<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 21
Statement of Operations.......................... 22
Statement of Changes in Net Assets............... 23
Financial Highlights............................. 24
Notes to Financial Statements.................... 26
Report of Independent Accountants................ 30
Dividend Reinvestment Plan....................... 31
</TABLE>
NOT FDIC INSURED, MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
November 19, 1999
Dear Shareholder:
As we approach the end of the century--and the millennium--it seems
appropriate to take a look back at the progress we've made over the last 100
years and how the world of investing has changed over the generations. Although
rapid advances in technology and science have dramatically altered the world
that we live in today, one of the greatest shifts we've seen this century is the
increasing importance of investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Those that have stood the test of time include:
- Investing for the long-term
- Basing investment decisions on sound research
- Building a diversified portfolio
- Believing in the value of professional investment advice
While no one can predict the future, at Van Kampen, we believe that these
ideas will remain important tenets for investors well into the next century. As
we continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we enter the new
millennium.
Sincerely,
[SIG.]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Source: Investment Company Institute
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree over the past year, keeping the
economy growing at a healthy pace. High levels of consumer confidence fueled
this heavy retail activity, which pushed the personal savings rate to a record
low as spending rates outpaced income growth. Although the U.S. economy
experienced a slowdown during the second quarter of 1999, growth rebounded
toward the end of the reporting period.
EMPLOYMENT SITUATION
The strong job market helped support the strength of the economy. During the
reporting period, the unemployment rate reached its lowest level in almost 30
years, and wages continued to climb. The wage pressures were balanced somewhat
by productivity gains. However, these pressures ultimately pushed the cost of
labor higher in the second quarter, as the employment cost index recorded its
biggest gain in eight years before returning to a more moderate level in the
third quarter.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index report. The Federal Reserve Board remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
its three interest rate cuts from the fall of 1998, raising rates in June,
August, and November 1999 to keep the economy from overheating.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Third Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4.0
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.5
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1999
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
(NYSE TICKER SYMBOL--VMO)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............. (13.29%)
One-year total return based on NAV(2)...................... (6.16%)
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................... 6.67%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)...................................... 10.42%
SHARE VALUATIONS
Net asset value............................................ $ 15.67
Closing common stock price................................. $13.500
One-year high common stock price (12/01/98)................ $16.875
One-year low common stock price (10/26/99)................. $12.875
Preferred share (Series A) rate(5)......................... 3.450%
Preferred share (Series B) rate(5)......................... 3.400%
</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 income tax bracket.
(5) See "Notes to Financial Statements" footnote #5, 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
<PAGE> 5
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
We recently spoke with representatives of the adviser of the Van Kampen
Municipal Opportunity Trust about the key events and economic forces that shaped
the markets during the past year. Dennis S. Pietrzak, portfolio manager, has
managed the Trust since August 1995 and worked in the investment industry since
1968. He is joined by Peter W. Hegel, chief investment officer for fixed-income
investments. The following discussion reflects their views on the Trust's
performance during the 12 months ended October 31, 1999.
Q WHAT HAPPENED IN THE MUNICIPAL MARKET DURING THE REPORTING PERIOD?
A Bonds of all types experienced price declines during the past 12 months as
interest rates rose, especially toward the end of the reporting period. In
addition to the negative effects of the Federal Reserve Board's two
interest-rate increases during the summer, the bond market declined as the
nation's strong economic growth continued to spark inflation fears, leading to
concern about future rate hikes. Because of low institutional demand for
municipal bonds during the period, these conditions affected municipals more
than their taxable counterparts--corporate and Treasury bonds. The yields of
newly issued 30-year AAA municipal bonds rose more than a full percentage point
during the 12-month period, so the prices of existing bonds dropped
concurrently. The bonds in the Trust's portfolio were not spared by this market
movement and suffered price declines along with the rest of the municipal
market.
The interest-rate increases also suppressed municipal bond supply, bringing
overall nationwide issuance down more than 20 percent in the first ten months of
the year compared with 1998. Supply was down in almost every sector, with
electric-utility and health-care bonds experiencing the most significant drops.
Although new issuance kept pace with last year's active market, the amount of
bonds issued through refinancing was down more than 50 percent for the year
through October. Many municipalities simply chose not to refinance outstanding
bonds because of the higher interest rates they would have to pay in the current
marketplace.
Q DID MUNICIPAL BONDS BENEFIT FROM THE STRONG ECONOMY?
A Yes. The effects of the healthy economy were reflected in the good credit
conditions in the municipal market, even though prices suffered. With the
exception of the health-care sector, overall credit quality remained high,
and we witnessed a number of credit upgrades as tax revenues kept municipal
finances strong.
4
<PAGE> 6
Q WHAT TECHNIQUES DID YOU USE TO MANAGE THE TRUST IN THESE CONDITIONS?
A Some of the Trust's more seasoned holdings were nearing their call dates,
so we took advantage of higher interest rates in the municipal market to
replace these bonds with new issues. This allowed us to support the
Trust's income stream and extend its protection from bond calls with securities
that were paying higher yields. Because bond prices had declined during the
period, we were also able to enhance the Trust's tax management by selling these
and other holdings at a capital loss. Using this strategy, we offset some of the
gains we had earned early in 1999, enabling the Trust to avoid the need to
distribute taxable capital gains to shareholders this year. However, this
strategy also increased the Trust's duration--or sensitivity to interest-rate
changes--because the new purchases were longer-duration securities. We feel that
the longer duration will benefit the Trust in a declining interest-rate
environment by allowing it to participate more fully in a market rally. In the
short term, however, the longer duration negatively affected the Trust's total
return as interest rates climbed.
In addition, we focused on securities that, going forward, we felt would be
in greatest demand by retail investors. That often involved selling the holdings
that provided the most in-demand coupon rate by individual investors (which
varied as interest rates increased) and replacing them with other issues that
appeared to be undervalued and had the potential for increased demand in the
future. Throughout the year, this activity contributed to the Trust's total
return. For additional portfolio highlights, please refer to page 8.
