Net Investment Income 6,185,553 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SWAP CONTRACTS AND FUTURES CONTRACTS: Net realized gain (loss) on: Investments (440,562) Futures contracts 502,367 ----------- Net realized gain 61,805 ----------- Net change in unrealized appreciation (depreciation) on: Investments 865,305 Swap contracts (92,383) Futures contracts 604,499 ----------- Net change in unrealized appreciation (depreciation) 1,377,421 ----------- Net Gain 1,439,226 ----------- Net Increase in Net Assets from Operations 7,624,779 ----------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (1,453,207) ----------- Net Increase in Net Assets from Operations Applicable to Common Shares $ 6,171,572 -----------
See Accompanying Notes to Financial Statements. 18 [GRAPHIC] STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, INCREASE (DECREASE) IN NET ASSETS: 2006 2005 ------------------------------------------------------------------- OPERATIONS: Net investment income $ 6,185,553 $ 12,440,205 Net realized gain on investments and futures contracts 61,805 1,501,601 Net change in unrealized appreciation (depreciation) on investments, swap contracts and futures contracts 1,377,421 622,105 ------------ ------------ Net Increase from Operations 7,624,779 14,563,911 ------------ ------------ LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (1,453,207) (2,031,984) ------------ ------------ Increase in Net Assets from Operations Applicable to Common Shares 6,171,572 12,531,927 ------------ ------------ LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (5,049,784) (10,623,821) ------------ ------------ SHARE TRANSACTIONS: Distributions reinvested 52,880 127,412 ------------ ------------ Total Increase in Net Assets Applicable to Common Shares 1,174,668 2,035,518 NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of period 159,792,207 157,756,689 ------------ ------------ End of period (including undistributed (overdistributed) net investment income of $(143,445) and $173,993, respectively) $160,966,875 $159,792,207 ------------ ------------ NUMBER OF TRUST SHARES: Common Shares: Issued for distributions reinvested 9,024 21,935 Outstanding at: Beginning of period 27,741,654 27,719,719 ------------ ------------ End of period 27,750,678 27,741,654 ------------ ------------ Preferred Shares: Outstanding at end of period 3,600 3,600 ------------ ------------
See Accompanying Notes to Financial Statements. 19 [GRAPHIC] 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, ---------------------------------------------------- 2006 2005 2004 2003 2002 2001 --------------------------------------------------- ---------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.76 $ 5.69 $ 5.85 $ 5.82 $ 6.12 $ 6.05 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.22 0.45 0.45 0.47 0.50(b) 0.53 Net realized and unrealized gain (loss) on investments, swap contracts and futures contracts 0.05 0.08 (0.15) 0.02 (0.33)(b) 0.03 -------- -------- -------- -------- -------- -------- Total from Investment Operations 0.27 0.53 0.30 0.49 0.17 0.56 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (0.05) (0.08) (0.04) (0.03) (0.05) (0.10) -------- -------- -------- -------- -------- -------- Total from Investment Operations Applicable to Common Shareholders 0.22 0.45 0.26 0.46 0.12 0.46 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (0.18) (0.38) (0.42) (0.43) (0.42) (0.39) -------- -------- -------- -------- -------- -------- LESS SHARE TRANSACTIONS: Commission and offering costs -- preferred shares -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 5.80 $ 5.76 $ 5.69 $ 5.85 $ 5.82 $ 6.12 -------- -------- -------- -------- -------- -------- Market price per share -- common shares $ 5.72 $ 5.36 $ 5.66 $ 5.65 $ 5.67 $ 5.65 -------- -------- -------- -------- -------- -------- Total return -- based on market value -- common shares (c) 10.12%(d) 1.36% 7.86% 7.35% 7.87% 12.05% -------- -------- -------- -------- -------- -------- RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (e)(f) 1.39%(g) 1.40% 1.42% 1.39% 1.37% 1.45% Net investment income before preferred stock dividend (e)(f) 7.69%(g) 7.73% 7.79% 8.17% 8.28%(b) 8.55% Net investment income after preferred stock dividend (e)(f) 5.89%(g) 6.46% 7.15% 7.61% 7.47%(b) 6.94% Portfolio turnover rate 10%(d) 18% 16% 15% 27% 12% Net assets, end of period (000's) -- common shares $160,967 $159,792 $157,757 $161,994 $161,044 $169,080
(a)Per share data was calculated using average shares outstanding during the period. (b)Effective December 1, 2001, the Trust adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on all debt securities. The effect of this change, for the year ended November 30, 2002, was to increase the ratio of net investment income to average net assets from 8.24% to 8.28% and increase the ratio of net investment income (adjusted for dividend payments to preferred shareholders) from 7.43% to 7.47%. 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 November 30, 2002, have not been restated to reflect this change in presentation. (c)Total return at market value assuming all distributions reinvested at prices calculated in accordance with the Dividend Reinvestment Plan. (d)Not annualized. (e)The benefits derived from custody credits had an impact of less than 0.01%. (f)Ratios reflect average net assets available to common shares only. (g)Annualized. See Accompanying Notes to Financial Statements. 20 [GRAPHIC] FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for a share outstanding throughout each period is as follows (common shares unless otherwise noted):
