<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
TWELVE-MONTH DIVIDEND HISTORY 6
TOP FIVE SECTORS 7
NET ASSET VALUE AND MARKET PRICE 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS 12
FINANCIAL STATEMENTS 23
NOTES TO FINANCIAL STATEMENTS 28
REPORT OF INDEPENDENT AUDITORS 33
DIVIDEND REINVESTMENT PLAN 34
TRUST OFFICERS AND IMPORTANT ADDRESSES 36
RESULTS OF SHAREHOLDER VOTES 37
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your trust for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your trust is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term
market volatility and the value of investing for the long
term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is the theme of a
national advertising campaign that we recently kicked off. The message
emphasizes our depth of investment-management history, as well as our firm
belief that with the right investments, anyone can realize life's true wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION, AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.10
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.20
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------
NYSE Ticker Symbol VMT
------------------------------------------------------------------------
One-year total return based on market price(1) -3.08%
------------------------------------------------------------------------
One-year total return based on NAV(2) .74%
------------------------------------------------------------------------
Distribution rate as a % of closing stock price(3) 6.91%
------------------------------------------------------------------------
Taxable-equivalent distribution rate as a % of closing
stock price(4) 10.80%
------------------------------------------------------------------------
Net asset value $8.99
------------------------------------------------------------------------
Closing common stock price $8.6875
------------------------------------------------------------------------
One-year high common stock price (07/02/99) $9.8125
------------------------------------------------------------------------
One-year low common stock price (12/14/99) $7.3750
------------------------------------------------------------------------
Preferred share (Series A) rate(5) 4.540%
------------------------------------------------------------------------
Preferred share (Series B) rate(5) 4.340%
------------------------------------------------------------------------
Preferred share (Series C) rate(5) 4.390%
------------------------------------------------------------------------
</TABLE>
(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.
4
<PAGE> 6
(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 is no guarantee of 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.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of June 30, 2000
<S> <C> <C>
- AAA/Aaa............ 63.8%
- AA/Aa.............. 1.9%
- A/A................ 14.2%
- BBB/Baa............ 18.3%
- Non-Rated.......... 1.8%
[PIE CHART]
<CAPTION>
As of June 30, 1999
<S> <C> <C>
- AAA/Aaa............ 63.8%
- AA/Aa.............. 3.8%
- A/A................ 10.4%
- BBB/Baa............ 20.0%
- Non-Rated.......... 2.0%
[PIE CHART]
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
TWELVE-MONTH DIVIDEND HISTORY
(for the period ended June 30, 2000, for common shares)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
7/99 0.052
8/99 0.052
9/99 0.052
10/99 0.052
11/99 0.050
12/99 0.050
1/00 0.050
2/00 0.050
3/00 0.050
4/00 0.050
5/00 0.050
6/00 0.050
</TABLE>
The dividend history represents past performance of the trust and is no
guarantee of the trust's future dividends.
6
<PAGE> 8
TOP FIVE SECTORS
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
General Purpose 19.30 20.20
Health Care 13.50 12.30
Industrial Revenue 10.90 7.40
Airport 7.80 8.80
Other Care 7.30 3.00
</TABLE>
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--June 1990 through June 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET PRICE
--------------- ------------
<S> <C> <C>
6/90 9.5300 9.2500
9.3100 9.0000
9.6200 9.6250
9.6400 10.0000
6/91 9.8100 10.1250
10.1100 10.6250
10.2400 10.7500
10.1800 10.8750
6/92 10.6900 11.3750
10.9700 11.5000
10.6500 12.0000
11.0900 11.6250
6/93 11.1300 12.0000
11.3700 12.3750
11.1700 11.7500
9.9300 10.7500
6/94 9.9200 11.1250
9.8200 10.2500
9.3400 9.7500
9.9000 11.0000
6/95 9.7600 11.1250
9.8600 10.7500
10.2400 10.5000
9.8800 10.3750
6/96 9.7600 9.8750
9.9000 10.2500
10.0000 10.3750
9.8100 10.1250
6/97 10.0100 10.8750
10.1800 11.0000
10.3500 10.8120
10.3200 10.3120
6/98 10.2600 10.8750
10.5700 11.0000
10.3800 10.8125
10.1300 10.6875
6/99 9.5600 9.6250
9.1500 8.8750
8.8000 7.6250
9.0200 8.1250
6/00 8.9900 8.6875
</TABLE>
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's market price is represented by the dashed line, which indicates the
price the market is willing to pay for shares of the trust at a given time.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
7
<PAGE> 9
Q&A WITH YOUR PORTFOLIO MANAGERS
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 AND
INFLUENCED THE TRUST'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM
IS LED BY DAVID C. JOHNSON, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE TRUST
SINCE APRIL 1989 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1981. THE
FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE TRUST'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE TRUST OPERATED,
AND HOW DID THE TRUST PERFORM IN THAT ENVIRONMENT?
A The second half of 1999 proved to be very difficult for bonds, with prices
declining dramatically as interest rates rose and inflation fears resurfaced.
Conditions were particularly difficult for closed-end funds toward the end of
the year. As the new year began, investors appeared to be taking a cautious
approach to the bond market. Even though the year 2000 date change came and went
without wreaking havoc on the world's computer systems, many investors remained
on the sidelines.
Bond issuers seemed to take the same approach, as the volume of new bond
issuance dropped off and never really picked up, remaining slow throughout the
reporting period. The strong economy helped build surpluses for many
municipalities, giving them less incentive to bring new bond issues to market.
They saw no reason to incur debt when they had money on hand to finance new
projects. Rising interest rates also helped keep municipal bond supply down, as
municipalities were reluctant to refund outstanding bond issues and issue new
bonds at the higher rates.
In its efforts to slow economic growth and keep inflation in check, the
Federal Reserve Board has raised short-term interest rates six times since June
1999. The market kept a watchful eye on economic indicators during the past
year, looking for clues that the Fed's efforts were paying off. At the end of
the reporting period, the economy finally appeared to ease, restoring some
positive momentum to the market in June.