Q HOW DID THE TRUST PERFORM DURING THE PERIOD?
A Total return performance was disappointing because of the general downturn
in bond prices and the Trust's increased duration. In addition, the
Trust's leverage component hurt its performance during the period.
Although leverage helps the Trust provide higher income levels to common
shareholders, it made the portfolio more sensitive to the interest-rate
increases we experienced during the reporting period. For the one-year period
ended October 31, 1999, the Trust returned -13.29 percent(1) based on market
price. This reflects a decrease in market price from $16.50 per share on October
31, 1998, to $13.50 per share on October 31, 1999.
On the positive side, the dividend remained unchanged during the past 12
months. The monthly federally tax-exempt dividend of $0.075 per share translates
to a distribution rate of 6.67 percent(3) based on the Trust's closing market
price on October 31, 1999. Because the Trust is exempt from federal income
taxes, this distribution rate is equivalent to a taxable yield of 10.42
percent(4) for an investor in the 36 percent federal income tax bracket. Please
refer to the chart and footnotes on page 3 for additional performance results.
Past performance does not guarantee future performance.
5
<PAGE> 7
Q WHAT DO YOU SEE AHEAD FOR THE ECONOMY AND THE MUNICIPAL MARKET?
A In the coming months, we will probably see a slowing economy, which may be
partly the result of year 2000 concerns. Wage increases will likely keep
inflation fears at the forefront, although increasing productivity should
be able to offset higher wage costs for employers.
Preparations for the turn of the millennium may also limit new issuance and
general market activity at the end of the year. Many municipal issuers are
planning to postpone issuing bonds until they feel certain that any potential
computer problems have been avoided, but we believe that market activity should
pick up early in 2000. In the meantime, we will continue to focus on finding
attractive-yielding bonds and protecting the Trust from bond calls as much as
possible. We will also use our extensive research capabilities to look for
attractive opportunities throughout the coming months.
[SIG.]
Dennis S. Pietrzak
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
6
<PAGE> 8
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.
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 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 (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
MATURITY LENGTH: The time it takes for a bond to mature. A bond issued in 1999
and maturing in 2009 is a 10-year bond.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It is redeemed at maturity for
full face value.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
General Purpose 18.10 16.70
Wholesale Electric 12.30 12.50
Health Care 10.10 10.60
Transportation 9.50 6.90
Single-Family Housing 8.60 12.20
</TABLE>
* As a percentage of long-term investments
NET ASSET VALUE AND MARKET PRICE
(BASED UPON MONTH-END VALUES)
APRIL 1992 THROUGH OCTOBER 1999
[GRAPH]
<TABLE>
<CAPTION>
NET ASSET VALUE MARKET PRICE
--------------- ------------
<S> <C> <C>
Apr 1992 14.95 14.95
15.18 15.18
15.59 14.88
16.86 15.75
15.86 15.38
15.75 15.13
Oct 1992 14.99 14.50
15.51 14.88
15.65 15.00
15.70 15.13
16.78 15.88
16.47 15.88
16.65 15.88
16.60 15.50
16.95 15.88
16.89 16.13
17.13 16.50
17.44 16.25
Oct 1993 17.30 16.38
17.04 15.75
17.44 16.00
17.64 16.38
16.88 15.38
15.41 14.13
15.37 14.00
15.49 14.50
15.25 14.63
15.44 14.38
15.45 14.25
14.99 13.38
Oct 1994 14.39 13.00
13.64 12.63
14.30 12.75
14.80 13.75
15.41 14.50
15.61 14.00
15.32 13.38
15.66 14.00
15.23 13.88
15.19 14.13
15.40 13.88
15.48 13.50
Oct 1995 15.85 13.63
16.30 14.00
16.62 13.50
16.68 14.38
16.38 14.25
15.82 13.75
15.59 13.50
15.53 13.13
15.62 13.50
15.82 13.50
15.70 13.75
15.98 13.63
Oct 1996 16.12 13.75
16.48 13.88
16.24 13.50
16.17 14.00
16.33 14.13
15.94 13.75
16.00 14.00
16.27 14.13
16.46 14.56
17.13 15.31
16.71 15.19
16.94 15.13
Oct 1997 16.96 15.06
16.99 15.44
17.33 15.50
17.48 15.75
17.40 15.81
17.30 15.63
17.02 15.63
17.29 15.63
17.26 15.63
17.20 15.69
17.57 15.88
17.81 16.69
Oct 1998 17.61 16.50
17.59 16.88
17.54 16.69
17.74 16.44
17.49 16.38
17.38 16.56
17.35 16.13
17.06 15.19
16.54 15.13
16.53 15.06
16.20 14.38
16.05 13.88
Oct 1999 15.67 13.50
</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.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS (CONTINUED)
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF OCTOBER 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa Non-Rated
------- ----- --- ------- ---------
<S> <C> <C> <C> <C> <C>
As of October 31, 1999 64.40 9.30 11.20 14.70 0.40
</TABLE>
AS OF OCTOBER 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
AAA/Aaa AA/Aa A/A BBB/Baa Non-Rated
------- ----- --- ------- ---------