YEAR ENDED NOVEMBER 30, -------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.51 $ 7.57 $ 7.41 $ 7.41 $ 7.48 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.55(e) 0.46 0.47 0.51 0.51 Net realized and unrealized gain (loss) on investments and futures contracts (0.44) (0.97) 0.18 --(a) (0.07) -------- -------- -------- -------- -------- Total Income from Investment Operations 0.11 (0.51) 0.65 0.51 0.44 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (0.14) (0.04) -------- -------- -------- -------- -------- Total from Investment Operations Applicable to Common Shareholders (0.03) (0.55) -- -- -- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (0.43) (0.42) (0.48) (0.51) (0.51) In excess of net investment -- (0.04) (0.01) -- -- -------- -------- -------- -------- -------- Total Distributions Declared to Common Shareholders (0.43) (0.46) (0.49) (0.51) (0.51) -------- -------- -------- -------- -------- LESS SHARE TRANSACTIONS: Commission and offering costs -- preferred shares --(a) (0.05) -- -- -- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 6.05 $ 6.51 $ 7.57 $ 7.41 $ 7.41 -------- -------- -------- -------- -------- Market price per share -- common shares $ 5.38 $ 5.75 $ 8.13 $ 7.56 $ 7.25 -------- -------- -------- -------- -------- Total return -- based on market value -- common shares (b) 0.84% (24.33)% 14.57% 11.67% 15.36% -------- -------- -------- -------- -------- RATIOS TO AVERAGE NET ASSETS/ SUPPLEMENTAL DATA: Expenses (c) 1.33%(d) 1.08%(d) 0.82% 0.86% 0.91% Net investment income before preferred stock dividend (c) 8.88%(d) 7.00%(d) 6.20% 6.83% 6.87% Net investment income after preferred stock dividend (c) 6.68%(d) 6.36%(d) -- -- -- Portfolio turnover rate 12% 20% 34% 15% 22% Net assets, end of period (000's) -- common shares $167,265 $180,082 $208,931 $203,533 $202,793
(a)Rounds to less than $0.01 per share. (b)Total return at market value assuming all distributions reinvested at prices calculated in accordance with the Dividend Reinvestment Plan. (c)The benefits derived from custody credits had an impact of less than 0.01%. (d)Ratios reflect average net assets available to common shares only. (e)The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. See Accompanying Notes to Financial Statements. 21 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS May 31, 2006 (Unaudited) NOTE 1. 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. INVESTMENT GOAL The Trust seeks to provide high current income, generally exempt from federal income taxes, by investing primarily in medium and lower quality bonds and notes issued by or on behalf of state and local government units whose interest is exempt from ordinary federal income tax, other than the possible incidence of any alternative minimum tax. The Trust's secondary goal is to seek total return. TRUST SHARES The Trust may issue an unlimited number of common shares. On July 20, 1999, the Trust issued 3,600 Auction Preferred Shares ("APS"). NOTE 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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 Debt securities generally are valued by pricing services approved by the Trust's Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at net asset value. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Investments for which market quotations are not readily available, or that have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. If a security is valued at a "fair value", such value is likely to be different from the last quoted market price for the security. SECURITY TRANSACTIONS Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. FUTURES CONTRACTS The Trust may invest in municipal and U.S. Treasury futures contracts. 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 involves certain risks, which include: (1) imperfect correlation between the price movement of the instruments and the underlying securities, (2) inability to close out positions due to differing trading hours, or the temporary absence of a liquid market, for either the instrument or the underlying securities, or (3) an inaccurate prediction by Columbia Management Advisors, LLC 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 the broker 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 receivable or payable and offset in unrealized gains or 22 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS (CONTINUED) May 31, 2006 (Unaudited) losses. The Trust also identifies portfolio securities as segregated with the custodian in a separate account in an amount equal to the futures contract. The Trust recognizes a realized gain or loss when the