For the 12 months through June 30, 2000, the trust returned -3.08 percent
based on market price. At the same time, the trust's market price decreased from
$9.6250 per share on June 30, 1999, to $8.6875 per share on June 30, 2000. Of
course, past performance is no guarantee of future results. As a result of
recent market activity, current performance will vary from the figures shown.
The trust also continued to provide shareholders with an attractive
8
<PAGE> 10
dividend, even though the dividend rate declined during the period. Its monthly
dividend of $0.05 per share translates to a distribution rate of 6.91 percent
based on the trust's closing market price on June 30, 2000. Because the trust is
exempt from federal income taxes, this distribution rate is equivalent to a
yield of 10.80 percent for an investor in the 36 percent federal income-tax
bracket. Please refer to the chart and footnotes on page 4 for additional
performance results. Past performance is no guarantee of future results.
Q WHAT WERE SOME OF THE CHALLENGES YOU FACED IN MANAGING THE TRUST DURING THIS
PERIOD?
A The Municipal Income Trust was created in 1988 and is one of our oldest
closed-end funds. As a result, the portfolio contained a number of securities
issued in 1988, 1989, and 1990 that were approaching, or had already reached,
their 10-year call dates. Many of these bonds were called by their issuers,
because they had been issued during times of relatively higher interest rates
and it made sense to replace this debt at current rates. As these higher-coupon
bonds were called out of the portfolio, the trust's income stream came under
pressure, eventually leading to a dividend reduction in November 1999.
We have taken steps to stagger the call dates of securities in the
portfolio, which should increase call protection and blunt the impact of bond
calls on the trust's earning power in the future. Still, shares of the trust
were trading at a discount to net asset value during much of the reporting
period.
Q WHAT SPECIFIC STRATEGIES DID YOU EMPLOY IN POSITIONING THE PORTFOLIO?
A The portfolio is made up almost exclusively of investment-grade securities,
including over 60 percent of assets invested in AAA rated securities.
Higher-quality securities performed well during the past year, as lower-rated
sectors struggled due to investor concerns regarding credit quality and the
increased default rate among lower-quality securities in 1999.
We chose not to make any big bets on the direction of interest rates and
instead kept the risk profile of the portfolio very close to its benchmark, the
Lehman Brothers General Municipal Bond Index (with maturities greater than five
years). This strategy is likely to provide results that mirror the broader
municipal market in general, a conservative investment approach that seeks to
avoid the price fluctuations of some of the more volatile market sectors.
Much of our trading activity was simply value-related, as we sought to take
advantage of opportunities to own quality bonds at attractive prices. There were
no significant changes in our sector allocations or credit-quality profile,
though we did increase the percentage of the portfolio in shorter-term
securities as the yields in this sector moved higher. We've also had more of the
portfolio in cash recently, enabling us to invest selectively as opportunities
present themselves.
9
<PAGE> 11
Q WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE TRUST IN THE MONTHS AHEAD?
A We anticipate that the growth rate of the economy will slow, though interest
rates may edge higher. The Federal Reserve Board might raise short-term rates
once more in the near term, possibly at the August meeting of the Federal Open
Market Committee, as they strive to accomplish their goal of slowing the economy
and keeping inflation under control.
We expect that the volume of new municipal bond issuance will remain low, as
budget surpluses persist for many municipalities. As the demand for short-term
municipals picks up and the Fed completes its tightening cycle, short-term
yields should moderate.
We are comfortable with the portfolio's heavy emphasis on investment-grade
municipal securities, which should continue to provide shareholders with an
attractive level of current income, especially on an after-tax basis.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
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.
DIVIDEND: A distribution of the earnings. Dividends may be in the form of cash,
stock, or property. The board of directors must declare all dividends.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank 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.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other state
or local 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, in some states, from state and local income taxes.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
11
<PAGE> 13
BY THE NUMBERS
YOUR TRUST'S INVESTMENTS
June 30, 2000
THE FOLLOWING PAGES DETAIL YOUR TRUST'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 95.6%
ALABAMA 0.2%
$ 500 Alabama St Indl Dev Auth Solid Waste Disp
Rev Pine City Fiber Co (b)................. 6.450% 12/01/23 $ 469,065
365 Lauderdale Cnty & Florence, AL Hlthcare
Auth Rev (MBIA Insd)....................... 5.250 07/01/19 334,402
------------
803,467
------------
ARKANSAS 0.5%
2,000 Arkansas St Dev Fin Auth Hosp Rev
Washington Regl Med Cent................... 7.375 02/01/29 1,993,900
------------
CALIFORNIA 3.3%
1,755 California Hsg Fin Agy Rev Homeowner Mtg
Ser D...................................... * 08/01/20 367,357