<S> <C> <C> <C> <C> <C>
As of October 31, 1998 58.10 14.00 13.40 14.10 0.40
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DIVIDEND HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Nov 1998 0.075
Dec 1998 0.075
Jan 1999 0.075
Feb 1999 0.075
Mar 1999 0.075
Apr 1999 0.075
May 1999 0.075
Jun 1999 0.075
Jul 1999 0.075
Aug 1999 0.075
Sep 1999 0.075
Oct 1999 0.075
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 102.1%
ALABAMA 1.0%
$ 4,500 Jefferson Cnty, AL Swr Rev Cap Impt
Wts Ser A (FGIC Insd).............. 5.125% 02/01/39 $ 3,811,005
384 Mobile, AL Indl Dev Brd Solid Waste
Disp Rev Mobile Energy Svcs Co Proj
Rfdg (e)........................... 6.950 01/01/20 126,843
------------
3,937,848
------------
CALIFORNIA 6.9%
1,300 California Hsg Fin Agy Rev Home Mtg
Ser B1............................. 6.300 08/01/08 1,332,838
2,000 California Pollutn Ctl Fin Auth
Pollutn Ctl Rev Southn CA Edison Co
(AMBAC Insd)....................... 6.000 07/01/27 1,964,060
915 California Rural Home Mtg Fin Auth
Single Family Mtg Rev Ser C (GNMA
Collateralized).................... 7.800 02/01/28 1,007,598
5,000 Contra Costa, CA Home Mtg Fin Auth
Home Mtg Rev (MBIA Insd)........... * 09/01/17 1,746,200
10,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Cap Apprec Rfdg........ * 01/15/21 2,572,200
2,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Conv Cap Apprec Rfdg
(c)................................ 0/5.800 01/15/20 1,063,220
4,000 Foothill/Eastern Corridor Agy CA
Toll Rd Rev Conv Cap Apprec Sr Lien
Ser A (c).......................... 0/7.050 01/01/10 3,305,440
5,000 Orange Cnty, CA Recovery Ctfs Ser A
(MBIA Insd)........................ 6.000 07/01/06 5,378,600
5,000 Orange Cnty, CA Recovery Ctfs Ser A
(MBIA Insd)........................ 6.000 07/01/08 5,386,250
3,000 Orange Cnty, CA Recovery Ser A Rfdg
(MBIA Insd)........................ 6.000 06/01/08 3,230,040
------------
26,986,446
------------
COLORADO 6.6%
2,000 Arapahoe Cnty, CO Cap Impt Trust
Fund Hwy Rev E-470 Proj Ser B
(Prerefunded @ 08/31/05)........... 7.000 08/31/26 2,270,820
1,000 Castle Rock, CO Multi-Family Rev
Hsg Pines at Castle Rock Ser A (FSA
Insd).............................. 6.100 12/01/16 1,014,580
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 1,500 Colorado Hsg Fin Auth Multi-Family
Hsg Ins Mtg Ser B2................. 5.800% 10/01/28 $ 1,427,415
1,500 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser A2...................... 7.250 05/01/27 1,622,700
870 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser A3...................... 7.000 11/01/24 907,975
1,500 Colorado Hsg Fin Auth Single Family
Pgm Sr Ser C1...................... 7.550 11/01/27 1,636,680
3,200 Denver, CO City & Cnty Arpt Rev Ser
A.................................. 8.500 11/15/07 3,375,392
5,145 Denver, CO City & Cnty Arpt Rev Ser
A.................................. 8.875 11/15/12 5,597,606
1,855 Denver, CO City & Cnty Arpt Rev Ser
A (Prerefunded @ 11/15/01)......... 8.875 11/15/12 2,055,136
1,750 Denver, CO City & Cnty Arpt Rev Ser
B (MBIA Insd)...................... 6.250 11/15/06 1,868,335
1,000 Denver, CO City & Cnty Arpt Rev Ser
B (MBIA Insd)...................... 6.250 11/15/07 1,068,620
1,005 Greeley, CO Multi-Family Rev Hsg
Mtg Creek Stone (FHA Gtd).......... 5.950 07/01/28 974,026
1,000 Highlands Ranch Metro Dist No 2 CO
Rfdg (FSA Insd).................... 6.500 06/15/11 1,097,170
1,850 Metropolitan Football Stad Dist CO
Sales Tax Rev Cap Apprec Ser A
(MBIA Insd)........................ * 01/01/11 991,655
------------
25,908,110
------------
CONNECTICUT 0.8%
1,000 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144A Private
Placement (d)...................... 6.400 09/01/11 1,029,100
840 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144A Private
Placement (Escrowed to Maturity)
(d)................................ 6.500 09/01/06 920,556
1,000 Mashantucket Western Pequot Tribe
CT Spl Rev Ser A, 144A Private
Placement (Prerefunded @ 09/01/07)
(d)................................ 6.400 09/01/11 1,104,460
------------
3,054,116
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DISTRICT OF COLUMBIA 0.2%
$ 1,000 District of Columbia Rev Gonzaga
College High Sch (FSA Insd)........ 5.375% 07/01/29 $ 894,150
------------
FLORIDA 1.7%
1,750 Broward Cnty, FL Arpt Sys Rev
Passenger Fac Conv Lien Ser H-2
(AMBAC Insd)....................... 4.750 10/01/23 1,459,430
1,000 Florida Ports Fin Comm Rev St Trans
Trust Fund Intermodal Pgm (FGIC
Insd) (a).......................... 5.500 10/01/17 953,410
1,250 Florida Ports Fin Comm Rev St Trans
Trust Fund Intermodal Pgm (FGIC
Insd).............................. 5.500 10/01/23 1,173,350
3,000 Florida St Brd Ed Cap Outlay Pub Ed
Ser A (Prerefunded @ 06/01/04)..... 5.875 06/01/16 3,178,920
------------
6,765,110
------------
GEORGIA 3.3%
2,824 Fulton Cnty, GA Lease Rev, 144A
