-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EyX0gi6F373g+5YiLlRWou4QAQ8irZX+QjTmJKnBQbMb+o0aAdrnal5CJwY5N7Ur vHPDW5EMzuOuHf1ywnCqiQ== 0000950124-99-001434.txt : 19990225 0000950124-99-001434.hdr.sgml : 19990225 ACCESSION NUMBER: 0000950124-99-001434 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000818305 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 366866160 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05230 FILM NUMBER: 99548935 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLAZA STREET 2: VAN KAMPEN INVESTMENTS INC CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 6306846774 MAIL ADDRESS: STREET 1: VAN KAMPEN INVESTMENTS INC STREET 2: ONE PARKVIEW PLAZA CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST DATE OF NAME CHANGE: 19960102 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT MUNICIPAL INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT XEROX INSURED MUNIFUND DATE OF NAME CHANGE: 19880824 N-30D 1 SEMI ANNUAL REPORT 1 TABLE OF CONTENTS Letter to Shareholders........................... 1 Performance Results.............................. 3 Glossary of Terms................................ 4 Portfolio Management Review...................... 6 Portfolio Highlights............................. 9 Portfolio of Investments......................... 10 Statement of Assets and Liabilities.............. 17 Statement of Operations.......................... 18 Statement of Changes in Net Assets............... 19 Financial Highlights............................. 20 Notes to Financial Statements.................... 22 Dividend Reinvestment Plan....................... 27
VMT SAR 2/99 2 LETTER TO SHAREHOLDERS January 20, 1999 Dear Shareholder, The past decade has been a remarkable time for investors. Together, we've witnessed one of the greatest bull markets in investment history, unprecedented growth in mutual fund investing, and a surge in personal retirement planning. The coming millennium promises to hold even more opportunities. To lead us into this new era of investing, Richard F. Powers III has joined Van Kampen as Chairman and Chief Executive Officer. He comes to us from our parent company, Morgan Stanley Dean Witter & Co., where he served as Executive Vice President and Director of Marketing. He brings 27 years of experience in the financial services industry, including an extensive background in product management, strategic planning and brand development. Although former Chairman Don G. Powell retired on January 1, he will remain active in the industry and the community. Mr. Powell plans to continue his service as a member of the board of directors of the Investment Company Institute, the leading mutual fund industry association, and he will remain a trustee of your trust. ECONOMIC OVERVIEW Despite a stormy year in the global economy, the United States ended 1998 with only a moderate slowdown in growth. The nation's gross domestic product, a measure of economic health, grew 3.9 percent during the year, matching 1997's growth rate and indicating that our nation's economy remains strong. A continuation of low inflation--only a 1.6 percent increase in the consumer price index over the last 12 months--also helped sustain the domestic economy and kept inflation-adjusted interest rates attractive. Although the year ended on a positive note, the economic environment was quite unsettled in the third quarter, with the Asian financial crisis contributing to slowing corporate profits in the United States. Given the uncertainty surrounding emerging market nations and the near-collapse of a major U.S. hedge fund, the stock and bond markets experienced significant volatility during this period. With instability as a backdrop, American and foreign investors alike pursued a flight to quality--seeking the relative safety of large-company stocks and government bonds. In the last few months of the year the global financial situation improved in conjunction with the Federal Reserve's interest rate decreases. In response to declining corporate profits and mounting international concerns, the Fed lowered interest rates three times, with 0.25 percent cuts in September, October, and November. These rate cuts, coupled with a wave of corporate mergers and cost-cutting measures, lent the support needed to keep the economy growing. Dozens of foreign central banks also reduced interest rates in an effort to stimulate their economies. These actions gave a boost to investor confidence and encouraged a return to a more diversified range of investments in the last few months of the year. Continued on page 2 1 3 MARKET REVIEW The bond market continued to rally as interest rates fell during the year, with U.S. Treasury securities outpacing corporate and municipal bonds in price appreciation. Investors' desire for safer investments amid the global economic storm led to strong demand for high-quality bonds. In fact, the U.S. Treasury bond was considered one of the most attractive places to invest by both domestic and international investors, propelling the 30-year Treasury yield to 4.71 percent in October--its lowest yield since the federal government began selling these bonds in 1977. Meanwhile, the prices of municipal bonds across the credit quality spectrum were suppressed by excess supply, as many bond issuers took advantage of low interest rates to refinance outstanding debt and issue new bonds. At several points during the year, the yield on a AAA-rated long-term municipal bond surpassed the yield of the 30-year U.S. Treasury bond--an unusual occurrence given municipals' tax-exempt status. OUTLOOK Our outlook for the domestic economy is positive, and we anticipate continued low inflation and healthy economic growth. However, the aftereffects of the global economic slowdown may continue to put pressure on corporate earnings in the first half of the year. Internationally, we anticipate that low interest rates and declining inflation will lead to improvements in troubled areas such as Asia and Latin America. With the successful launch of the euro, the new European transnational currency, we believe that many foreign markets will become increasingly attractive in 1999. In the long term, we are optimistic that the stock market will continue its record growth, although we could experience additional volatility in the months ahead if concerns about high stock valuations and increasing earnings pressure become more pronounced. Combined with growing questions about corporate and government reactions to the Year 2000 computer problem, we could see an increasingly cautious market by mid-year. Additional details about your trust, including a question-and-answer section with your portfolio management team, are provided in this report. As always, we are pleased to have the opportunity to share with you the progress of your investment. Sincerely, [SIG.] Richard F. Powers III Chairman Van Kampen Investment Advisory Corp. [SIG.] Dennis J. McDonnell President Van Kampen Investment Advisory Corp. 2 4 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998 VAN KAMPEN MUNICIPAL INCOME TRUST (NYSE TICKER SYMBOL--VMT) COMMON SHARE TOTAL RETURNS Six-month total return based on market price(1)........... 2.63% Six-month total return based on NAV(2).................... 4.46% DISTRIBUTION RATES Distribution rate as a % of closing stock price(3)........ 5.99% Taxable-equivalent distribution rate as a % of closing stock price(4).......................................... 9.36% SHARE VALUATIONS Net asset value........................................... $ 10.38 Closing common stock price................................ $10.8125 Six-month high common stock price (11/23/98).............. $11.5000 Six-month low common stock price (9/4/98)................. $10.6250 Preferred share (Series A) rate(5)........................ 3.300% Preferred share (Series B) rate(5)........................ 3.500% Preferred share (series C) rate(5)........................ 3.500%