contract is closed or expires. SWAPS The Trust may engage in swap transactions such as interest rate, forward, total return, index or currency swaps, consistent with its investment objective and policies to obtain a desired return at a lower cost than if the Trust had invested directly in the asset that yielded the desired return. Swaps involve the exchange by the Trust with another party of their respective commitments to pay or receive interest or total return throughout the lives of the agreements. The interest to be paid or received on swaps is included in net realized gain/(loss) on investments. Unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statement of Assets and Liabilities. A realized gain or loss is recorded upon termination of swap agreements and is equal to the difference between the Trust's basis in the swap and the proceeds from (or cost of) the closing transaction. Swap agreements are stated at fair value. Notional principal amounts are used to express the extent of involvement in these transactions, but the amounts potentially subject to credit risk are much smaller. If there is a default by the counterparty to a swap contract, the Trust will be limited to contractual remedies pursuant to the agreements related to the transaction. There is no assurance that the swap contract counterparties will be able to meet their obligations pursuant to the swap contracts or that, in the event of default, the Trust will succeed in pursuing contractual remedies. The Trust thus assumes the risk that it may be delayed in or prevented from obtaining payments owed to it pursuant to the swap contracts. The use of derivative instruments involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statements of assets and liabilities. RESTRICTED SECURITIES Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from 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 resale. DELAYED DELIVERY SECURITIES The Trust may trade securities on other than normal settlement terms, including securities purchased or sold on a "when-issued" basis. 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. The Trust identifies cash or liquid portfolio securities as segregated with the custodian in an amount equal to the delayed delivery commitment. INCOME RECOGNITION Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. Corporate actions and dividend income are recorded on the ex-date. FEDERAL INCOME TAX STATUS The Trust intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Trust intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Trust should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS Distributions to common shareholders are recorded on the ex-date. Distributions to Auction Preferred shareholders are recorded daily and payable at the end of each dividend period. Each dividend payment period for the APS is generally seven days. The applicable dividend rate for the APS on May 31, 2006 was 3.60%. For the six months ended May 31, 2006, the Trust declared dividends to Auction Preferred shareholders amounting to $1,453,207, representing an average dividend rate of 3.25% per APS. NOTE 3. FEDERAL TAX INFORMATION The tax character of distributions paid during the year ended November 30, 2005 was as follows: Distributions paid from:* Tax-Exempt Income $12,655,805 Ordinary Income -- Long-Term Capital Gains --
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. 23 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS (CONTINUED) May 31, 2006 (Unaudited) Unrealized appreciation and depreciation at May 31, 2006, based on cost of investments for federal income tax purposes, was: Unrealized appreciation $ 12,043,459 Unrealized depreciation (11,472,385) ------------ Net unrealized appreciation $ 571,074 ------------
The following capital loss carryforwards, determined as of November 30, 2005, may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF CAPITAL LOSS EXPIRATION CARRYFORWARD ---------- ------------ 2007... $ 3,490,821 2008... 13,036,764 2009... 3,114,307 2010... 7,684,792 2011... 4,393,912 2012... 4,060,511 ----------- $35,781,107 -----------
Capital loss carryforwards of $1,771,364 were utilized and $5,425,419 expired during the year ended November 30, 2005 for the Trust. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES INVESTMENT ADVISORY FEE Columbia Management Advisors, LLC ("Columbia"), an indirect, wholly-owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Trust and provides administrative and other services. Columbia receives a monthly investment advisory fee at the annual rate of 0.65% of the Trust's average weekly net assets, including assets applicable to the APS. PRICING AND BOOKKEEPING FEES Columbia is responsible for providing pricing and bookkeeping services to the Trust under a pricing and bookkeeping agreement. Under a separate agreement (the "Outsourcing Agreement"), Columbia has delegated those functions to State Street Corporation ("State Street"). As a result, Columbia pays State Street the total fees collected under the pricing and bookkeeping agreement. Under its pricing and bookkeeping agreement with the Trust, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee, exclusive of out-of-pocket expenses and changes, shall not exceed $140,000. The Trust also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Trust's portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the six months ended May 31, 2006, the annualized effective pricing and bookkeeping fee rate for the Trust, inclusive of out-of-pocket expenses, was 0.054% of the Trust's average daily net assets. CUSTODY CREDITS The Trust has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. 