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................ * 09/01/17 1,919,350
2,000 Duarte, CA Ctfs Partn Ser A................ 5.250 04/01/19 1,715,600
1,500 Duarte, CA Ctfs Partn Ser A................ 5.250 04/01/24 1,261,800
30,535 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Rfdg................................... * 01/15/34 3,637,329
3,000 Foothill/Eastern Corridor Agy CA Toll Rd
Rev Conv Cap Apprec Rfdg................... * 01/15/27 1,629,360
9,800 San Diego, CA Unified Sch Dist Cap Apprec
Ser A (FGIC Insd).......................... * 07/01/21 2,892,666
3,000 San Joaquin Hills, CA Tran Corridor Agy
Toll Rd Rev Cap Apprec Ser A Rfdg (MBIA
Insd)...................................... * 01/15/34 412,350
------------
13,835,812
------------
COLORADO 7.4%
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 1,120,110
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 1,683,405
1,015 Colorado Edl & Cultural Fac Auth Rev
Charter Sch Jefferson Academy.............. 6.500 06/01/15 993,624
1,535 Colorado Edl & Cultural Fac Auth Rev
Charter Sch Jefferson Academy.............. 6.700 06/01/25 1,495,566
1,825 Denver, CO City & Cnty Arpt Rev Ser A...... 8.500 11/15/07 1,883,491
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$11,330 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.250% 11/15/12 $ 11,678,171
4,410 Denver, CO City & Cnty Arpt Rev Ser A
(b)........................................ 8.750 11/15/23 4,685,449
1,070 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @11/15/00) (b)................ 8.250 11/15/12 1,106,348
1,590 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @11/15/01).................... 8.750 11/15/23 1,708,248
3,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig Co Rfdg (Meridian
Assoc East Gtd)............................ 7.500 12/01/11 3,117,390
1,850 Montrose Cnty, CO Ctfs Partn............... 6.350 06/15/06 1,929,994
------------
31,401,796
------------
CONNECTICUT 1.1%
1,750 Connecticut St Spl Oblig Pkg Rev Bradley
Intl Arpt Ser A (ACA Insd)................. 6.600 07/01/24 1,765,873
3,100 Stamford, CT Hsg Auth Multi-Family Rev
Fairfield Apts Proj Rfdg................... 4.750 12/01/28 2,817,931
------------
4,583,804
------------
DISTRICT OF COLUMBIA 1.0%
550 Dist of Columbia Ctfs Partn................ 6.875 01/01/03 557,673
2,775 Dist of Columbia Hosp Rev Medlantic
Hlthcare Ser A Rfdg (MBIA Insd) (b)........ 5.250 08/15/12 2,756,407
1,000 Dist of Columbia Rev Gonzaga College High
Sch (FSA Insd)............................. 5.375 07/01/29 921,650
------------
4,235,730
------------
FLORIDA 2.4%
1,000 Bartow, FL Wtr & Swr Sys Rev (FGIC Insd)... 5.125 10/01/29 911,260
2,500 Escambia Cnty, FL Hlth Fac Rev FL Hlthcare
Fac Ln (AMBAC Insd) (a).................... 5.950 07/01/20 2,521,875
3,500 Gulf Breeze, FL Rev Cap Fdg Ser B
(MBIA Insd)................................ 4.500 10/01/27 2,842,700
4,000 Sarasota Cnty, FL Pub Hosp Brd Miles
Sarasota Mem Hosp Proj Ser A (Embedded Cap)
(MBIA Insd)................................ 4.440 10/01/21 3,748,680
------------
10,024,515
------------
GEORGIA 10.3%
5,000 Atlanta, GA Arpt Rev Ser B (FGIC Insd)..... 5.625 01/01/30 4,792,050
5,596 Fulton Cnty, GA Lease Rev (b).............. 7.250 06/15/10 6,138,421
25,000 Georgia Local Gov Ctfs Partn Grantor Trust
Ser A (MBIA Insd) (b)...................... 4.750 06/01/28 21,231,750
2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd) (b).................................. 6.500 01/01/20 2,905,957
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GEORGIA (CONTINUED)
$3,000 Georgia Muni Elec Auth Pwr Rev Ser B (FGIC
Insd) (b).................................. 6.250% 01/01/17 $ 3,253,920
2,000 Georgia Muni Elec Auth Pwr Rev Ser Z Rfdg
(MBIA Insd) (b)............................ 5.500 01/01/20 1,984,640
800 Royston, GA Hosp Auth Hosp Rev Ctfs Ty Cobb
Hlthcare Sys Inc. ......................... 6.700 07/01/16 767,472
2,500 Royston, GA Hosp Auth Hosp Rev Ctfs Ty Cobb
Hlthcare Sys Inc. ......................... 6.500 07/01/27 2,284,650
------------
43,358,860
------------
HAWAII 0.3%
2,480 Honolulu, HI City & Cnty Wastewtr Sys Rev
(FGIC Insd)................................ * 07/01/13 1,188,168
------------
ILLINOIS 13.6%
4,000 Chicago, IL Brd Edl Chicago Sch Reform Ser
A (AMBAC Insd)............................. 5.250 12/01/27 3,659,200
13,295 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Proj Ser 84A.............. 8.850 05/01/18 13,788,112
2,520 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Proj Ser 84B.............. 8.850 05/01/18 2,613,467
4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A
(MBIA Insd)................................ * 01/01/07 3,505,701
1,000 Chicago, IL Ser B Rfdg (AMBAC Insd) (b).... 5.125 01/01/15 965,280
2,000 Chicago, IL Wastewtr Transmission Rev
Second Lien (MBIA Insd).................... 5.750 01/01/25 1,970,300
3,230 Cook Cnty, IL Ser A Rfdg (MBIA Insd)....... 5.625 11/15/16 3,250,801
2,310 Illinois Dev Fin Auth Rev Adventist Hlth
Ser A...................................... 5.500 11/15/13 2,310,924
2,500 Illinois Dev Fin Auth Rev Adventist Hlth
Ser A...................................... 5.500 11/15/15 2,462,900
1,335 Illinois Dev Fin Auth Rev Bradley Univ Proj
(AMBAC Insd)............................... 5.375 08/01/24 1,254,379
2,000 Illinois Edl Fac Auth Rev Lewis Univ....... 6.125 10/01/26 1,881,980
1,380 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser D................................. 9.500 11/15/15 1,434,289
1,275 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser D (Prerefunded @ 11/15/00)........ 9.500 11/15/15 1,323,998