Private Placement (d).............. 7.250 06/15/10 3,133,442
2,000 George L Smith II GA World Congress
Cntr Auth Rev (MBIA Insd) (a)...... 6.000 07/01/09 2,062,480
7,000 Georgia Muni Elec Auth Pwr Rev Ser
A (MBIA Insd)...................... 6.500 01/01/20 7,512,330
------------
12,708,252
------------
HAWAII 1.5%
5,000 Hawaii St Arpt Sys Rev Ser 2....... 7.000 07/01/18 5,231,600
1,000 Honolulu, HI City & Cnty Wastewtr
Sys Rev Jr Ser (FGIC Insd)......... 4.500 07/01/28 777,210
------------
6,008,810
------------
ILLINOIS 6.6%
2,000 Bolingbrook, IL Cap Apprec Rfdg Ser
C (MBIA Insd)...................... * 01/01/23 482,660
1,000 Champaign Cnty, IL Cmnty Unit Sch
Dist No 116 Urbana Ser C (FGIC
Insd).............................. * 01/01/17 343,530
5,000 Chicago, IL O'Hare Intl Arpt Rev
Genl Arpt Second Lien Ser A Rfdg
(MBIA Insd)........................ 6.375 01/01/12 5,265,000
6,400 Chicago, IL Sch Fin Auth Ser A
(MBIA Insd)........................ 5.000 06/01/09 6,245,056
930 Chicago, IL Single Family Mtg Rev
Ser A (GNMA Collateralized)........ 7.000 09/01/27 988,357
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 740 Chicago, IL Single Family Mtg Rev
Ser B (GNMA Collateralized)........ 7.625% 09/01/27 $ 816,694
3,285 Illinois Hlth Fac Auth Rev Midwest
Physician Group Ltd Proj
(Prerefunded @ 11/15/04)........... 8.125 11/15/19 3,812,965
1,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expn Proj Ser A Rfdg (FGIC Insd)... 5.500 12/15/24 922,690
2,000 Metropolitan Pier & Expo Auth IL
Dedicated St Tax Rev McCormick Pl
Expn Proj Rfdg (FGIC Insd)......... 5.250 12/15/28 1,770,820
1,475 Regional Tran Auth IL Ser A (AMBAC
Insd).............................. 6.500 06/01/15 1,576,863
1,410 Sangamon Cnty, IL Cmnty Unit Sch
Dist No 5 (FGIC Insd).............. 6.400 12/01/03 1,501,608
1,865 Sangamon Cnty, IL Cmnty Unit Sch
Dist No 5 (FGIC Insd).............. 6.500 12/01/05 2,020,877
------------
25,747,120
------------
INDIANA 0.7%
2,500 Purdue Univ, IN Univ Rev Student
Fee Ser B (Prerefunded @
01/01/05).......................... 6.750 07/01/09 2,780,025
------------
KENTUCKY 0.8%
1,475 Kenton Cnty, KY Arpt Brd Rev
Cincinnati/ Northn KY Intl Arpt Ser
A Rfdg (MBIA Insd)................. 6.200 03/01/08 1,562,910
1,350 Kentucky Hsg Corp Hsg Rev Ser B.... 6.250 07/01/28 1,371,303
------------
2,934,213
------------
LOUISIANA 0.4%
1,500 New Orleans, LA Rfdg (FGIC Insd)... 5.500 12/01/21 1,434,390
------------
MAINE 0.8%
1,950 Maine Edl Ln Auth Rev Supplemental
Pgm Ser A1......................... 7.000 12/01/16 2,015,657
1,070 Maine Edl Ln Auth Rev Supplemental
Pgm Ser A2......................... 7.150 12/01/16 1,104,689
------------
3,120,346
------------
MARYLAND 0.2%
1,000 Maryland St Econ Dev Corp Student
Hsg Rev Collegiate Hsg Towson St
Univ Ser A......................... 5.750 06/01/29 891,180
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS 1.3%
$ 2,000 Massachusetts St Hlth & Edl Fac
Auth Rev New England Med Cent Hosp
Ser G (Embedded Swap) (MBIA Insd)
(c)................................ 3.10/5.00% 07/01/13 $ 1,862,240
3,000 Plymouth Cnty, MA Ctfs Partn Ser A
(Prerefunded @ 10/01/02)........... 7.000 04/01/22 3,262,230
------------
5,124,470
------------
MICHIGAN 2.8%
5,500 Michigan St Strategic Fd Ltd Oblig
Rev Detroit Edison Co Ser A Rfdg
(MBIA Insd)........................ 5.550 09/01/29 5,026,560
4,500 Monroe Cnty, MI Pollutn Ctl Rev
Coll Detroit Edison Monroe Ser 1
(MBIA Insd)........................ 6.875 09/01/22 4,805,370
1,400 Wayne St Univ MI Univ Rev Genl
(FGIC Insd)........................ 5.125 11/15/29 1,219,190
------------
11,051,120
------------
MISSISSIPPI 1.6%
3,730 Mississippi Home Corp Single Family
Rev Mtg Ser C (GNMA
Collateralized).................... 7.600 06/01/29 4,093,377
1,985 Mississippi Home Corp Single Family
Rev Mtg Ser F (GNMA
Collateralized).................... 7.550 12/01/27 2,180,582
------------
6,273,959
------------
MISSOURI 1.3%
1,485 Saint Charles Cnty, MO Indl Dev
Auth Indl Rev Dev Westchester Vlg
Apts Ser A Rfdg (FNMA
Collateralized).................... 6.150 02/01/27 1,501,097
500 Saint Louis Cnty, MO Single Family
Mtg Rev (MBIA Insd)................ 6.900 04/01/16 512,745
3,000 Sikeston, MO Elec Rev Rfdg (MBIA
Insd) (b).......................... 6.200 06/01/10 3,230,340
------------
5,244,182
------------
NEVADA 1.1%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr
Co Proj Ser A (FGIC Insd).......... 6.700 06/01/22 4,172,760
------------
NEW HAMPSHIRE 0.5%
1,935 New Hampshire St Hsg Fin Auth
Single Family Rev Mtg Acquisition
Ser B Rfdg......................... 6.100 07/01/28 1,891,772
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY 5.9%
$20,000 New Jersey Econ Dev Auth St
Contract Econ Recovery (MBIA
Insd).............................. 5.900% 03/15/21 $ 20,229,400
1,395 New Jersey Hlthcare Fac Fin Auth
Rev Christ Hosp Group Issue (Connie