(1)Total return based on market price assumes an investment at the market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Trust's dividend reinvestment plan, and sale of all shares at the closing common stock price at the end of the period indicated. (2)Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. (3)Distribution rate represents the monthly annualized distributions of the Trust at the end of the period and not the earnings of the Trust. (4)The taxable-equivalent distribution rate is calculated assuming a 36% federal tax bracket. (5)See "Notes to Financial Statements" footnote #6, for more information concerning Preferred Share reset periods. A portion of the interest income may be taxable for those investors subject to the federal alternative minimum tax (AMT). Past performance does not guarantee future results. Investment return, stock price and net asset value will fluctuate with market conditions. Trust shares, when sold, may be worth more or less than their original cost. 3 5 GLOSSARY OF TERMS CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set prices before maturity. These dates and prices are set when the bond is issued. To compensate the bondholder for the potential loss of income and ownership, a bond's call price is usually higher than the face value of the bond. Bonds are usually called when interest rates drop so significantly that the issuer can save money by issuing new bonds at lower rates. COUPON RATE: The stated rate of interest the bond pays on an annual basis, expressed as a percentage of the face value. CREDIT RATING: An evaluation of an issuer's credit history and capability of repaying obligations. Standard & Poor's and Moody's Investors Service are two companies that assign bond ratings. Standard & Poor's ratings range from a high of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of C. CREDIT SPREAD: Also called quality spread, the difference in yield between higher-quality issues (such as Treasury securities) and lower-quality issues. Normally, lower-quality issues provide higher yields to compensate investors for the additional credit risk. DISCOUNT BOND: A bond whose market price is lower than its face value (or "par value"). Because bonds usually mature at face value, a discount bond has more potential to appreciate in price than a par bond does. DURATION: A measure of the sensitivity of a bond's price to changes in interest rates, expressed in years. Each year of duration represents an expected 1 percent change in the price of a bond for every 1 percent change in interest rates. The longer a bond's duration, the greater the effect of interest rate movements on net asset value. Typically, funds with shorter durations perform better in rising rate environments, while funds with longer durations perform better when rates decline. FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve System, which is the central bank system of the United States. Its policy-making committee, called the Federal Open Market Committee, meets eight times a year to establish monetary policy and monitor the economic pulse of the United States. INFLATION: A persistent and measurable rise in the general level of prices. Inflation is widely measured by the Consumer Price Index, an economic indicator that measures the change in the cost of purchased goods and services. INSURED BOND: A bond that is insured against default by the bond insurer. If the issuer defaults, the insurance company will step in and take over payments of interest and principal when due. Once a bond is insured, it typically carries the rating of the insurer. 4 6 INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are noninvestment grade. MUNICIPAL BOND: A debt security issued by a state, municipality, or other government entity to finance capital expenditures of public projects, such as the construction of highways, public works, or school buildings. Interest on public-purpose municipal bonds is exempt from federal income taxes and, potentially, from state and local income taxes. PREMIUM BOND: A bond whose market price is above its face value (or "par value"). Because bonds usually mature at face value, a premium bond has less potential to appreciate in price than a par bond does. YIELD: The annual rate of return on an investment, expressed as a percentage. For bonds and notes, the yield is the annual interest divided by the market price. YIELD SPREAD: The additional yield investors can earn by either investing in bonds with longer maturities or by investing in bonds with lower ratings. The spread is the difference in yield between bonds with short versus long maturities or the difference in yield between high-quality bonds and lower-quality bonds. ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep discount to face value and pays no interest. It may be redeemed at maturity for full face value. 5 7 PORTFOLIO MANAGEMENT REVIEW VAN KAMPEN MUNICIPAL INCOME TRUST We recently spoke with the management team of the Van Kampen Municipal Income Trust about the key events and economic forces that shaped the markets during the past six months. The team includes David C. Johnson, portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income investments. The following comments reflect their views on the Trust's performance during the six months ended December 31, 1998. Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE TRUST OPERATED DURING THE REPORTING PERIOD? A Interest rates remained low throughout the period, with the Federal Reserve lowering rates three times toward the end of the year. While Treasury bonds saw a significant increase in prices as a result, municipal bonds experienced only moderate appreciation. The year's overwhelming supply held municipals back as issuers took advantage of the low interest rate environment to issue new bonds and refinance older bonds. In fact, during the year, municipal bond supply increased 31 percent over 1997, with an estimated $290 billion in new issuance. Despite their generally lower yields, municipal bonds continued to represent an excellent value in the marketplace, especially when considering their tax advantages. Q HOW DID THESE CONDITIONS AFFECT YOUR MANAGEMENT OF THE TRUST? A This year, the Trust reached its tenth anniversary, which is significant because many of the bonds we purchased at the Trust's inception have now reached their call dates. These bonds have a feature that allows the issuer to repay (or "call") the bond after a set date--usually about 10 years after its issuance--even if its stated maturity is much later. Because interest rates are lower now than they were 10 years ago, many issuers are choosing to call their bonds and reissue new bonds paying today's lower rates. If we hadn't prepared for these calls, the portfolio would have experienced a significant erosion of its income stream because we would have had to replace the older, higher-yielding bonds with securities offering significantly lower yields. However, we have managed the Trust to help improve its protection from bond calls. Over the past several years, we replaced bonds that were nearing their call dates as opportunities arose. Although the new bonds paid lower interest rates than the bonds they replaced, the Trust may benefit in the long run because interest rates to date have continued to decline. The replacement bonds we bought as recently as a year ago provide more income than the Trust would be able to earn if we had waited until now to replace the called bonds. As a result of this process, less than two percent of the portfolio will be called in 1999. Another way we managed the Trust's call protection was to look for noncallable bonds, which cannot be removed from the portfolio until their stated maturity unless we choose to sell them. We were able to purchase several noncallable bonds during the reporting period and will seek bonds with this favorable feature going forward. 