540 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser E................................. 9.500 11/15/19 561,244
1,310 Illinois Hlth Fac Auth Rev Glenoaks Med
Cent Ser E (Prerefunded @ 11/15/00)........ 9.500 11/15/19 1,357,592
3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg (b)................................... 6.000 11/15/23 2,964,689
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$9,410 Illinois Hsg Dev Auth Multi-Family Hsg Ser
A.......................................... * 07/01/27 $ 1,217,278
1,250 Sangamon Cnty, IL Ctfs Partn............... 10.000% 12/01/06 1,589,900
3,750 Will Cnty, IL Cmnty Sch Dist No 161 Summit
Hill (FGIC Insd)........................... * 01/01/15 1,641,112
4,295 Will Cnty, IL Cmnty Sch Dist No 161 Summit
Hill (FGIC Insd)........................... * 01/01/17 1,645,200
6,500 Will Cnty, IL Cmnty Sch Dist No 365
(FSA Insd)................................. * 11/01/17 2,372,110
7,455 Will Cnty, IL Fst Presv Dist Ser B
(FGIC Insd)................................ * 12/01/12 3,777,225
------------
57,547,681
------------
INDIANA 4.0%
3,920 Brownsburg, IN Sch Bldg Corp First Mtg
Brownsburg Cmnty Sch (MBIA Insd)........... 5.550 02/01/24 3,753,439
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 1,402,894
1,565 Indiana St Edl Fac Auth Rev Univ Evansville
Proj (Prerefunded @ 11/01/00) (b).......... 8.125 11/01/10 1,615,503
12,455 St Joseph Cnty, IN Hosp Auth Hlth Sys Rev
Ser A (MBIA Insd).......................... 4.625 08/15/28 9,961,633
------------
16,733,469
------------
KENTUCKY 0.6%
2,190 Kenton Cnty, KY Arpt Brd Rev Cincinnati/
Northn KY Intl Arpt Ser A Rfdg
(MBIA Insd) (b)............................ 6.250 03/01/09 2,347,855
------------
LOUISIANA 1.5%
790 Lafayette, LA Pub Fin Auth Single Family
Mtg Rev Ser A Rfdg......................... 8.500 11/15/12 793,141
1,250 New Orleans, LA Hsg Dev Corp Multi-Family
Rev Hsg Southwood Patio Ser A (FNMA
Collateralized)............................ 7.700 02/01/22 1,308,650
4,500 St Charles Parish, LA Pollutn Ctl Rev
Entergy LA Inc Proj Ser C Rfdg (Inverse
Fltg)...................................... 5.350 10/01/29 4,440,330
------------
6,542,121
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MARYLAND 1.4%
$2,180 Baltimore, MD Cap Apprec Ser A (FGIC
Insd)...................................... * 10/15/09 $ 1,299,563
2,470 Baltimore, MD Cap Apprec Ser A (Prerefunded
@ 10/15/05) (FGIC Insd).................... * 10/15/09 1,495,437
2,500 Maryland St Econ Dev Corp Student Hsg
Rev........................................ 6.000% 06/01/30 2,285,175
1,000 Maryland St Econ Dev Corp Student Hsg Rev
Collegiate Hsg Towson Ser A................ 5.750 06/01/29 893,780
------------
5,973,955
------------
MASSACHUSETTS 0.2%
1,000 Massachusetts St Indl Fin Agy Rev Higher
Edl Hampshire College Proj................. 5.625 10/01/12 952,690
------------
MICHIGAN 2.1%
1,180 Hillsdale, MI Hosp Fin Auth Hosp Rev
Hillsdale Cmnty Hlth Ctr................... 5.750 05/15/18 966,868
4,150 Michigan St Hosp Fin Auth Rev Hosp Battle
Creek Hosp Ser G Rfdg...................... 9.500 11/15/15 4,305,335
1,915 Michigan St Hosp Fin Auth Rev Hosp Bay Med
Cent Ser A Rfdg (Crossover Rfdg @ 07/01/00)
(b)........................................ 8.250 07/01/12 1,953,472
2,000 Michigan St Hosp Fin Auth Rev Hosp Hackley
Hosp Ser A Rfdg............................ 5.000 05/01/18 1,621,260
------------
8,846,935
------------
MINNESOTA 0.2%
1,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev
Ser A Rfdg (MBIA Insd)..................... 4.750 01/01/16 905,460
------------
MISSISSIPPI 0.4%
1,500 Mississippi Hosp Equip & Fac MS Baptist Med
Cent Rfdg (MBIA Insd) (b).................. 6.000 05/01/13 1,548,585
------------
NEVADA 0.4%
2,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj
Ser C Rfdg................................. 5.500 10/01/30 1,650,440
------------
NEW HAMPSHIRE 0.3%
1,590 New Hampshire St Bus Fin Auth Pollutn Ctl
Rev........................................ 5.875 10/01/33 1,412,079
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
NEW JERSEY 0.9%
$ 880 New Jersey Hlthcare Fac Fin Auth Rev....... 6.500% 07/01/04 $ 883,001
940 New Jersey Hlthcare Fac Fin Auth Rev....... 6.500 07/01/05 939,915
2,095 New Jersey St Tran Trust Fund Auth Tran Sys
Ser A...................................... 5.750 06/15/17 2,169,813
------------
3,992,729
------------
NEW YORK 9.9%
4,000 Long Island Pwr Auth NY Elec Sys Rev Gen... 5.125 04/01/11 3,973,560
5,900 New York City Ser A (b).................... 7.000 08/01/04 6,352,294
4,500 New York City Ser B (AMBAC Insd) (b)....... 7.250 08/15/07 5,116,185
1,885 New York City Ser C (b).................... 7.000 08/15/08 1,931,691
1,915 New York City Ser C (Prerefunded @
08/15/01).................................. 7.000 08/15/08 1,969,884
6,930 New York City Tran Auth Tran Fac Livingston
Plaza Proj Rfdg (FSA Insd) (b)............. 5.400 01/01/18 6,833,604
1,250 New York St Dorm Auth Lease Rev St Univ
Dorm Fac Ser C (MBIA Insd)................. 5.500 07/01/29 1,198,500
5,190 New York St Dorm Auth Rev Insd NY Univ Ser
A (AMBAC Insd) (a)......................... 5.500 07/01/11 5,305,529
415 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A........................ 7.750 08/15/11 430,604
2,500 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser A Rfdg (FSA Insd).............. 5.250 01/01/21 2,329,250
2,635 New York St Urban Dev Corp Rev Youth Fac... 5.875 04/01/08 2,717,581
1,000 New York St Urban Dev Corp Sub Lien Corp
Purp Rfdg.................................. 5.500 07/01/22 943,430