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. FEES PAID TO OFFICERS AND TRUSTEES All officers of the Trust, with the exception of the Trust's Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Trust. The Board of Trustees has appointed a Chief Compliance Officer to the Trust in accordance with federal securities regulations. The Trust, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Trust's expenses for the Chief Compliance Officer will not exceed $15,000 per year. The Trust's 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. OTHER Columbia provides certain services to the Trust related to Sarbanes-Oxley compliance. For the six months ended May 31, 2006, the Trust paid $1,232 to Columbia for such services. This amount is included in "Other expenses" on the Statement of Operations. NOTE 5. PORTFOLIO INFORMATION For the six months ended May 31, 2006, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $46,884,379 and $25,271,883, respectively. 24 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS (CONTINUED) May 31, 2006 (Unaudited) NOTE 6. PREFERRED SHARES 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 Agreement and in accordance with the guidelines prescribed by the APS' 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 APS. At May 31, 2006, there were no such restrictions on the Trust. NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES CONCENTRATION OF CREDIT RISK The Trust holds investments that are insured by private insurers who guarantee the payment of principal and interest in the event of default or that are supported by a letter of credit. Each of the Trust's insurers is rated Aaa by Moody's Investor Services Inc. At May 31, 2006, private insurers who insure greater than 5% of the total investments of the Trust were as follows:
% OF TOTAL INSURER INVESTMENTS ---------------------------------------------- MBIA Insurance Corp. 9.3% Financial Security Assurance, Inc. 5.7 Ambac Assurance Corp. 5.3
GEOGRAPHIC CONCENTRATION The Trust has greater than 5% of its total investments at May 31, 2006 invested in debt obligations issued by the states of California, Illinois, Massachusetts, New York, Pennsylvania and Texas and their respective political subdivisions, agencies and public authorities. The Trust is more susceptible to economic and political factors adversely affecting issuers of the specific state's municipal securities than are municipal bond funds that are not concentrated to the same extent in these issuers. HIGH-YIELD SECURITIES Investing in high-yield securities may involve greater credit risk and considerations not typically associated with investing in U.S. government bonds and other higher quality fixed income securities. These securities are non-investment grade securities, often referred to as "junk" bonds. Economic downturns may disrupt the high yield market and impair the ability of issuers to repay principal and interest. Also, an increase in interest rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid to the extent that there is no established secondary market. ISSUER FOCUS As a non-diversified fund, the Trust may invest a greater percentage of its total assets in the securities of fewer issuers than a diversified fund. The Trust may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly. LEGAL PROCEEDINGS On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004. Under the terms of the SEC Order, the Columbia Group agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce management fees for certain Columbia Funds (including the former Nations Funds) and 25 [GRAPHIC] NOTES TO FINANCIAL STATEMENTS (CONTINUED) May 31, 2006 (Unaudited) other mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions. Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and approved by the SEC. The independent distribution consultant has been in consultation with the staff of the SEC and has submitted a proposed plan of distribution. The SEC has not yet approved a final plan of distribution. As a result of these matters or any adverse publicity or other developments resulting from them, the market price of the shares could decline. A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the ''MDL''). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law. On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds Trusts and the Columbia Acorn Trust. As to Columbia, and the Distributor, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 ("ICA") and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed. On March 21, 2005, a purported class action was filed in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL. The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made. In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending. 26 [GRAPHIC] ASSET COVERAGE REQUIREMENTS