6 8 Q WHAT OTHER STRATEGIES DID YOU PURSUE DURING THE PAST SIX MONTHS? A With such heavy new issuance volume during the past year, we pursued some opportunities for short-term price appreciation. For example, when the Long Island Power Authority (LIPA) issued nearly $3.5 billion in new bonds--an unusually large municipal issuance--we saw an opportunity to create value for Trust shareholders. Because the issue was so large, it had to offer a competitive yield to generate enough interest to sell all of the bonds. We purchased several LIPA bonds because we believed market demand would increase after the initial offering and we'd be able to sell the bonds at a profit. An increase in demand did occur, and we were able to sell the bonds for more than their original purchase price. However, we retained some of the LIPA bonds because their credit quality, yield, and maturity were attractive. In addition, we took advantage of current market conditions to enhance the credit quality of the Trust. As bonds were sold from the portfolio, we replaced them with AAA-rated bonds whenever we felt it was beneficial to do so. With a minimal difference in yield between AAA bonds and lower-rated bonds, we felt that higher-rated bonds provided a better value. More than half of the portfolio's holdings were AAA-rated at the end of the year. For additional Trust portfolio highlights, please refer to page 9. Q HOW DID THE TRUST PERFORM DURING THE YEAR? A The Trust generated a 2.63 percent(1) total return based on market price for the six-month period ended December 31, 1998. This reflects a slight decrease in market price from $10.875 on June 30, 1998, to $10.8125 on December 31, 1998, plus reinvestment of dividends. In addition, the Trust provided a distribution rate of 5.99 percent(3) based on its closing common stock price on December 31, 1998. Because the Trust is exempt from federal income taxes, this distribution rate is equivalent to a yield of 9.36 percent(4) on a taxable investment for shareholders in the 36 percent federal income tax bracket. Please refer to the chart on page 3 for additional Trust performance results. In December, the Board of Trustees approved a decrease in the Trust's monthly dividend from $0.056 per share to $0.054 per share. As higher-yielding bonds were called from the portfolio, we had to replace them with current, lower-yielding bonds, which resulted in a decline in the Trust's earnings. Despite the dividend decrease, we believe that the Trust offers a competitive yield, especially when considering its exemption from federal income taxes. Q HOW DID LEVERAGE AFFECT THE TRUST'S RETURNS? A The Trust employs leverage to help enhance returns to shareholders. The process involves borrowing money at short-term interest rates by issuing preferred shares, and then investing the proceeds into longer-term bonds, which typically pay higher rates. The difference between the long-term rates earned by the Trust and the short-term rates paid on the preferred shares is passed along to shareholders in the Trust's dividend. 7 9 Shareholders benefited from the use of leverage during the reporting period. As short-term interest rates inched lower, we paid less interest on our preferred shares and more of the Trust's earnings were available for common shareholders. This income helped support the Trust's dividend as interest rates continued to decline. It should be noted that an increase in short-term interest rates would raise the Trust's borrowing costs and have a negative effect on the dividend-paying ability of common shares and possibly the price of those shares. Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS? A We believe that 1999 will present a positive environment for bonds, with a continuation of low interest rates. Leverage should play an important role in supporting the Trust because we anticipate an attractive spread between short- and long-term interest rates. In addition, we believe that fewer bonds will be coming to market insured, which will provide a greater selection of lower-rated investment-grade bonds with competitive yields. This will allow our experienced research staff to carefully select those bonds with higher coupon rates that they believe have the strongest underlying quality. We also anticipate that the difference in yields between lower-rated and higher-rated bonds will tend to increase. We believe that municipal bonds will represent an excellent value throughout 1999. If the international situation remains uncertain and the stock market experiences ongoing volatility, the demand for investment-grade bonds should stay strong. Municipal bonds should continue to provide significantly higher yields than Treasury bonds on an after-tax basis, and we expect to see demand for them pick up in the later half of the year as the market recognizes their value. [SIG] David C. Johnson Portfolio Manager [SIG] Peter W. Hegel Chief Investment Officer Fixed Income Investments Please see footnotes on page 3 8 10 PORTFOLIO HIGHLIGHTS VAN KAMPEN MUNICIPAL INCOME TRUST TOP TEN PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF DECEMBER 31, 1998 AS OF JUNE 30, 1998 Health Care................. 18.5% Health Care................. 16.8% General Purpose............. 11.1% Transportation.............. 11.1% Wholesale Electric.......... 8.7% General Purpose............. 9.5% Industrial Revenue.......... 7.8% Wholesale Electric.......... 9.0% Airport..................... 7.6% Industrial Revenue.......... 8.1% Transportation.............. 6.9% Airport..................... 7.5% Public Building............. 6.3% Single-Family Housing....... 6.4% Higher Education............ 6.1% Public Building............. 5.7% Single-Family Housing....... 6.0% Higher Education............ 5.6% Water & Sewer............... 5.0% Retail
Electric/Gas/Telephone.... 5.2% PORTFOLIO COMPOSITION BY CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF DECEMBER 31, 1998 AS OF JUNE 30, 1998 AAA.............. 59.5 AAA............. 50.5 AA............... 3.6 AA.............. 5.4 A................ 12.9 PIE CHART A............... 17.1 PIE CHART BBB.............. 21.9 BBB............. 23.4 BB............... 0.1 BB.............. 1.4 NON-RATED........ 2.0 NON-RATED....... 2.2
Based upon the highest credit quality ratings as issued by Standard & Poor's or Moody's. DIVIDEND HISTORY BAR GRAPH
For the Period Ended December 31, 1998 DIVIDEND -------- 7/98 0.056 8/98 0.056 9/98 0.056 10/98 0.056 11/98 0.056 12/98 0.054
The dividend history represents past performance of the Trust and does not predict the Trust's future distributions. 9 11 PORTFOLIO OF INVESTMENTS December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- MUNICIPAL BONDS 107.6% ALABAMA 2.7% $ 500 Alabama St Indl Dev Auth Solid Waste Disp Rev Pine City Fiber Co............................. 6.450% 12/01/23 $ 531,620 12,240 Montgomery, AL BMC Spl Care Facs Fin Auth Rev Baptist Hlth Ser B (MBIA Insd)................. 5.000 11/15/29 11,874,146 ------------ 12,405,766 ------------ ARKANSAS 0.2% 1,000 Conway, AR Hosp Rev Conway Regl Hosp Rfdg...... 8.375 07/01/11 1,067,970 ------------ CALIFORNIA 2.3% 9,270 California Hsg Fin Agy Rev Homeowner Mtg Ser D.............................................. * 08/01/20 1,775,483 5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA Insd).................................... * 09/01/17 1,981,650 6,075 Orange Cnty, CA Recovery Ctfs Ser A Rfdg (MBIA Insd) (b)...................................... 6.000 06/01/09 6,995,788 ------------ 10,752,921 ------------ COLORADO 9.0% 1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B (Prerefunded @ 08/31/05)...... 6.950 08/31/20 1,196,190 1,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B (Prerefunded @ 08/31/05)...... 7.000 08/31/26 1,798,650 19,405 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C (Prerefunded @ 08/31/05)...... * 08/31/26 3,092,769 1,825 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/07 1,989,305 11,330 Denver, CO City & Cnty Arpt Rev Ser A (b)...... 8.250 11/15/12 12,278,321 5,115 Denver, CO City & Cnty Arpt Rev Ser A (b)...... 8.500 11/15/23 5,565,836 4,410 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.750 11/15/23 4,965,881 1,070 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @ 11/15/00)....................... 8.250 11/15/12 1,183,762 1,590 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @ 11/15/01)....................... 8.750 11/15/23 1,838,612 2,000 Douglas Cnty, CO Sch Dist No 1 Rev Douglas & Elbert Cntys Impt Ser A (Prerefunded @ 12/15/04) (MBIA Insd) (b)...................... 6.400 12/15/11 2,283,420 3,000 Meridian Metro Dist CO Peninsular & Oriental Steam Navig Co Rfdg (LOC: Meridian Assoc East).......................................... 7.500 12/01/11 3,276,420 1,850 Montrose Cnty, CO Ctfs Partn................... 6.350 06/15/06 2,029,062 ------------ 41,498,228 ------------ CONNECTICUT 1.5% 4,000 Connecticut St Hlth & Edl Facs Auth Rev Quinnipiac College Ser E (FSA Insd) (a)........ 4.750 07/01/28 3,825,800 3,100 Stamford, CT Hsg Auth Multi-Family Rev Fairfield Apts Proj Rfdg....................... 4.750 12/01/28 3,092,591 ------------ 6,918,391 ------------