2,680 Port Auth NY & NJ Consolidated 119th Ser... 5.500 09/15/17 2,646,018
------------
41,748,130
------------
NORTH CAROLINA 3.2%
3,000 North Carolina Eastn Muni Pwr Agy Pwr Sys
Rev Ser D.................................. 6.750 01/01/26 3,047,310
10,000 North Carolina Muni Pwr Agy No 1 Catawba
Elec Rev (MBIA Insd) (b)................... 6.000 01/01/12 10,645,900
------------
13,693,210
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OHIO 2.8%
$5,000 Akron Bath Copley, OH St Twp Hosp Dist Rev
Summa Hosp Ser A........................... 5.375% 11/15/18 $ 4,058,000
3,755 Mason, OH Hlthcare Fac MCV Hlthcare Fac
(FHA Gtd) (Prerefunded @ 02/01/01)......... 7.625 02/01/40 3,936,179
1,000 Ohio St Air Quality Dev Auth Rev JMG
Funding Ltd Partn Proj Rfdg (AMBAC Insd)
(b)........................................ 6.375 04/01/29 1,023,640
3,000 Ohio St Tpk Comm Tpk Rev Ref Ser A (FGIC
Insd)...................................... 5.500 02/15/24 2,947,260
------------
11,965,079
------------
OKLAHOMA 0.2%
1,000 Oklahoma Dev Fin Auth Rev St John Hlth Sys
Rfdg....................................... 5.750 02/15/25 986,320
------------
PENNSYLVANIA 7.3%
1,000 Allegheny Cnty, PA Ctfs Partn (AMBAC
Insd)...................................... 5.000 12/01/28 871,190
1,000 Carbon Cnty, PA Indl Dev Auth Panther Creek
Partners Proj (a).......................... 6.650 05/01/10 1,002,880
2,500 Harrisburg, PA Auth Wtr Rev (Inverse Fltg)
(FGIC Insd) (b)............................ 6.930 06/18/15 2,559,375
1,200 Harrisburg, PA Cap Apprec Notes Ser F Rfdg
(AMBAC Insd)............................... * 09/15/14 541,476
5,000 Pennsylvania St Higher Edl Assist Agy
Student Ln Rev Ser B (Inverse Fltg) (MBIA
Insd) (b).................................. 10.027 03/01/20 5,906,250
3,000 Philadelphia, PA........................... 4.750 03/15/17 2,649,450
1,770 Philadelphia, PA Auth Indl Dev Rev Edl Comm
Foreign Med Grads (MBIA Insd).............. 5.000 06/01/18 1,625,426
1,000 Philadelphia, PA Auth Indl Dev Rev Edl Comm
Foreign Med Grads (MBIA Insd).............. 5.000 06/01/21 899,810
7,385 Philadelphia, PA Sch Dist Ser A (MBIA
Insd)...................................... 4.500 04/01/18 6,245,421
1,750 Philadelphia, PA Sch Dist Cap Apprec Ser A
Rfdg (AMBAC Insd).......................... * 07/01/01 1,670,515
2,000 Ridley Park, PA Hosp Auth Rev Taylor Hosp
Ser A Rfdg (b)............................. 6.000 12/01/13 2,102,460
4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap
Asset Fin Pgm Ser C (AMBAC Insd) (b)....... 7.700 12/01/15 4,849,010
------------
30,923,263
------------
RHODE ISLAND 0.2%
1,000 Providence, RI Pub Bldg Auth Genl Rev Ser B
(FSA Insd) (b)............................. 7.250 12/15/10 1,031,610
------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
SOUTH CAROLINA 0.3%
$1,070 South Carolina St Hsg Fin & Dev Auth
Homeowner Mtg Ser A (b).................... 7.400% 07/01/23 $ 1,091,518
------------
SOUTH DAKOTA 0.2%
875 Deadwood, SD Ctfs Part (ACA Insd).......... 6.375 11/01/20 878,561
------------
TENNESSEE 1.1%
2,000 Johnson City, TN Hlth & Edl Fac Brd Hosp
Rev First Mtg Mtn States Hlth Ser A Rfdg... 7.500 07/01/25 1,930,180
2,810 Tennessee Hsg Dev Agy Mtg Fin Ser A (b).... 7.125 07/01/26 2,881,037
------------
4,811,217
------------
TEXAS 9.8%
7,000 Austin, TX Rev Sub Lien Ser A Rfdg (MBIA
Insd)...................................... 4.250 05/15/28 5,364,800
2,000 Dallas Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc................ 6.375 05/01/35 1,864,380
1,800 Gulf Coast Wtr Auth TX Wtr Sys Contract Rev
(FGIC Insd)................................ 5.000 08/15/17 1,666,044
3,850 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Mem Hermann Hosp Sys Proj (FSA Insd)....... 5.250 06/01/27 3,481,247
4,820 Harris Cnty, TX Toll Rd (Prerefunded @
08/15/09) (AMBAC Insd)..................... * 08/15/18 1,605,687
1,000 Harris Cnty, TX Toll Rd (Prerefunded @
08/15/09) (AMBAC Insd)..................... * 08/15/21 271,000
10,000 Matagorda Cnty, TX Nav Dist No 1 Houton Ltg
Rfdg (AMBAC Insd).......................... 5.125 11/01/28 8,909,600
1,500 Mesquite, TX Hlth Fac Dev Retirement Fac
Christian Ser A............................ 7.500 02/15/18 1,491,120
1,900 Port Arthur, TX Navig Dist Rfdg (AMBAC
Insd)...................................... 4.875 03/01/19 1,674,375
4,000 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg
(PSF Gtd).................................. * 08/15/20 1,172,880
4,395 Rockwall, TX Ind Sch Dist Cap Apprec Rfdg
(PSF Gtd).................................. * 08/15/21 1,205,021
3,525 Texas Muni Pwr Agy Rev Cap Apprec Rfdg
(AMBAC Insd)............................... * 09/01/07 2,432,779
8,220 Texas St Pub Ppty Fin Corp Rev Mental Hlth
& Retardation Rfdg (FSA Insd) (b).......... 5.500 09/01/13 8,279,924
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$1,475 Waxahachie, TX Cmnty Dev Corp Sales Tax Rev
(MBIA Insd)................................ * 08/01/21 $ 400,448
1,270 Waxahachie, TX Cmnty Dev Corp Sales Tax Rev
(MBIA Insd)................................ * 08/01/22 322,732
1,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics
(b)........................................ 8.200% 03/15/21 1,292,537
------------
41,434,574
------------
UTAH 1.7%
5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc
Proj (b)................................... 7.900 06/01/17 5,267,102
1,000 Salt Lake City, UT College Rev Westminster
College Proj............................... 5.750 10/01/27 908,820
835 Utah St Hsg Fin Agy Single Family Mtg Ser B
Class 2.................................... 6.250 07/01/14 861,636
------------
7,037,558