Lee Insd).......................... 7.000 07/01/04 1,525,935
1,400 New Jersey Hlthcare Fac Fin Auth
Rev Saint Barnabas Hlth Ser C Rfdg
(MBIA Insd) (a).................... 5.250 07/01/18 1,273,538
------------
23,028,873
------------
NEW MEXICO 2.2%
505 Hobbs, NM Single Family Mtg Rev
Rfdg............................... 8.750 07/01/11 543,128
4,515 New Mexico Mtg Fin Auth Single
Family Mtg Pgm Ser G (GNMA
Collateralized).................... 7.250 07/01/26 4,683,048
1,500 New Mexico St Hosp Equip Loan
Council Hosp Rev Mem Med Ctr Inc
Proj............................... 5.500 06/01/28 1,274,580
2,000 University of NM Technology Dev
Corp Lease Rev Univ Cent Resh Pk
Proj Ser A (Prerefunded @ 08/15/04)
(MBIA Insd)........................ 6.450 08/15/18 2,186,400
------------
8,687,156
------------
NEW YORK 17.5%
2,000 Metropolitan Tran Auth NY Commuter
Facs Rev Contract.................. 5.500 07/01/14 1,913,500
3,000 Metropolitan Tran Auth NY Svcs
Contract Tran Fac Ser 5 Rfdg....... 7.000 07/01/12 3,156,510
1,440 New York City Indl Dev Agy Spl Fac
Rev Terminal One Group Assn Proj... 6.100 01/01/09 1,483,805
3,000 New York City Indl Dev Agy Spl Fac
Rev Terminal One Group Assn Proj... 6.000 01/01/15 2,995,260
10,000 New York City Ser A................ 7.000 08/01/07 11,104,200
5,000 New York City Ser A Rfdg........... 7.000 08/01/05 5,487,750
40 New York City Ser D................ 7.500 02/01/19 42,778
7,960 New York City Ser D (Prerefunded @
02/01/02).......................... 7.500 02/01/19 8,599,825
1,500 New York St Dorm Auth Rev Mental
Hlth Svcs Fac Ser A................ 5.750 08/15/12 1,502,520
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,070 New York St Dorm Auth Rev Mental
Hlth Svcs Fac Ser B................ 5.750% 08/15/10 $ 2,104,817
6,060 New York St Dorm Auth Rev City Univ
Ser F.............................. 5.500 07/01/12 5,905,834
1,500 New York St Dorm Auth Rev Dept Ed
St of NY Issue Ser A............... 5.800 07/01/22 1,424,700
1,365 New York St Dorm Auth Rev St Univ
Edl Fac Ser B Rfdg................. 5.250 05/15/09 1,358,393
1,850 New York St Mtg Agy Rev Homeowner
Mtg Ser 58......................... 6.400 04/01/27 1,906,887
6,400 New York St Thruway Auth Svc
Contract Rev Loc Hwy & Brdg........ 5.750 04/01/09 6,547,520
1,100 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser 4......... 5.375 01/01/23 974,930
3,000 New York St Urban Dev Corp Rev
Correctional Cap Fac Ser 7......... 5.700 01/01/27 2,798,250
3,500 Port Auth NY & NJ Cons 97th Ser
(FGIC Insd)........................ 6.650 01/15/23 3,690,785
5,400 Port Auth NY & NJ Spl Oblig Rev Spl
Proj JFK Intl Arpt Terminal 6 (MBIA
Insd).............................. 5.750 12/01/22 5,255,118
------------
68,253,382
------------
NORTH CAROLINA 2.9%
11,000 North Carolina Muni Pwr Agy No 1
Catawba Elec Rev (MBIA Insd) (b)... 6.000 01/01/12 11,368,830
------------
OHIO 1.8%
1,000 Akron, OH Ctfs Partn Akron Muni
Baseball Stad Proj (c)............. 0/6.500 12/01/07 945,980
3,000 Lucas Cnty, OH Hosp Rev Promedica
Hlthcare Oblig (MBIA Insd)......... 6.000 11/15/07 3,169,170
1,000 Montgomery Cnty, OH Hosp Rev
Grandview Hosp & Med Cent Rfdg..... 5.250 12/01/04 968,570
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 990 Ohio Hsg Fin Agy Mtg Rev
Residential Ser A1 (GNMA
Collateralized).................... 6.150% 03/01/29 $ 1,000,088
1,000 Ohio St Air Quality Dev Auth Rev
JMG Funding Ltd Partn Proj Rfdg
(AMBAC Insd)....................... 6.375 04/01/29 1,011,630
------------
7,095,438
------------
OKLAHOMA 3.0%
3,000 Oklahoma Dev Fin Auth Rev Saint
John Hlth Sys Rfdg (a)............. 5.750 02/15/25 2,867,070
2,000 Tulsa, OK Indl Auth Hosp Rev
Hillcrest Med Cent Proj Rfdg
(Connie Lee Insd).................. 6.125 06/01/05 2,130,980
3,140 Tulsa, OK Indl Auth Hosp Rev
Hillcrest Med Cent Proj Rfdg
(Connie Lee Insd).................. 6.250 06/01/08 3,407,748
3,000 Tulsa, OK Muni Arpt Tran Rev
American Airls Inc................. 7.600 12/01/30 3,142,860
------------
11,548,658
------------
OREGON 0.5%
2,000 Oregon St Econ Dev Rev Georgia
Pacific Corp....................... 6.350 08/01/25 1,948,340
------------
PENNSYLVANIA 6.4%
1,500 Allegheny Cnty, PA Port Auth Spl
Rev Trans (MBIA Insd) (a).......... 6.000 03/01/24 1,501,575
2,000 Berks Cnty, PA Muni Auth Hosp
Reading Hosp & Med Cent Proj (FSA
Insd) (a).......................... 6.000 11/01/29 1,982,120
6,655 Berks Cnty, PA Muni Auth Rev
Highlands at Wyomissing Proj Ser
B.................................. 6.875 10/01/17 6,895,844
7,500 Geisinger Auth PA Hlth Sys Ser A
(Prerefunded @ 07/01/02)........... 6.400 07/01/22 8,000,550
1,000 Harrisburg, PA Cap Apprec Rfdg Nts
Ser F (AMBAC Insd)................. * 03/15/15 399,300
1,865 Harrisburg, PA Cap Apprec Rfdg Ser
D (AMBAC Insd)..................... * 09/15/15 722,781
1,865 Harrisburg, PA Cap Apprec Rfdg Ser