See Notes to Financial Statements 10 12 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- DISTRICT OF COLUMBIA 0.8% $ 710 District of Columbia Ctfs Partn................ 6.875% 01/01/03 $ 742,561 2,775 District of Columbia Hosp Rev Medlantic Hlthcare Ser A Rfdg (MBIA Insd) (b)............ 5.250 08/15/12 2,962,978 ------------ 3,705,539 ------------ FLORIDA 2.7% 3,000 Broward Cnty, FL Arpt Sys Rev Ser G (AMBAC Insd) (a)...................................... 5.000 10/01/23 2,947,500 4,660 Florida St Brd Edl Cap Outlay Pub Ed Ser A Rfdg (Prerefunded @ 06/01/00)....................... * 06/01/15 1,551,221 4,000 Sarasota Cnty, FL Pub Hosp Brd Miles Sarasota Mem Hosp Proj Ser A (Embedded Cap) (MBIA Insd).......................................... 3.903 10/01/21 3,760,000 4,000 South Miami, FL Hlth Facs Auth Hosp Rev Baptist Hlth Sys Oblig Group (MBIA Insd)............... 5.000 11/15/28 3,966,040 ------------ 12,224,761 ------------ GEORGIA 8.3% 6,095 Fulton Cnty, GA Lease Rev...................... 7.250 06/15/10 7,100,244 20,000 Georgia Local Gov Ctfs Partn Grantor Trust Ser A (MBIA Insd) (b).............................. 4.750 06/01/28 19,316,800 2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA Insd).......................................... 6.500 01/01/20 3,162,659 3,000 Georgia Muni Elec Auth Pwr Rev Ser B (FGIC Insd) (b)...................................... 6.250 01/01/17 3,498,480 5,000 Georgia Muni Elec Auth Pwr Rev Ser Z Rfdg (MBIA Insd) (b)...................................... 5.500 01/01/20 5,353,200 ------------ 38,431,383 ------------ IDAHO 0.5% 2,080 Boise, ID Urban Renewal Agy Pkg Rev Ser A (b)............................................ 8.125 09/01/15 2,116,941 ------------ ILLINOIS 12.2% 4,000 Chicago, IL Midway Arpt Rev Ser B (MBIA Insd).......................................... 5.000 01/01/35 3,892,600 13,970 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84A......................... 8.850 05/01/18 15,407,514 2,645 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84B......................... 8.850 05/01/18 2,915,689 4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd).......................................... * 01/01/07 3,515,785 1,000 Chicago, IL Ser B Rfdg (AMBAC Insd) (b)........ 5.125 01/01/15 1,044,560 2,000 Illinois Edl Fac Auth Rev Lewis Univ........... 6.125 10/01/26 2,114,040 1,450 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D.......................................... 9.500 11/15/15 1,637,311 1,275 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (Prerefunded @ 11/15/00)................. 9.500 11/15/15 1,438,889 570 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E.......................................... 9.500 11/15/19 643,809 1,310 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E (Prerefunded @ 11/15/00)................. 9.500 11/15/19 1,472,951 1,000 Illinois Hlth Fac Auth Rev Lutheran Social Svcs Proj Ser A (Prerefunded @ 08/01/00) (LOC: Bank of Japan) (b).................................. 7.650 08/01/20 1,084,090 3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys Rfdg (b)....................................... 6.000 11/15/23 3,401,563
See Notes to Financial Statements 11 13 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Prerefunded @ 08/15/01)....................... 8.000% 08/15/21 $ 2,246,820 4,000 Illinois Hlth Fac Auth Rev Sherman Hlth Sys (AMBAC Insd) (b)............................... 5.250 08/01/22 4,020,800 45,775 Illinois Hsg Dev Auth Multi-Family Hsg Ser A... * 07/01/27 5,192,258 1,745 Illinois Hsg Dev Auth Multi-Family Hsg Ser C... 7.400 07/01/23 1,848,147 1,250 Sangamon Cnty, IL Ctfs Partn................... 10.000 12/01/06 1,728,312 6,500 Will Cnty, IL Cmnty Unit Sch Dist No 365 (FSA Insd).......................................... * 11/01/17 2,494,700 ------------ 56,099,838 ------------ INDIANA 0.7% 1,370 Indiana Hlth Fac Fin Auth Hosp Rev Bartholomew Cnty Hosp Proj (Prerefunded @ 08/15/00) (FSA Insd) (b)...................................... 7.750 08/15/20 1,489,834 1,650 Indiana St Edl Fac Auth Rev Univ Evansville Proj (Prerefunded @ 11/01/00).................. 8.125 11/01/10 1,819,587 ------------ 3,309,421 ------------ KENTUCKY 0.5% 2,190 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY Intl Arpt Ser A Rfdg (MBIA Insd)............ 6.250 03/01/09 2,511,908 ------------ LOUISIANA 2.9% 6,000 Jefferson Parish, LA Hosp Svc Dist No 2 Hosp Rev (FSA Insd) (a)................................. 5.000 07/01/28 5,833,200 1,055 Lafayette, LA Pub Fin Auth Single Family Mtg Rev Ser A Rfdg................................. 8.500 11/15/12 1,100,014 4,924 Louisiana Pub Fac Auth Rev Multi-Family Hsg Pontchatn Arpts Ser B (GNMA Collateralized) (b)............................................ 8.375 07/20/23 5,176,215 1,250 New Orleans, LA Hsg Dev Corp Multi-Family Rev Hsg Southwood Patio Ser A (FNMA Collateralized)................................ 7.700 02/01/22 1,360,213 ------------ 13,469,642 ------------ MAINE 0.2% 840 Maine St Hsg Auth Ser C........................ 8.300 11/15/20 858,001 ------------ MARYLAND 1.7% 2,180 Baltimore, MD Cap Apprec Ser A (FGIC Insd)..... * 10/15/09 1,274,777 2,470 Baltimore, MD Cap Apprec Ser A (Prerefunded @ 10/15/05) (FGIC Insd).......................... * 10/15/09 1,481,333 5,000 Maryland St Hlth & Higher Edl Facs Auth Rev Medlantic/Helix Issue Ser B (AMBAC Insd)....... 5.250 08/15/38 5,233,050 ------------ 7,989,160 ------------ MASSACHUSETTS 4.4% 2,185 Boston, MA Wtr & Swr Commn Rev Genl Sr Ser D (FGIC Insd) (a)................................ 4.750 11/01/22 2,072,844 5,000 Boston, MA Wtr & Swr Commn Rev Genl Sr Ser D (FGIC Insd) (a)................................ 5.000 11/01/28 4,904,650
See Notes to Financial Statements 12 14 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- MASSACHUSETTS (CONTINUED) $ 2,570 Massachusetts St Hlth & Edl Fac Auth Rev Farmingham Union Hosp Ser B (Prerefunded @ 07/01/00)...................................... 8.500% 07/01/10 $ 2,792,768 1,000 Massachusetts St Indl Fin Agy Rev Higher Edl Hampshire College Proj......................... 5.625 10/01/12 1,034,160 10,000 Massachusetts St Wtr Res Auth Genl Ser A (FSA Insd).......................................... 4.750 08/01/27 9,440,100 ------------ 20,244,522 ------------ MICHIGAN 3.5% 1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev Hillsdale Cmnty Hlth Ctr................................. 5.750 05/15/18 1,226,268 4,260 Michigan St Hosp Fin Auth Rev Hosp Battle Creek Hosp Ser G Rfdg................................ 9.500 11/15/15 4,797,570 2,000 Michigan St Hosp Fin Auth Rev Hosp Bay Med Cent Ser A Rfdg (Crossover Rfdg @ 07/01/00) (b)..... 8.250 07/01/12 2,171,460 1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl Med Rfdg (ACA Insd)............................ 5.500 10/01/18 1,007,580 4,895 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl Med Rfdg (ACA Insd)............................ 5.500 10/01/27 4,916,244 2,000 Michigan St Hosp Fin Auth Rev Hosp Hackley Hosp Ser A Rfdg..................................... 5.000 05/01/18 1,924,320 ------------ 16,043,442 ------------ MINNESOTA 1.1% 5,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A Rfdg (MBIA Insd)............................. 4.750 01/01/16 4,945,400 ------------ MISSISSIPPI 0.4% 1,500 Mississippi Hosp Equip & Fac MS Baptist Med Cent Rfdg (MBIA Insd).......................... 6.000 05/01/13 1,642,020 ------------ MISSOURI 0.7% 3,000 Missouri St Hsg Dev Cmnty Mtg Rev Ser B Rfdg (FHA Gtd) (b).................................. 7.000 09/01/10 3,172,560 ------------ NEBRASKA 1.1% 4,835 Nebraska Invt Fin Single Family Mtg Rev Pgm B (Inverse Fltg) (GNMA Insd) (b)................. 11.470 03/15/22 5,264,106 ------------ NEVADA 0.4% 2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser B Rfdg......................................... 5.900 10/01/30 2,017,220 ------------ NEW YORK 14.6% 2,000 Long Island Pwr Auth NY Elec Sys Rev Genl (FSA Insd).......................................... 4.000 04/01/05 1,996,620 9,755 Long Island Pwr Auth NY Elec Sys Rev Genl (MBIA Insd).......................................... 4.100 04/01/07 9,707,201 2,250 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser C (Prerefunded @ 06/15/01)............. 7.750 06/15/20 2,500,515 7,000 New York City Ser A (b)........................ 7.000 08/01/04 8,031,030 4,500 New York City Ser B (AMBAC Insd) (b)........... 7.250 08/15/07 5,469,390 2,700 New York City Ser C............................ 7.000 08/15/08 2,907,819 1,100 New York City Ser C (Prerefunded @ 08/15/01)... 7.000 08/15/08 1,194,017