------------
VIRGINIA 2.8%
1,970 Richmond, VA (FSA Insd) (a)................ 5.250 01/15/09 1,985,366
4,000 Richmond, VA (FSA Insd) (a)................ 5.500 01/15/13 4,015,160
3,000 Richmond, VA (FSA Insd) (a)................ 5.500 01/15/16 2,943,690
3,000 Richmond, VA (FSA Insd) (a)................ 5.500 01/15/17 2,926,110
------------
11,870,326
------------
WASHINGTON 0.9%
4,400 King Cnty, WA Ser B Rfdg (MBIA Insd)....... 5.250 01/01/34 4,017,068
------------
WEST VIRGINIA 0.6%
2,480 South Charleston, WV Indl Dev Rev Union
Carbide Chem & Plastics Ser A (b).......... 8.000 08/01/20 2,533,394
------------
WISCONSIN 1.0%
2,835 Southeast WI Professional Baseball Pk Dist
Lease Ctfs Partn (MBIA Insd)............... * 12/15/11 1,532,714
1,495 Southeast WI Professional Baseball Pk Dist
Lease Ctfs Partn (MBIA Insd)............... * 12/15/12 758,623
1,565 Southeast WI Professional Baseball Pk Dist
Lease Ctfs Partn (MBIA Insd)............... * 12/15/13 743,250
1,670 Southeast WI Professional Baseball Pk Dist
Lease Ctfs Partn (MBIA Insd)............... * 12/15/14 742,031
1,000 Southeast WI Professional Baseball Pk Dist
Lease Ctfs Partn (MBIA Insd)............... * 12/15/16 389,610
------------
4,166,228
------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GUAM 0.6%
$2,800 Guam Pwr Auth Rev Ser A (AMBAC Insd)....... 5.250% 10/01/34 $ 2,579,836
------------
PUERTO RICO 0.9%
1,000 Puerto Rico Indl Tourist Edl Med &
Environmental Ctl Fac Fin Auth
Higher Edl Rev............................. 5.375 02/01/19 911,190
3,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl &
Hlth Fac................................... 5.700 07/01/16 3,031,290
------------
3,942,480
------------
TOTAL LONG-TERM INVESTMENTS 95.6%
(Cost $402,727,169).................................................. 404,590,423
------------
SHORT-TERM INVESTMENTS 5.1%
Pinellas Cnty, FL Hlth Fac Dates Pooled Hosp Ln Pgm Rfdg ($800,000 par,
yielding 4.600%, 07/03/00 maturity).................................. 800,000
Illinois Dev Fin Auth Rev Provena Hlth Ser B ($600,000 par, yielding
4.600%, 07/03/00 maturity)........................................... 600,000
Illinois Hlth Fac Auth Rev Var/Northwestern Memorial Line ($2,000,000
par, yielding 4.600%, 07/03/00 maturity)............................. 2,000,000
Indiana Hosp Equip Fin Auth Rev Ser A ($1,400,000 par, yielding 4.850%,
07/03/00 maturity)................................................... 1,400,000
Michigan St Strategic Fund Pollutn Ctl Rev Rfdg ($700,000 par, yielding
4.600%, 07/03/00 maturity)........................................... 700,000
Kansas City, MO Indl Dev Auth Hosp Rev ($700,000 par, yielding 4.750%,
07/03/00 maturity)................................................... 700,000
Reno, NV Hosp Rev St Marys Regional Med Ser B ($700,000 par, yielding
4.550%, 07/03/00 maturity)........................................... 700,000
Farmington, NM Pollutn Ctl Rev Arizona Pub Serv Co Ser B Rfdg
($1,450,000 par, yielding 4.450%, 07/03/00 maturity)................. 1,450,000
Long Island Pwr Auth NY Elec Sys Rev SubSer 5 ($300,000 par, yielding
4.400%, 07/03/00 maturity)........................................... 300,000
Long Island Pwr Auth NY Elec Sys Rev SubSer 5 ($600,000 par, yielding
4.400%, 07/03/00 maturity)........................................... 600,000
Long Island Pwr Auth NY Elec Sys Rev SubSer 5 ($600,000 par, yielding
4.400%, 07/03/00 maturity)........................................... 600,000
New York City Muni Wtr Fin Auth Ser 95A ($900,000 par, yielding 4.750%,
07/03/00 maturity)................................................... 900,000
New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser G ($1,200,000
par, yielding 4.400%, 07/03/00 maturity)............................. 1,200,000
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
YOUR TRUST'S INVESTMENTS
June 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
New York City Ser B ($1,200,000 par, yielding 4.750%, 07/03/00
maturity)............................................................ $ 1,200,000
New York City Ser B2 SubSer B4 ($900,000 par, yielding 4.450%, 07/03/00
maturity)............................................................ 900,000
New York City Ser C ($1,800,000 par, yielding 4.750%, 07/03/00
maturity)............................................................ 1,800,000
New York St Energy Research & Dev Auth Pollutn Ctl Rev NY St Elec & Gas
C Rfdg ($250,000 par, yielding 4.500%, 07/03/00 maturity)............ 250,000
New York St Energy Research & Dev Auth Pollutn Ctl Rev NY St Elec & Gas
C Rfdg ($500,000 par, yielding 4.500%, 07/03/00 maturity)............ 500,000
New York St Energy Resh & Dev Auth Pollutn Ctl Rev Niagara Mohawk Pwr
Ser A ($1,100,000 par, yielding 4.800%, 07/03/00 maturity)........... 1,100,000
Brazos River Auth TX Utils Elec Co Proj Ser 1996
B Rfdg ($1,000,000 par, yielding 4.800%, 07/03/00 maturity).......... 1,000,000
Harris Cnty, TX Hlth Fac Dev ($2,900,000 par, yielding 4.550%, 07/03/00
maturity)............................................................ 2,900,000
------------
TOTAL SHORT-TERM INVESTMENTS 5.1%
(Cost $21,600,000)................................................... 21,600,000
------------
TOTAL INVESTMENTS 100.7%
(Cost $424,327,169).................................................. 426,190,423
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7%).......................... (3,189,747)
------------
NET ASSETS 100.0%..................................................... $423,000,676
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when-issued or delayed delivery basis.