D (AMBAC Insd)..................... * 03/15/16 695,981
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,000 Indiana Cnty, PA Indl Dev Auth
Pollutn Ctl Rev Metro Edison Co
Proj A (AMBAC Insd)................ 5.950% 05/01/27 $ 972,720
1,000 Pennsylvania Intergvtl Coop Auth
Spl Tax Rev City of Philadelphia
(Prerefunded @ 06/15/02)........... 6.800 06/15/22 1,059,410
3,500 Southeastern PA Trans Auth PA Spl
Rev Ser A (FGIC Insd).............. 4.750 03/01/24 2,898,805
------------
25,129,086
------------
SOUTH DAKOTA 0.8%
2,000 South Dakota St Hlth & Edl Fac Auth
Rev (AMBAC Insd)................... 5.250 08/01/24 1,773,620
1,285 South Dakota St Hlth & Edl Fac Auth
Vocational Ed Pgm Ser A (AMBAC
Insd).............................. 5.400 08/01/13 1,260,097
------------
3,033,717
------------
TEXAS 5.4%
1,000 Austin, TX Util Sys Rev Rfdg (AMBAC
Insd).............................. 6.500 11/15/05 1,085,800
2,000 Brazos River Auth TX Rev Houston
Inds Inc Proj Ser D Rfdg (MBIA
Insd).............................. 4.900 10/01/15 1,779,120
1,000 Brazos River Auth TX Rev Houston
Lighting & Pwr Co Proj Rfdg (AMBAC
Insd).............................. 5.050 11/01/18 881,270
3,000 Dallas Cnty, TX Util & Reclamation
Dist Ser B Rfdg (AMBAC Insd) (a)... 5.875 02/15/29 2,937,060
4,500 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev Delta Airls Inc...... 7.000 11/01/01 4,623,075
2,525 Dallas-Fort Worth, TX Intl Arpt Fac
Impt Corp Rev Delta Airls Inc...... 7.625 11/01/21 2,651,679
5,000 Ector Cnty, TX Hosp Dist Hosp Rev
Med Cent Hosp (Prerefunded @
04/15/02) (b)...................... 7.300 04/15/12 5,421,400
1,655 Texas Genl Svcs Comm Partn Int
Lease Purch Ctfs, 144A Private
Placement (d)...................... 7.250 08/01/11 1,687,019
------------
21,066,423
------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH 1.1%
$ 1,500 Intermountain Pwr Agy UT Pwr Supply
Rev Ser B Rfdg (MBIA Insd)......... 5.750% 07/01/19 $ 1,457,730
1,500 Intermountain Pwr Agy UT Rev Ser E
Rfdg (FSA Insd).................... 6.000 07/01/06 1,588,020
1,165 Utah St Hsg Fin Agy Single Family
Mtg Sr Issue B3.................... 7.100 07/01/24 1,196,397
------------
4,242,147
------------
VIRGINIA 3.4%
5,000 Richmond, VA (FSA Insd) (a)........ 5.500 01/15/14 4,813,100
8,200 Roanoke, VA Indl Dev Auth Hosp Rev
Roanoke Mem Hosp Ser B Rfdg (MBIA
Insd) (c).......................... 4.70/6.25 07/01/20 8,314,636
------------
13,127,736
------------
WASHINGTON 7.1%
9,850 Bellevue, WA Convention Cent Comp
Int Rfdg (MBIA Insd)............... * 02/01/25 2,081,699
545 Grant Cnty, WA Pub Util Dist No 2
Priest Rapids Hydro Elec Ser B
(MBIA Insd)........................ 5.250 01/01/14 507,041
520 Grant Cnty, WA Pub Util Dist No 2
Wanapum Hydro Elec Rev Ser B Rfdg
(MBIA Insd)........................ 5.375 01/01/18 475,956
10,975 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev Ser A Rfdg
(MBIA Insd)........................ 5.700 07/01/17 10,654,310
10,000 Washington St Pub Pwr Supply Sys
Nuclear Proj No 1 Rev Ser B Rfdg
(MBIA Insd)........................ 5.600 07/01/15 9,700,000
2,000 Washington St Pub Pwr Supply Sys
Nuclear Proj No 2 Rev Ser A Rfdg
(AMBAC Insd)....................... 6.000 07/01/08 2,111,100
5,125 Washington St Pub Pwr Supply Sys
Nuclear Proj No 3 Rev Ser C Rfdg
(MBIA Insd)........................ * 07/01/14 2,155,831
------------
27,685,937
------------
WEST VIRGINIA 2.1%
8,000 Harrison Cnty, WV Cmnty Solid Waste
Disp Rev West Penn Pwr Co Proj Ser
A (b).............................. 6.875 04/15/22 8,303,360
------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN 1.6%
$ 1,000 Madison, WI Indl Dev Rev Madison
Gas & Elec Co Proj Ser A........... 6.750% 04/01/27 $ 1,049,070
1,500 Southeast WI Professional Baseball
Pk Dist Sales Tax Rev Ser A Rfdg
(MBIA Insd)........................ 5.500 12/15/20 1,435,815
3,500 Wisconsin Hsg & Econ Dev Auth
Homeownership Rev Ser C............ 6.250 09/01/17 3,554,215
------------
6,039,100
------------
WYOMING 0.3%
1,290 Wyoming Cmnty Dev Auth Hsg Rev Ser
2.................................. 6.350 06/01/29 1,311,195
------------
TOTAL INVESTMENTS 102.1%
(Cost $383,680,419)................................................. $398,797,757
LIABILITIES IN EXCESS OF OTHER ASSETS (2.1%)......................... (8,280,295)
------------
NET ASSETS 100.0%.................................................... $390,517,462
============
</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.
(c) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(e) Issuer has filed for protection in federal bankruptcy court.
AMBAC--AMBAC Indemnity Corporation
Connie Lee--Connie Lee Insurance Company
FGIC--Financial Guaranty Insurance Company
FHA--Federal Housing Administration
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance Inc.
GNMA--Government National Mortgage Association
MBIA--Municipal Bond Investors Assurance Corp.