See Notes to Financial Statements 13 15 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 6,930 New York City Tran Auth Tran Fac Livingston Plaza Proj Rfdg (FSA Insd) (b)................. 5.400% 01/01/18 $ 7,359,729 8,625 New York St Dorm Auth Rev City Univ Ser F (b)............................................ 5.500 07/01/12 9,037,103 4,615 New York St Dorm Auth Rev St Univ Edl Fac Ser B (b)............................................ 7.000 05/15/16 4,903,391 415 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A............................ 7.750 08/15/11 454,313 2,500 New York St Urban Dev Corp Rev Correctional Cap Fac Ser A...................................... 5.250 01/01/21 2,506,525 2,635 New York St Urban Dev Corp Rev Youth Fac....... 5.875 04/01/08 2,868,830 4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt Terminal 6 (MBIA Insd) (b)........... 5.750 12/01/22 4,265,480 4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt Terminal 6 (MBIA Insd) (b)........... 5.750 12/01/25 4,226,760 ------------ 67,428,723 ------------ NORTH CAROLINA 3.9% 1,000 North Carolina Med Care Comm Catholic Hlth East Ser C (AMBAC Insd)............................. 5.000 11/15/28 985,440 15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev (MBIA Insd) (b)............................ 6.000 01/01/12 17,188,350 ------------ 18,173,790 ------------ OHIO 3.8% 3,000 Akron Bath Copley, OH St Twp Hosp Dist Rev Summa Hosp Ser A (a)........................... 5.375 11/15/18 2,926,500 10,000 Hamilton Cnty, OH Hosp Fac Rev Childrens Hosp Med Ctr Ser G (MBIA Insd)...................... 4.750 05/15/28 9,462,200 3,830 Mason, OH Hlthcare Fac MCV Hlthcare Fac (FHA Gtd) (Prerefunded @ 02/01/01).................. 7.625 02/01/40 4,249,347 1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Partn Proj Rfdg (AMBAC Insd)............... 6.375 04/01/29 1,111,350 ------------ 17,749,397 ------------ OREGON 0.6% 2,500 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single Family Mtg Proj Ser B.......................... 6.875 07/01/28 2,672,550 ------------ PENNSYLVANIA 7.5% 6,460 Allegheny Cnty, PA Indl Dev Auth Rev Environmental Impt USX Corp Proj Rfdg (b)...... 6.100 07/15/20 6,822,083 2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg) (FGIC Insd).................................... 7.670 06/18/15 2,868,750 1,700 Harrisburg, PA Cap Apprec Notes Ser F Rfdg (AMBAC Insd)................................... * 09/15/14 789,939 5,000 Pennsylvania St Higher Edl Assist Agy Student Ln Rev Ser B (Inverse Fltg) (MBIA Insd) (b).... 10.899 03/01/20 5,550,000 1,770 Philadelphia, PA Auth Indl Dev Rev Edl Comm Fgn Med Grads (MBIA Insd).......................... 5.000 06/01/18 1,759,274
See Notes to Financial Statements 14 16 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 1,000 Philadelphia, PA Auth Indl Dev Rev Edl Comm Fgn Med Grads (MBIA Insd).......................... 5.000% 06/01/21 $ 986,030 1,750 Philadelphia, PA Sch Dist Cap Apprec Ser A Rfdg (AMBAC Insd)................................... * 07/01/01 1,593,217 5,000 Philadelphia, PA Sch Dist Ser A (MBIA Insd) (a)............................................ 4.500 04/01/23 4,601,200 2,500 Philadelphia, PA Sch Dist Ser A (MBIA Insd) (a)............................................ 4.750 04/01/27 2,367,825 2,000 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A Rfdg........................................... 6.000 12/01/13 2,284,800 4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin Pgm Ser C (AMBAC Insd) (b)................. 7.700 12/01/15 4,968,015 ------------ 34,591,133 ------------ RHODE ISLAND 0.2% 1,000 Providence, RI Pub Bldg Auth Genl Rev Ser B (FSA Insd) (b)................................. 7.250 12/15/10 1,086,200 ------------ SOUTH CAROLINA 0.4% 1,610 South Carolina St Hsg Fin & Dev Auth Homeowner Mtg Ser A...................................... 7.400 07/01/23 1,694,380 ------------ TENNESSEE 2.1% 8,985 Tennessee Hsg Dev Agy Mtg Fin Ser A (b)........ 7.125 07/01/26 9,680,169 ------------ TEXAS 9.7% 15,000 Brazos River Auth TX Pollutn Ctl Rev Adj Utils Elec Co Rfdg (b)............................... 5.550 06/01/30 14,877,900 7,065 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (MBIA Insd)............................. * 02/15/20 1,571,751 2,800 Gulf Coast Wtr Auth TX Wtr Sys Contract Rev (FGIC Insd).................................... 5.000 08/15/17 2,813,272 6,000 Harris Cnty, TX Ctfs Oblig (a)................. 4.500 10/01/23 5,540,280 4,820 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09) (AMBAC Insd)......................... * 08/15/18 1,637,740 1,000 Harris Cnty, TX Toll Rd (Prerefunded @ 08/15/09) (AMBAC Insd)......................... * 08/15/21 276,410 2,400 Port Arthur, TX Navig Dist Rfdg (AMBAC Insd)... 4.875 03/01/19 2,351,544 4,000 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg (PSF Gtd)........................................... * 08/15/20 1,261,160 4,395 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg (PSF Gtd)........................................... * 08/15/21 1,293,492 3,525 Texas Muni Pwr Agy Rev Cap Apprec Rfdg (AMBAC Insd).......................................... * 09/01/07 2,429,712 8,220 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation Rfdg (FSA Insd) (b)................ 5.500 09/01/13 8,757,259 1,475 Waxahachie, TX Cmnty Dev Corp Sales Tax Rev (MBIA Insd).................................... * 08/01/21 426,393 1,270 Waxahachie, TX Cmnty Dev Corp Sales Tax Rev (MBIA Insd).................................... * 08/01/22 347,485 1,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union Carbide Chem & Plastics....... 8.200 03/15/21 1,361,837 ------------ 44,946,235 ------------
See Notes to Financial Statements 15 17 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- UTAH 1.6% $ 5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc Proj........................................... 7.900% 06/01/17 $ 5,386,307 1,000 Salt Lake Cnty, UT College Rev Westminster College Proj................................... 5.750 10/01/27 1,038,070 1,040 Utah St Hsg Fin Agy Single Family Mtg Ser B Class 2........................................ 6.250 07/01/14 1,110,938 ------------ 7,535,315 ------------ VIRGINIA 0.3% 1,200 Blue Ridge Regl Jail Auth VA Regl Jail Fac Rev (MBIA Insd).................................... 5.200 12/01/17 1,228,368 ------------ WASHINGTON 1.2% 6,000 Central Puget Sound WA Regl Tran Auth Sales Tax & Mtr Veh Excise Tax Rev (FGIC Insd) (a)....... 4.750 02/01/28 5,687,520 ------------ WEST VIRGINIA 0.6% 2,480 South Charleston, WV Indl Dev Rev Union Carbide Chem & Plastics Ser A.......................... 8.000 08/01/20 2,638,794 ------------ WISCONSIN 3.2% 2,835 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/11 1,574,757 1,495 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/12 782,842 1,565 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/13 771,013 1,670 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/14 776,199 1,000 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/16 412,720 2,750 Southeast WI Professional Baseball Pk Dist Sales Tax Rev Ser A Rfdg (MBIA Insd)........... 5.500 12/15/26 2,979,790 8,000 Wisconsin St Hlth & Edl Facs Auth Rev Marquette Univ (MBIA Insd)............................... 4.750 06/01/28 7,523,280 ------------ 14,820,601 ------------ PUERTO RICO 0.1% 365 Puerto Rico Elec Pwr Auth Pwr Ser N............ 7.000 07/01/07 377,019 ------------ TOTAL LONG-TERM INVESTMENTS 107.6% (Cost $465,533,103)....................................................... 496,999,334 SHORT-TERM INVESTMENTS 2.1% (Cost $9,780,000)......................................................... 9,780,000 ------------ TOTAL INVESTMENTS 109.7% (Cost $475,313,103)....................................................... 506,779,334 LIABILITIES IN EXCESS OF OTHER ASSETS (9.7%)............................... (45,016,084) ------------ NET ASSETS 100.0%.......................................................... $461,763,250 ============