INVOLUNTARY ASSET LIQUIDATING AVERAGE TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE OUTSTANDING PER SHARE* PER SHARE PER SHARE ------------------------------------------------------------- 05/31/06 ** $90,000,000 $69,713 $25,010 $25,000 11/30/05 90,000,000 69,387 25,010 25,000 11/30/04 90,000,000 68,821 25,004 25,000 11/30/03 90,000,000 69,998 25,006 25,000 11/30/02 90,000,000 69,734 25,001 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
* Calculated by subtracting the Trust's total liabilities from the Trust's total assets and dividing the amount by the number of APS outstanding. ** Unaudited. ***On July 20, 1999, the Trust began offering Auction Preferred Shares. See Accompanying Notes to Financial Statements. 27 [GRAPHIC] SHAREHOLDER MEETING RESULTS RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS On May 24, 2006, the Annual Meeting of Shareholders of the Trust was held to consider re-election of Trustees. On March 10, 2006, the record date for the Meeting, the Trust had 27,741,654 common shares outstanding and 3,600 preferred shares outstanding. The votes cast were as follows: ELECTION OF TRUSTEES: The shareholders re-elected the following Trustees as follows:
FOR WITHHELD ---------------------------------------- Janet Langford Kelly 23,116,936 417,008 Charles R. Nelson 23,125,521 408,423 Patrick J. Simpson 23,120,073 413,871 Richard L. Woolworth 23,107,372 423,368
The holders of preferred shareholders re-elected the following Trustees as follows:
FOR WITHHELD -------------------------------- Douglas A. Hacker 3,204 0 Thomas E. Stitzel 3,204 0
The terms of office of Thomas C. Theobald, John J. Neuhauser, William E. Mayer, Anne-Lee Verville and Richard W. Lowry continued after the Meeting. See Accompanying Notes to Financial Statements. 28 [GRAPHIC] DIVIDEND REINVESTMENT PLAN COLONIAL MUNICIPAL INCOME TRUST Shareholders may elect to have all distributions of dividends and capital gains automatically reinvested by Computershare (the "Plan Agent"), as agent under the Trust's Dividend Reinvestment and Cash Purchase Plan (the "Plan"). Pursuant to the Plan, the provisions of which are described below, shareholders not making such an election will receive all such amounts in cash paid by check mailed directly to the shareholder by the Plan Agent, as the dividend paying agent. If the Trustees of the Trust declare a dividend or determine to make a capital gain distribution payable either in shares of the Trust or in cash, as shareholders may have elected, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares of the Trust. If the market price of the shares on the payment date for the dividend or distribution is equal to or exceeds their net asset value, participants will be issued shares of the Trust at the higher of net asset value or 95% of the market price. If the net asset value exceeds the market price of Trust shares at such time, or if the Trust declares a dividend or other distribution payable only in cash, the Plan Agent will, as agent for Plan participants, buy Trust shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value of the Trust's shares, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Trust's shares, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Trust. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent. When a participant withdraws from the Plan or upon termination of the Plan as provided below, certificates for whole shares credited to the participant's account under the Plan will be issued and a cash payment will be made for any fraction of a share credited to such account. Participants in the Plan have the option of making additional cash payments to the Plan Agent semi-annually, for investment in the Trust's shares. Such payments may be made in any amount from $100 to $500. State Street will use all funds received from participants (as well as any dividends and distributions received in cash) to purchase Trust shares in the open market semiannually. Interest will not be paid on any uninvested cash payments. In the case of shareholders such as banks, brokers or nominees holding shares for others who are the beneficial owners of those shares, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholder of record as representing the total amount registered in such shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There is no charge to Plan participants for reinvesting dividends or distributions. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. There will be no brokerage charges with respect to shares issued directly by the Trust as a result of dividends or distributions payable either in stock or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends or distributions as well as from voluntary cash payments. Brokerage charges for purchasing small amounts of stock for individual accounts under the voluntary cash purchase provisions of the Plan are expected to be less than the usual brokerage charges for individual transactions of comparable size, because the Plan Agent will be purchasing shares for all participants in blocks and charging to cash purchase Plan participants a pro rated portion of the lower commissions usually obtainable on such block purchases. The automatic reinvestment of dividends and distributions will not relieve participants of any income tax that may be payable on such dividends or distributions. The Plan may be amended or terminated on 30 days written notice to the Plan participants. Contact the Plan Agent for more information regarding the Plan. All correspondence concerning the Plan should be directed to Computershare by mail at P.O. Box 403011, Providence, RI 02940-3011, or by phone at 1-800-426-5523. 29 [LOGO] Transfer Agent Important Information About This Report The Transfer Agent for Colonial Municipal Income Trust is: Computershare P.O. Box 43010 Providence, RI 02940-3010 The trust mails one shareholder report to each shareholder address. Shareholders can order additional reports by calling 800-730-6001. 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. A description of the trust's proxy voting policies and procedures is available (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 800-730-6001. Information regarding how the trust voted proxies relating to portfolio securities during the 12-month period ended June 30 is available from the SEC's website. Information regarding how the trust voted proxies relating to portfolio securities is also available at www.columbiamanagement.com. The trust files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The trust's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Annual Certifications -- As required, on June 21, 2006, the trust submitted to the New York Stock Exchange ("NYSE") the annual certification of the trust's Chief Executive Officer certifying that he is not aware of any violation of the NYSE's Corporate Governance listing standards. The trust also has included the certifications of the trust's Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the trust's Form N-CSR filed with the Securities and Exchange Commission for the annual period. This report has been prepared for shareholders of Colonial Municipal Income Trust. [GRAPHIC] COLONIAL MUNICIPAL INCOME TRUST SEMIANNUAL REPORT SHC-44/111423-0506 (07/06) 06/26759 Item 2. Code of Ethics. Not applicable at this time. Item 3. Audit Committee Financial Expert. Not applicable at this time. Item 4. Principal Accountant Fees and Services. Not applicable at this time. Item 5. Audit Committee of Listed Registrants. Not applicable. Item 6. Schedule of Investments The registrant's "Schedule I - Investments in securities of unaffiliated issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies. Not applicable. Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Registrant Purchases of Equity Securities* ----------------------------------------------------------------- (c) Total Number of (d) (a) (b) Shares Purchased as Maximum Number of Total Number Average Part of Publicly Shares that May Yet of Shares Price Paid Announced Plans Be Purchased Under Period Purchased Per Share or Programs the Plans or Programs ------ ------------ ---------- ------------------- --------------------- 12/01/05 through 12/31/05... 9,695 $5.39 9,695 N/A 01/01/06 through 01/31/06... 9,588 $5.56 9,588 N/A 02/01/06 through 02/28/06... 9,169 $5.83 9,169 N/A 03/01/06 through 03/31/06... 0 $0.00 0 N/A 04/01/06 through 04/30/06... 9,086 $5.82 9,086 N/A 05/01/06 through 05/31/06... 8,432 $5.88 8,432 N/A ------ ----- ------ --- Total....................... 45,970 $5.69 45,970 N/A ------ ----- ------ ---
-------- * Includes shares purchased by the Dividend Reinvestment Agent pursuant to the Registrant's Dividend Reinvestment Plan. Item 10. Submission of Matters to a Vote of Security Holders. There have not been any material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors, since those procedures were last disclosed in response to the requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item. Item 11. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officers, based on their evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant's management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not applicable at this time. (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. 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) Colonial Municipal Income Trust ---------------------------------------------- By (Signature and Title) /S/ Christopher L. Wilson ---------------------------------- Christopher L. Wilson, President Date July 27, 2006 ------------------------------------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /S/ Christopher L. Wilson ---------------------------------- Christopher L. Wilson, President Date July 27, 2006 ------------------------------------------------------ By (Signature and Title) /S/ J. Kevin Connaughton ---------------------------------- J. Kevin Connaughton, Treasurer Date July 27, 2006 ------------------------------------------------------