(b) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments and open futures transactions.
ACA--American Capital Access
AMBAC--AMBAC Indemnity Corporation
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
MBIA--Municipal Bond Investors Assurance Corp.
PSF--Permanent School Fund Guaranty
See Notes to Financial Statements
22
<PAGE> 24
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $424,327,169)....................... $426,190,423
Cash........................................................ 46,377
Receivables:
Investments Sold.......................................... 12,699,536
Interest.................................................. 5,696,028
Other....................................................... 52,922
------------
Total Assets............................................ 444,685,286
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 20,881,318
Income Distributions--Preferred Shares.................... 286,788
Investment Advisory Fee................................... 206,505
Affiliates................................................ 15,469
Variation Margin on Futures............................... 2,344
Accrued Expenses............................................ 166,131
Trustees' Deferred Compensation and Retirement Plans........ 126,055
------------
Total Liabilities....................................... 21,684,610
------------
NET ASSETS.................................................. $423,000,676
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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, 28,684,985 shares issued and
outstanding).............................................. 286,850
Paid in Surplus............................................. 265,829,515
Net Unrealized Appreciation................................. 1,583,741
Accumulated Undistributed Net Investment Income............. 563,026
Accumulated Net Realized Loss............................... (10,262,456)
------------
Net Assets Applicable to Common Shares.................. 258,000,676
------------
NET ASSETS.................................................. $423,000,676
============
NET ASSET VALUE PER COMMON SHARE ($258,000,676 divided by
28,684,985 shares outstanding)............................ $ 8.99
============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
Statement of Operations
For the Year Ended June 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 26,715,385
------------
EXPENSES:
Investment Advisory Fee..................................... 2,535,752
Preferred Share Maintenance................................. 448,522
Trustees' Fees and Related Expenses......................... 29,349
Custody..................................................... 25,841
Legal....................................................... 18,366
Other....................................................... 346,558
------------
Total Expenses.......................................... 3,404,388
Less Credits Earned on Cash Balances.................... 300
------------
Net Expenses............................................ 3,404,088
------------
NET INVESTMENT INCOME....................................... $ 23,311,297
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(10,310,213)
Options................................................... 174,594
Futures................................................... 2,385,695
------------
Net Realized Loss........................................... (7,749,924)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 9,463,175
------------
End of the Period:
Investments............................................. 1,863,254
Futures................................................. (279,513)
------------
1,583,741
------------
Net Unrealized Depreciation During the Period............... (7,879,434)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(15,629,358)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 7,681,939
============
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
Statement of Changes in Net Assets
For the Years Ended June 30, 2000, and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 23,311,297 $ 24,072,047
Net Realized Gain/Loss.................................. (7,749,924) 3,804,623
Net Unrealized Depreciation During the Period........... (7,879,434) (23,920,190)
------------ ------------
Change in Net Assets from Operations.................... 7,681,939 3,956,480
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (17,439,554) (18,745,835)
Preferred Shares...................................... (6,353,670) (5,498,326)
------------ ------------
Total Distributions..................................... (23,793,224) (24,244,161)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... (16,111,285) (20,287,681)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment.......................................... -0- 2,055,345
------------ ------------
TOTAL DECREASE IN NET ASSETS............................ (16,111,285) (18,232,336)
NET ASSETS:
Beginning of the Period................................. 439,111,961 457,344,297
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $563,026 and $1,044,953,
respectively)......................................... $423,000,676 $439,111,961
============ ============
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE COMMON SHARE OF THE
TRUST OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
------------------------------------
2000 1999 1998 1997
------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE PERIOD......... $ 9.56 $10.26 $ 10.01 $ 9.76
------- ------ ------- -------
Net Investment Income............................ 0.81 0.84 0.89 0.92
Net Realized and Unrealized Gain/Loss............ (0.55) (0.70) 0.26 0.26
------- ------ ------- -------
Total from Investment Operations................. 0.26 0.14 1.15 1.18
------- ------ ------- -------
Less:
Distributions from Net Investment Income:
Paid to Common Shareholders.................. 0.61 0.65 0.69 0.72
Common Share Equivalent of Distributions Paid
to Preferred Shareholders.................. 0.22 0.19 0.21 0.21
Distributions from and in Excess of Net
Realized Gain Paid to Common Shareholders.... 0.00 0.00 0.00 0.00
------- ------ ------- -------
Total Distributions.............................. 0.83 0.84 0.90 0.93
------- ------ ------- -------
NET ASSET VALUE, END OF THE PERIOD............... $ 8.99 $ 9.56 $ 10.26 $ 10.01
======= ====== ======= =======
Market Price Per Share at End of the Period...... $8.6875 $9.625 $10.875 $10.875
Total Investment Return at Market Price (a)...... -3.08% -5.68% 6.85% 18.32%
Total Return at Net Asset Value (b).............. .74% -.67% 9.62% 10.24%
Net Assets at End of the Period (In millions).... $ 423.0 $439.1 $ 457.3 $ 448.2
Ratio of Expenses to Average Net Assets
Applicable to Common Shares*................... 1.32% 1.24% 1.23% 1.28%
Ratio of Net Investment Income to Average Net
Assets Applicable to Common Shares (c)......... 6.59% 6.35% 6.64% 7.18%
Portfolio Turnover............................... 54% 98% 103% 53%
* Ratio of Expenses to Average Net Assets
Including Preferred Shares.................... .81% .79% .79% .80%
</TABLE>
(a) 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.
(b) 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.