* Zero coupon bond (a) Securities purchased on a when issued or delayed delivery basis. (b) Assets segregated as collateral for open futures transactions and when issued or delayed delivery purchase commitments. See Notes to Financial Statements 16 18 STATEMENT OF ASSETS AND LIABILITIES December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Total Investments (Cost $475,313,103)....................... $506,779,334 Receivables: Interest.................................................. 6,550,461 Investments Sold.......................................... 170,000 Other....................................................... 2,671 ------------ Total Assets............................................ 513,502,466 ------------ LIABILITIES: Payables: Investments Purchased..................................... 50,060,465 Custodian Bank............................................ 879,919 Income Distributions -- Common and Preferred Shares....... 277,260 Investment Advisory Fee................................... 235,750 Variation Margin on Futures............................... 18,750 Affiliates................................................ 18,075 Accrued Expenses............................................ 150,465 Trustees' Deferred Compensation and Retirement Plans........ 98,532 ------------ Total Liabilities....................................... 51,739,216 ------------ NET ASSETS.................................................. $461,763,250 ============ NET ASSETS CONSIST OF: Preferred Shares ($.01 par value, authorized 1,000,000 shares, 330 issued with liquidation preference of $500,000 per share)................................................ $165,000,000 ------------ Common Shares ($.01 par value with an unlimited number of shares authorized, 28,587,297 shares issued and outstanding).............................................. 285,873 Paid in Surplus............................................. 264,846,304 Net Unrealized Appreciation................................. 31,084,617 Accumulated Undistributed Net Investment Income............. 970,925 Accumulated Net Realized Loss............................... (424,469) ------------ Net Assets Applicable to Common Shares.................. 296,763,250 ------------ NET ASSETS.................................................. $461,763,250 ============ NET ASSET VALUE PER COMMON SHARE ($296,763,250 divided by 28,587,297 shares outstanding)............................ $ 10.38 ============
See Notes to Financial Statements 17 19 STATEMENT OF OPERATIONS For the Six Months Ended December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.................................................... $14,015,486 ----------- EXPENSES: Investment Advisory Fee..................................... 1,394,082 Preferred Share Maintenance................................. 223,478 Custody..................................................... 16,264 Trustees' Fees and Expenses................................. 12,388 Legal....................................................... 10,630 Other....................................................... 190,569 ----------- Total Expenses.......................................... 1,847,411 ----------- NET INVESTMENT INCOME....................................... $12,168,075 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 5,394,889 Options................................................... 146,358 Futures................................................... 351,439 ----------- Net Realized Gain........................................... 5,892,686 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 33,383,365 ----------- End of the Period: Investments............................................. 31,466,231 Futures................................................. (381,614) ----------- 31,084,617 ----------- Net Unrealized Depreciation During the Period............... (2,298,748) ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 3,593,938 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $15,762,013 ===========
See Notes to Financial Statements 18 20 STATEMENT OF CHANGES IN NET ASSETS For the Six Months Ended December 31, 1998 and the Year Ended June 30, 1998 (Unaudited) - --------------------------------------------------------------------------------
Six Months Ended Year Ended December 31, 1998 June 30, 1998 - ------------------------------------------------------------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.................................... $ 12,168,075 $ 25,289,969 Net Realized Gain........................................ 5,892,686 5,265,942 Net Unrealized Appreciation/Depreciation During the Period................................................. (2,298,748) 2,077,934 ------------ ------------ Change in Net Assets from Operations..................... 15,762,013 32,633,845 ------------ ------------ Distributions from Net Investment Income: Common Shares.......................................... (9,528,062) (19,639,177) Preferred Shares....................................... (2,886,155) (5,972,446) ------------ ------------ Total Distributions...................................... (12,414,217) (25,611,623) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 3,347,796 7,022,222 FROM CAPITAL TRANSACTIONS: Value of Common Shares Issued Through Dividend Reinvestment........................................... 1,071,157 2,074,652 ------------ ------------ TOTAL INCREASE IN NET ASSETS............................. 4,418,953 9,096,874 NET ASSETS: Beginning of the Period.................................. 457,344,297 448,247,423 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $970,925 and $1,217,067, respectively).......................................... $461,763,250 $457,344,297 ============ ============
See Notes to Financial Statements 19 21 FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one common share of the Trust outstanding throughout the periods indicated. (Unaudited) - --------------------------------------------------------------------------------
Six Months Ended ---------------------------------------- December 31, 1998 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period (a)................ $10.263 $10.014 $9.758 $9.760 $ 9.924 -------- -------- ------- ------ ------- Net Investment Income........... .426 .890 .916 .940 .964 Net Realized and Unrealized Gain/Loss..................... .127 .261 .264 .048 (.065) -------- -------- ------- ------ ------- Total from Investment Operations.................... .553 1.151 1.180 .988 .899 -------- -------- ------- ------ ------- Less: Distributions from Net Investment Income: Paid to Common Shareholders.............. .334 .692 .720 .770 .840 Common Share Equivalent of Distributions Paid to Preferred Shareholders.... .101 .210 .204 .220 .223 Distributions from and in Excess of Net Realized Gain Paid to Common Shareholders................ -0- -0- -0- -0- -0- -------- -------- ------- ------ ------- Total Distributions............. .435 .902 .924 .990 1.063 -------- -------- ------- ------ ------- Net Asset Value, End of the Period........................ $10.381 $10.263 $10.014 $9.758 $ 9.760 ======== ======== ======= ====== ======= Market Price Per Share at End of the Period.................... $10.8125 $10.8750 $10.875 $9.875 $11.125 Total Investment Return at Market Price (a).............. 2.63%* 6.85% 18.32% (4.27%) 8.59% Total Return at Net Asset Value (b)..................... 4.46%* 9.62% 10.24% 8.02% 7.24% Net Assets at End of the Period (In millions)................. $ 461.8 $457.3 $448.2 $438.7 $436.1 Ratio of Expenses to Average Net Assets Applicable to Common Shares**...................... 1.24% 1.23% 1.28% 1.31% 1.33% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (c).................... 6.22% 6.64% 7.18% 7.26% 7.56% Portfolio Turnover.............. 48%* 103% 53% 29% 38% * Non-Annualized ** Ratio of Expenses to Average Net Assets Including Preferred Shares...................... .80% .79% .80% .82% .83%
(a) Total Investment Return at Market Price reflects the change in market value of the common shares for the period indicated with reinvestment of dividends in accordance with the Trust's dividend reinvestment plan. (b) Total Return at Net Asset Value (NAV) reflects the change in value of the Trust's assets with reinvestment of dividends based upon NAV. (c) Net Investment Income is adjusted for common share equivalent of distributions paid to preferred shareholders. 20 22 - --------------------------------------------------------------------------------
Year Ended June 30, - ----------------------------------------------------- 1994 1993 1992 1991 1990 - ----------------------------------------------------- $11.133 $10.688 $ 9.805 $ 9.534 $ 9.767 ------- ------- ------- ------- ------- 1.000 1.078 1.095 1.093 1.070 (1.214) .520 .848 .295 (.229) ------- ------- ------- ------- ------- (.214) 1.598 1.943 1.388 .841 ------- ------- ------- ------- ------- .840 .829 .791 .725 .685 .155 .162 .238 .337 .389 -0- .162 .031 .055 -0- ------- ------- ------- ------- ------- .995 1.153 1.060 1.117 1.074 ------- ------- ------- ------- ------- $ 9.924 $11.133 $10.688 $ 9.805 $ 9.534 ======= ======= ======= ======= ======= $11.125 $12.000 $11.375 $10.125 $ 9.250 (0.05%) 15.20% 21.65% 18.71% 4.65% (3.63%) 13.97% 18.08% 11.61% 4.76% $ 437.7 $ 467.9 $ 452.7 $ 426.7 $ 418.3 1.28% 1.25% 1.35% 1.46% 1.43% 7.86% 8.41% 8.41% 7.88% 7.11% 45% 45% 27% 69% 116% .82% .80% .84% .89% .87%