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $383,680,419)....................... $398,797,757
Receivables:
Investments Sold.......................................... 7,458,256
Interest.................................................. 6,658,215
Other....................................................... 22,809
------------
Total Assets.......................................... 412,937,037
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 20,569,083
Custodian Bank............................................ 1,030,467
Investment Advisory Fee................................... 216,442
Income Distributions--Common and Preferred Shares......... 176,407
Administrative Fee........................................ 66,598
Affiliates................................................ 36,111
Accrued Expenses............................................ 209,507
Trustees' Deferred Compensation and Retirement Plans........ 114,960
------------
Total Liabilities..................................... 22,419,575
------------
NET ASSETS.................................................. $390,517,462
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 6,000 issued with liquidation preference of
$25,000 per share)........................................ $150,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 15,352,891 shares issued and
outstanding).............................................. 153,529
Paid in Surplus............................................. 226,719,758
Net Unrealized Appreciation................................. 15,117,338
Accumulated Undistributed Net Investment Income............. 1,875,727
Accumulated Net Realized Loss............................... (3,348,890)
------------
Net Assets Applicable to Common Shares................ 240,517,462
------------
NET ASSETS.................................................. $390,517,462
============
NET ASSET VALUE PER COMMON SHARE ($240,517,462 divided
by 15,352,891 shares outstanding)......................... $ 15.67
============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 23,343,248
------------
EXPENSES:
Investment Advisory......................................... 2,667,854
Administrative Fee.......................................... 820,879
Preferred Share Maintenance................................. 389,875
Trustees' Fees and Related Expenses......................... 33,365
Custody..................................................... 27,378
Legal....................................................... 19,663
Other....................................................... 257,293
------------
Total Expenses.......................................... 4,216,307
------------
NET INVESTMENT INCOME....................................... $ 19,126,941
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (1,497,207)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 43,847,567
End of the Period......................................... 15,117,338
------------
Net Unrealized Depreciation During the Period............... (28,730,229)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(30,227,436)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(11,100,495)
============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1999 October 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 19,126,941 $ 19,272,332
Net Realized Gain/Loss............................ (1,497,207) 90,175
Net Unrealized Appreciation/Depreciation During
the Period...................................... (28,730,229) 9,773,428
------------ ------------
Change in Net Assets from Operations.............. (11,100,495) 29,135,935
------------ ------------
Distributions from Net Investment Income:
Common Shares................................... (13,817,135) (13,817,036)
Preferred Shares................................ (4,859,701) (5,336,712)
------------ ------------
Total Distributions............................... (18,676,836) (19,153,748)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (29,777,331) 9,982,187
NET ASSETS:
Beginning of the Period........................... 420,294,793 410,312,606
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$1,875,727 and $1,425,622, respectively)........ $390,517,462 $420,294,793
============ ============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of the Period
(a)..................................... $17.605 $16.955 $ 16.121
------- ------- --------
Net Investment Income................. 1.246 1.255 1.253
Net Realized and Unrealized
Gain/Loss........................... (1.968) .643 .830
------- ------- --------
Total from Investment Operations........ (.722) 1.898 2.083
------- ------- --------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders......... .900 .900 .900
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders...................... .317 .348 .349
Distributions from Net Realized Gains:
Paid to Common Shareholders......... -0- -0- -0-
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders...................... -0- -0- -0-
------- ------- --------
Total Distributions..................... 1.217 1.248 1.249
------- ------- --------
Net Asset Value, End of the Period...... $15.666 $17.605 $ 16.955
======= ======= ========
Market Price Per Share at End of the
Period................................ $13.500 $16.500 $15.0625
Total Investment Return at Market Price
(b)................................... (13.29%) 15.91% 16.54%
Total Return at Net Asset Value (c)..... (6.16%) 9.35% 11.11%
Net Assets at End of the Period (In
millions)............................. $ 390.5 $ 420.3 $ 410.3
Ratio of Expenses to Average Net Assets
Applicable to Common Shares**......... 1.62% 1.61% 1.64%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d)..................... 5.48% 5.24% 5.51%
Portfolio Turnover...................... 30% 29% 49%
* Non-Annualized
** Ratio of Expenses to Average Net
Assets Including Preferred Shares.... 1.03% 1.03% 1.03%
</TABLE>
(a) Net Asset Value at April 24, 1992, is adjusted for common and preferred
share offering costs of $.229 per common share.
(b) 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.
(c) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net Investment Income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
24
<PAGE> 26
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 24, 1992
(Commencement
Year Ended October 31, of Investment
- ------------------------------------------- Operations) to
1996 1995 1994 1993 October 31, 1992
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
$15.846 $14.389 $17.297 $14.990 $14.771
------- ------- ------- ------- -------
1.271 1.275 1.303 1.354 .611
.266 1.584 (2.918) 2.332 .083
------- ------- ------- ------- -------
1.537 2.859 (1.615) 3.686 .694
------- ------- ------- ------- -------
.906 1.012 1.020 1.020 .340
.356 .390 .273 .282 .135
-0- -0- -0- .057 -0-
-0- -0- -0- .020 -0-
------- ------- ------- ------- -------
1.262 1.402 1.293 1.379 .475
------- ------- ------- ------- -------
$16.121 $15.846 $14.389 $17.297 $14.990
======= ======= ======= ======= =======
$13.750 $13.625 $13.000 $16.375 $14.500
7.72% 12.70% (14.96%) 20.85% (1.16%)*
7.61% 17.74% (11.30%) 23.17% 2.10%*
$ 397.5 $ 393.3 $ 370.9 $ 415.6 $ 380.1
1.66% 1.75% 1.69% 1.62% 1.54%
5.73% 5.87% 6.43% 6.51% 5.82%
85% 70% 76% 52% 53%*
1.03% 1.06% 1.05% 1.02% 1.04%
</TABLE>
See Notes to Financial Statements
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS
October 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Municipal Opportunity Trust, (the "Trust") is registered as a
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
a high level of current income exempt from federal income tax, consistent with
preservation of capital. The Trust will invest in a portfolio consisting
substantially of municipal obligations rated investment grade at the time of
investment. The Trust commenced investment operations on April 24, 1992.
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 those estimates.