(c) Net Investment Income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
26
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.76 $ 9.92 $ 11.13 $ 10.69 $ 9.81 $ 9.53
------ ------- ------- ------- ------- -------
0.94 0.96 1.00 1.07 1.09 1.09
0.05 (0.06) (1.21) 0.52 0.85 0.30
------ ------- ------- ------- ------- -------
0.99 0.90 (0.21) 1.59 1.94 1.39
------ ------- ------- ------- ------- -------
0.77 0.84 0.84 0.83 0.79 0.72
0.22 0.22 0.16 0.16 0.24 0.34
0.00 0.00 0.00 0.16 0.03 0.05
------ ------- ------- ------- ------- -------
0.99 1.06 1.00 1.15 1.06 1.11
------ ------- ------- ------- ------- -------
$ 9.76 $ 9.76 $ 9.92 $ 11.13 $ 10.69 $ 9.81
====== ======= ======= ======= ======= =======
$9.875 $11.125 $11.125 $12.000 $11.375 $10.125
-4.27% 8.59% -0.05% 15.20% 21.65% 18.71%
8.02% 7.24% -3.63% 13.97% 18.08% 11.61%
$438.7 $ 436.1 $ 437.7 $ 467.9 $ 452.7 $ 426.7
1.31% 1.33% 1.28% 1.25% 1.35% 1.46%
7.26% 7.56% 7.86% 8.41% 8.41% 7.88%
29% 38% 45% 45% 27% 69%
.82% .83% .82% .80% .84% .89%
</TABLE>
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Income Trust (the "Trust") is registered as a diversified
closed-end management investment company under the Investment Company Act of
1940, as amended. The Trust's investment objective is to provide a high level of
current income exempt from federal income 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 Municipal bonds are valued by independent pricing services
or dealers using the mean of the bid and asked prices or, in the absence of
market quotations, at fair value based upon yield data relating to municipal
bonds with similar characteristics and general market conditions. Securities
which are not valued by independent pricing services are valued at fair value
using 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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME Interest income is recorded on an accrual basis. Bond
premium is amortized and original issue discount is accreted over the expected
life of each applicable security.
D. FEDERAL INCOME TAXES It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
distribute 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, 2000, the Trust had an accumulated capital loss carryforward
for tax purposes of $6,300,063 which will expire between June 30, 2004 and June
30, 2008. Net realized gains or losses may differ for financial reporting and
tax purposes as a result of post-October losses which may not be recognized for
tax purposes until the first day of the following fiscal year and gains
recognized for tax purposes on open future positions at June 30, 2000.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $424,327,169; the aggregate gross unrealized
appreciation is $11,800,527 and the aggregate gross unrealized depreciation is
$9,937,273, resulting in net unrealized appreciation on long- and short-term
investments of $1,863,254.
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.
F. EXPENSE REDUCTIONS During the year ended June 30, 2000, the Trust's custody
fee was reduced by $300 as a result of credits earned on overnight cash
balances.
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 year ended June 30, 2000, the Trust recognized expenses of
approximately $9,200 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.
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
For the year ended June 30, 2000, the Trust recognized expenses of
approximately $35,700 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Trust.
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 June 30, 2000 and June 30, 1999, respectively, common shares paid in surplus
aggregated $265,829,515.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
Beginning Shares....................................... 28,684,985 28,485,339
Shares Issued Through Dividend Reinvestment............ -0- 199,646
---------- ----------
Ending Shares.......................................... 28,684,985 28,684,985
========== ==========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $229,455,401 and $276,851,479,
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 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
30
<PAGE> 32
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
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.
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 year
ended June 30, 2000, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at June 30, 1999................................ -0- $ -0-
Options Written and Purchased (Net)......................... 1,475 653,635
Options Terminated in Closing Transactions (Net)............ (750) (330,712)
Options Expired (Net)....................................... (725) (322,923)
----- ---------
Outstanding at June 30, 2000................................ -0- $ -0-
===== =========
</TABLE>
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, cash or liquid 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 year ended June 30, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at June 30, 1999................................ 420
Futures Opened.............................................. 2,620
Futures Closed.............................................. (2,965)
------
Outstanding at June 30, 2000................................ 75
======
</TABLE>
31
<PAGE> 33
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000
The futures contracts outstanding as of June 30, 2000, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
SHORT CONTRACTS
Municipal Bond Future, Sep 2000--
(Current Notional Value of $95,719 per contract)......... 75 $(279,513)
== =========
</TABLE>
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 June 30, 2000, was 4.423%. During the
year ended June 30, 2000, the rates ranged from 3.247% to 5.000%.
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.
32
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Van Kampen Municipal Income Trust
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Income Trust (the "Trust"), including the portfolio of
investments, as of June 30, 2000, and the related statements of operations,
changes in net assets and the financial highlights for the year then ended.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. The Trust's
financial statements and financial highlights for the periods ended prior to
June 30, 2000, were audited by other auditors whose report, dated August 5,
1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Trust's
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Municipal Income Trust as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Chicago, Illinois
August 7, 2000
33
<PAGE> 35
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
34
<PAGE> 36
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
35
<PAGE> 37
TRUST OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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 AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
For Federal Income tax purposes, the following information is furnished with
respect to the distributions paid by the Trust during its taxable year ended
June 30, 2000. The Trust designated 99.3% of the Income distributions as a
tax-exempt Income distribution. In January, 2001, the Trust will provide tax
information to shareholders for the 2000 calendar year.
* "Interested persons" of the Trust, as defined in the Investment Company Act
of 1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
36
<PAGE> 38
RESULTS OF
SHAREHOLDER VOTES
The Annual Meeting of the Shareholders of the Trust was held on June 21, 2000,
where shareholders voted on the election of trustees and independent auditors.
1) With regard to the election of the following trustees by the preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
Rod Dammeyer.......................................... 285 -0-
</TABLE>
2) With regard to the election of the following trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
Wayne W. Whalen....................................... 24,951,841 314,252
</TABLE>
The other trustees of the Trust whose terms did not expire in 2000 are David C.
Arch, Howard J Kerr, Theodore A. Myers, Richard F. Powers III, and Hugo F.
Sonnenschein.
2) With regard to the ratification of Deloitte & Touche LLP as independent
auditors for the Trust, 24,816,527 shares were voted in favor of the proposal,
128,143 voted against and 321,708 shares abstained.
37