See Notes to Financial Statements 21 23 NOTES TO FINANCIAL STATEMENTS December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Municipal Income Trust, formerly known as Van Kampen American Capital Municipal Income Trust, (the "Trust") is registered as a diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The Trust's investment objective is to provide a high level of current income exempt from federal income taxes with safety of principal through investment in a diversified portfolio of investment grade tax-exempt municipal securities. The Trust commenced investment operations on August 26, 1988. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. A. SECURITY VALUATION--Investments are stated at value using market quotations or, if such valuations are not available, estimates obtained from yield data relating to instruments or securities with similar characteristics in accordance with procedures established in good faith by the Board of Trustees. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost. B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Trust may purchase and sell securities on a "when issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Trust will maintain, in a segregated account with its custodian, assets having an aggregate value at least equal to the amount of the when issued or delayed delivery purchase commitments until payment is made. C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond premium and original issue discount are amortized over the expected life of each applicable security. D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute 22 24 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Trust intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against any future realized capital gains. At June 30, 1998, the Trust had an accumulated capital loss carryforward for tax purposes of $6,317,153 which will expire on June 30, 2004. At December 31, 1998, for federal income tax purposes, cost of long- and short-term investments is $475,313,103; the aggregate gross unrealized appreciation is $32,195,908 and the aggregate gross unrealized depreciation is $729,677, resulting in net unrealized appreciation on on long- and short-term investments of $31,466,231. E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from net investment income to common shareholders monthly. Net realized gains, if any, are distributed annually to common shareholders. Distributions from net realized gains for book purposes may include short-term capital gains, which are included as ordinary income for tax purposes. Due to inherent differences in the recognition of certain expenses under generally accepted accounting principles and for federal income tax purposes, the amount of net investment income/loss may differ between book and federal income tax purposes for a particular period. These differences are temporary in nature, but may result in book basis net investment losses. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, Van Kampen Investment Advisory Corp. (the "Adviser") will provide investment advice and facilities to the Trust for an annual fee payable monthly of .60% of the average net assets of the Trust. For the six months ended December 31, 1998, the Trust recognized expenses of approximately $4,400 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust is an affiliated person. For the six months ended December 31, 1998, the Trust recognized expenses of approximately $78,900 representing Van Kampen Funds Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting and legal services to the Trust. 23 25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- Certain officers and trustees of the Trust are also officers and directors of Van Kampen. The Trust does not compensate its officers or trustees who are officers of Van Kampen. The Trust provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. Benefits under the retirement plan are payable for a ten-year period and are based upon each trustee's years of service to the Trust. The maximum annual benefit per trustee under the plan is $2,500. 3. CAPITAL TRANSACTIONS At December 31, 1998 and June 30, 1998, common shares paid in surplus aggregated $264,846,304 and $263,776,167 respectively. Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 1998 JUNE 30, 1998 - ------------------------------------------------------------------------------ Beginning Shares........................... 28,485,339 28,286,058 Shares Issued Through Dividend Reinvestment............................. 101,958 199,281 ---------- ---------- Ending Shares.............................. 28,587,297 28,485,339 ========== ==========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments excluding short-term investments, were $252,420,753 and $226,947,861, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Trust has a variety of reasons to use derivative instruments, such as to attempt to protect the Trust against possible changes in the market value of its portfolio and to manage the portfolio's effective yield, maturity and duration. All of the Trust's portfolio holdings, including derivative instruments, are marked to market each day with the change in value reflected in the unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is recognized accordingly, except when exercising a call option contract or taking delivery of a security underlying a futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the option or futures contract. Summarized below are the specific types of derivative financial instruments used by the Trust. 24 26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the obligation to buy (call) or sell (put) an underlying item at a fixed exercise price during a specified period. These contracts are generally used by the Trust to manage the portfolio's effective maturity and duration. Transactions in options, each with a par value of $100,000, for the six months ended December 31, 1998, were as follows:
CONTRACTS PREMIUM - ------------------------------------------------------------------------- Outstanding at June 30, 1998....................... -0- $ -0- Options Written and Purchased (Net)................ 1,100 186,403 Options Terminated in Closing Transactions (Net)... (700) (384,955) Options Expired (Net).............................. (400) 198,552 ----- --------- Outstanding at December 31, 1998................... -0- $ -0- ===== =========
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index and typically closes the contract prior to the delivery date. These contracts are generally used to manage the portfolio's effective maturity and duration. Upon entering into futures contracts, the Trust maintains, in a segregated account with its custodian, securities with a value equal to its obligation under the futures contracts. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts for the six months ended December 31, 1998, were as follows:
CONTRACTS - ----------------------------------------------------------------------- Outstanding at June 30, 1998................................ -0- Futures Opened.............................................. 2,325 Futures Closed.............................................. (1,275) ------ Outstanding at December 31, 1998............................ 1,050 ======
25 27 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- The futures contracts outstanding as of December 31, 1998, and the descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED APPRECIATION/ CONTRACTS DEPRECIATION - --------------------------------------------------------------------------- Long Contracts U.S. Treasury Bond Future, March 1999-- (Current Notional Value of $127,781 per contract)...................................... 450 $(692,316) Short Contracts Municipal Bond Future, March 1999-- (Current Notional Value of $125,000 per contract)...................................... 600 310,702 ----- --------- 1,050 $(381,614) ===== =========