A. SECURITY VALUATION--Municipal bonds are valued by independent pricing
services or dealers using the mean of the bid and asked prices or, in the
absence of market quotations, at fair value based upon yield data relating to
municipal bonds with similar characteristics and general market conditions.
Securities which are not valued by independent pricing services 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.
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.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
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 October 31, 1999, the Trust had an accumulated capital loss
carryforward for tax purposes of $3,348,890 which will expire between October
31, 2003 and October 31, 2007.
At October 31, 1999, for federal income tax purposes, cost of long-term
investments is $383,680,419; the aggregate gross unrealized appreciation is
$19,131,049 and the aggregate gross unrealized depreciation is $4,013,711
resulting in net unrealized appreciation on long-term investments of
$15,117,338.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
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 .65% of the average
net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to Van Kampen Funds Inc. or its affiliates (collectively "Van
Kampen"), the Trust's Administrator, at an annual rate of .20% of the average
net assets of the Trust. The administrative services provided by the
Administrator include record keeping and reporting responsibilities with respect
to the Trust's portfolio and preferred shares and providing certain services to
shareholders.
For the year ended October 31, 1999, the Trust recognized expenses of
approximately $9,700 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.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
For the year ended October 31, 1999, the Trust recognized expenses of
approximately $116,700 representing Van Kampen's 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. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $125,109,052 and
$125,807,752, respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
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 taking delivery of a security underlying a
futures contract. In this instance, the recognition of gain or loss is postponed
until the disposal of the security underlying the futures contract.
Summarized below are the types of derivative financial instruments used by
the Trust.
A. 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 contracts 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
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1999
- --------------------------------------------------------------------------------
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).
There were no transactions in futures contracts during the year ended
October 31, 1999.
B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. Their price may be more volatile than the price of a comparable
fixed rate security.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the securities fixed swap rate and the floating swap index. 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.
5. PREFERRED SHARES
Effective with the close of business on April 23, 1999, the liquidation
preference on the Trust's preferred shares decreased from $50,000 to $25,000 per
share. This decrease was effected by means of a 2 for 1 stock split that doubled
the Trust's number of outstanding preferred shares. The total liquidation value
for the Trust was unchanged.
The Trust has outstanding 6,000 Auction Preferred Shares ("APS") in two
series of 3,000 shares each. Dividends are cumulative and the dividend rate on
each series is currently reset every 28 days through an auction process. The
average rate in effect on October 31, 1999 was 3.425%. During the year ended
October 31, 1999, the rates ranged from 3.000% to 3.625%.
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 APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $25,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
29
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Municipal Opportunity Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Municipal Opportunity Trust (the "Trust"), including the portfolio of
investments, as of October 31, 1999, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. 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
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
October 31, 1999 by correspondence with the 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 audits provide 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 Opportunity Trust as of October 31, 1999, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
December 6, 1999
30
<PAGE> 32
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, of 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
changes 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
31
<PAGE> 33
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
32
<PAGE> 34
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*
STEVEN MULLER
THEODORE A. MYERS
RICHARD F. POWERS, III* -- Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
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
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
MICHAEL H. SANTO*
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
303 East Wacker Drive
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
October 31, 1999. The Trust designated 100.0% of the income distributions as a
tax-exempt income distribution. In January, 2000, the Trust will provide tax
information to shareholders for the 1999 calendar year.
* "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.
33
<PAGE> 35
RESULTS OF SHAREHOLDER NOTES
The Annual Meeting of Shareholders of the Trust was held on June 16, 1999, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) 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>
David C. Arch.................................. 13,709,527 175,374
Howard J Kerr.................................. 13,712,860 172,041
Dennis J. McDonnell............................ 13,712,360 172,541
</TABLE>
The other trustees of the Trust whose terms did not expire in 1999 were Rod
Dammeyer, Steven Muller, Theodore A. Myers, Don G. Powell*, Hugo F. Sonnenschein
and Wayne W. Whalen.
2) With regard to the ratification of KPMG LLP as independent public
accountants for the Trust, 13,644,321 shares voted in favor of the proposal,
72,775 shares voted against and 167,804 shares abstained.
* On August 9, 1999, Don G. Powell resigned and the Board of Trustees appointed
Richard F. Powers, III.
34
<PAGE> 36
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.
35
<PAGE> 37
VAN KAMPEN FUNDS
YOUR NOTES:
36
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> MUNICIPAL OPPORTUNITY TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<INVESTMENTS-AT-COST> 383,680,419
<INVESTMENTS-AT-VALUE> 398,797,757
<RECEIVABLES> 14,116,471
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 22,809
<TOTAL-ASSETS> 412,937,037
<PAYABLE-FOR-SECURITIES> 20,569,083
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,850,492
<TOTAL-LIABILITIES> 22,419,575
<SENIOR-EQUITY> 150,000,000
<PAID-IN-CAPITAL-COMMON> 226,873,287
<SHARES-COMMON-STOCK> 15,352,891
<SHARES-COMMON-PRIOR> 15,352,891
<ACCUMULATED-NII-CURRENT> 1,875,727
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,348,890)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,117,338
<NET-ASSETS> 390,517,462
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 23,343,248
<OTHER-INCOME> 0
<EXPENSES-NET> (4,216,307)
<NET-INVESTMENT-INCOME> 19,126,941
<REALIZED-GAINS-CURRENT> (1,497,207)
<APPREC-INCREASE-CURRENT> (28,730,229)
<NET-CHANGE-FROM-OPS> (11,100,495)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (18,676,836)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (29,777,331)
<ACCUMULATED-NII-PRIOR> 1,425,622
<ACCUMULATED-GAINS-PRIOR> (1,851,683)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,667,854
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,216,307
<AVERAGE-NET-ASSETS> 260,452,796
<PER-SHARE-NAV-BEGIN> 17.605
<PER-SHARE-NII> 1.246
<PER-SHARE-GAIN-APPREC> (1.968)
<PER-SHARE-DIVIDEND> (1.217)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.666
<EXPENSE-RATIO> 1.62
</TABLE>