C. INDEXED SECURITIES--These instruments are identified in the portfolio of investments. The price of these securities may be more volatile than the price of a comparable fixed rate security. An Inverse Floating security is one where the coupon is inversely indexed to a short-term floating interest rate multiplied by a specified factor. As the floating rate rises, the coupon is reduced. Conversely, as the floating rate declines, the coupon is increased. These instruments are typically used by the Trust to enhance the yield of the portfolio. An Embedded Cap security includes a cap strike level such that the coupon payment may be supplemented by cap payments if the floating rate index upon which the cap is based rises above the strike level. The Trust invests in these instruments as a hedge against a rise in the short term interest rates which it pays on its preferred shares. 6. PREFERRED SHARES The Trust has outstanding 330 shares of rate adjusted tax-exempt preferred shares ("Rates") in three series of 110 shares each. Dividends are cumulative and the rate on each series is currently reset every 28 days through an auction process. The average rate in effect on December 31, 1998, was 3.433%. During the six months ended December 31, 1998, the rates ranged from 3.250% to 3.700%. The Trust pays annual fees equivalent to .25% of the preferred share liquidation value for the remarketing efforts associated with the preferred auctions. These fees are included as a component of Preferred Share Maintenance expense. The Rates are redeemable at the option of the Trust in whole or in part at a price of $500,000 per share plus accumulated and unpaid dividends. The Trust is subject to certain asset coverage tests, and the Rates are subject to mandatory redemption if the tests are not met. 26 28 DIVIDEND REINVESTMENT PLAN The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which Common Shareholders may elect to have dividends and capital gains distributions reinvested in Common Shares of the Trust. The Trust declares dividends out of net investment income, and will distribute annually net realized capital gains, if any. Common Shareholders may join or withdraw from the Plan at any time. If you decide to participate in the Plan, State Street Bank and Trust Company, as your Plan Agent, will automatically invest your dividends and capital gains distributions in Common Shares of the Trust for your account. HOW TO PARTICIPATE If you wish to participate and your shares are held in your own name, call 1-800-341-2929 for more information and a Plan brochure. If your shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it would participate in the Plan on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank or nominee is unable to participate on your behalf, you should request that your shares be re- registered in your own name which will enable your participation in the Plan. HOW THE PLAN WORKS Participants in the Plan will receive the equivalent in Common Shares valued on the valuation date, generally at the lower of market price or net asset value, except as specified below. The valuation date will be the dividend or distribution payment date or, if that date is not a trading day on the national securities exchange or market system on which the Common Shares are listed for trading, the next preceding trading day. If the market price per Common Share on the valuation date equals or exceeds net asset value per Common Share on that date, the Trust will issue new Common Shares to participants valued at the higher of net asset value or 95% of the market price on the valuation date. In the foregoing situation, the Trust will not issue Common Shares under the Plan below net asset value. If net asset value per Common Share on the valuation date exceeds the market price per Common Share on that date, or if the Board of Trustees should declare a dividend or capital gains distribution payable to the Common Shareholders only in cash, participants in the Plan will be deemed to have elected to receive Common Shares from the Trust valued at the market price on that date. Accordingly, in this circumstance, the Plan Agent will, as agent for the participants, buy the Trust's Common Shares in the open market for the participants' accounts on or shortly after the payment date. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value per share of the Common Shares, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Trust's Common Shares, resulting in the acquisition of fewer Common Shares than if the dividend or distribution had been paid in Common Shares issued by the Trust. All reinvestments are in full and fractional Common shares and are carried to three decimal places. Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all Common Shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent by at least 90 days written notice to all Common Shareholders of the Trust. COSTS OF THE PLAN The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. No other charges will be made to participants for reinvesting dividends or capital gains distributions, except for certain brokerage commissions, as described above. TAX IMPLICATIONS You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax which may be payable on dividends or distributions. RIGHT TO WITHDRAW Plan participants may withdraw at any time by calling 1-800-341-2929 or by writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266- 8200. If you withdraw, you will receive, without charge, a share certificate issued in your name for all full Common Shares credited to your account under the Plan and a cash payment will be made for any fractional Common Share credited to your account under the Plan. You may again elect to participate in the Plan at any time by calling 1-800-341-2929 or writing to the Trust at: Van Kampen Funds Inc. Attn: Closed-End Funds 2800 Post Oak Blvd. Houston, TX 77056 27 29 VAN KAMPEN MUNICIPAL INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH ROD DAMMEYER HOWARD J KERR DENNIS J. MCDONNELL* - Chairman STEVEN MULLER THEODORE A. MYERS DON G. POWELL* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* OFFICERS DENNIS J. MCDONNELL* President RONALD A. NYBERG* Vice President and Secretary JOHN L. SULLIVAN* Vice President, Treasurer, and Chief Financial Officer CURTIS W. MORELL* Vice President and Chief Accounting Officer TANYA M. LODEN* Controller PETER W. HEGEL* EDWARD C. WOOD, III* Vice Presidents INVESTMENT ADVISER VAN KAMPEN INVESTMENT ADVISORY CORP. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 CUSTODIAN AND TRANSFER AGENT STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02105 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT ACCOUNTANTS KPMG LLP Peat Marwick Plaza 303 East Wacker Drive Chicago, Illinois 60601 * "Interested" persons of the Trust, as defined in the Investment Company Act of 1940. (C) Van Kampen Funds Inc., 1999 All rights reserved. (SM) denotes a service mark of Van Kampen Funds Inc. 28 30 YEAR 2000 READINESS DISCLOSURE Like other mutual funds, financial and business organizations and individuals around the world, the Trust could be adversely affected if the computer systems used by the Trust's investment adviser and other service providers do not properly process and calculate date-related information and data from and after January 1, 2000. This is commonly known as the "Year 2000 Problem." The Trust's investment adviser is taking steps that it believes are reasonably designed to address the Year 2000 Problem with respect to computer systems that it uses and to obtain reasonable assurances that comparable steps are being taken by the Trust's other major service providers. At this time, there can be no assurances that these steps will be sufficient to avoid any adverse impact to the Trust. In addition, the Year 2000 Problem may adversely affect the markets and the issuers of securities in which the Trust may invest that, in turn, may adversely affect the net asset value of the Trust. Improperly functioning trading systems may result in settlement problems and liquidity issues. In addition, corporate and governmental data processing errors may result in production problems for individual companies or issuers and overall economic uncertainty. Earnings of individual issuers will be affected by remediation costs, which may be substantial and may be reported inconsistently in U.S. and foreign financial statements. Accordingly, the Trust's investments may be adversely affected. The statements above are subject to the Year 2000 Information and Readiness Disclosure Act, which may limit the legal rights regarding the use of such statements in the case of dispute. EX-27 2 FINANCIAL DATA SCHEDULE
6 11 MUNICIPAL INCOME TRUST 1 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 475,313,103 506,779,334 6,720,461 0 2,671 513,502,466 50,060,465 0 1,678,751 51,739,216 165,000,000 265,132,177 28,587,297 28,485,339 970,925 0 (424,469) 0 31,084,617 461,763,250 0 14,015,486 0 (1,847,411) 12,168,075 5,892,686 (2,298,748) 15,762,013 0 (12,414,217) 0 0 0 0 101,958 4,418,953 1,217,067 (6,317,155) 0 0 1,394,082 0 1,847,411 460,928,776 10.263 0.426 0.127 (0.435) 0.000 0.000 10.381 0.80 0 0 This item relates to the Fund on a composite basis and not on a class basis
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