-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQY6Lb8m4vuSBNnSd4kW1U0HSiPJHb1u/wYQgtkgxaSYXNTVMZZR7SoPTObQC1F/ 8cs5fVhQy+ya6x5pYhZtVw== 0000950137-97-002884.txt : 19970825 0000950137-97-002884.hdr.sgml : 19970825 ACCESSION NUMBER: 0000950137-97-002884 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970822 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST CENTRAL INDEX KEY: 0000818305 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 366866160 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05230 FILM NUMBER: 97668570 BUSINESS ADDRESS: STREET 1: ONE PARKVIEW PLAZA CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 7086846000 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT MUNICIPAL INCOME TRUST DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN MERRITT XEROX INSURED MUNIFUND DATE OF NAME CHANGE: 19880824 FORMER COMPANY: FORMER CONFORMED NAME: VKM INSURED MUNICIPAL TRUST DATE OF NAME CHANGE: 19870921 N-30D 1 FORM N-30D 1 TABLE OF CONTENTS Letter to Shareholders........................... 1 Performance Results.............................. 6 Portfolio of Investments......................... 7 Statement of Assets and Liabilities.............. 15 Statement of Operations.......................... 16 Statement of Changes in Net Assets............... 17 Financial Highlights............................. 18 Notes to Financial Statements.................... 20 Report of Independent Accountants................ 26 Dividend Reinvestment Plan....................... 27
VMT ANR 8/97 2 LETTER TO SHAREHOLDERS July 29, 1997 Dear Shareholder, As you know, Van Kampen American Capital was acquired by Morgan [PHOTO] Stanley Group Inc., a world leader in asset management. On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co. agreed to DENNIS J. MCDONNELL AND DON G. POWELL merge; the merger was completed on May 31, creating the combined company of Morgan Stanley, Dean Witter, Discover & Co. This preeminent global financial services firm boasts a market capitalization of $21 billion and leading market positions in securities, asset management, and credit services. Additionally, I am very pleased to announce that Philip N. Duff, formerly the chief financial officer of Morgan Stanley, has joined Van Kampen American Capital as president and chief executive officer. I will continue as chairman of the firm. As the financial industry continues to witness unprecedented consolidations and new partnerships, we believe that those firms who are leaders in all facets of their business will be able to offer investors the greatest opportunities and services as we move into the next century. We are confident that these changes will continue to work to the benefit of our fund shareholders as we move into the next century. ECONOMIC REVIEW Volatility dominated the bond market during the 12 months ended June 30. Initially, prices fell as the economy grew stronger, which fueled fears of an interest rate hike by the Federal Reserve Board. When growth slowed to a moderate 2.1 percent rate in the third quarter of 1996 and a Democratic president was re-elected along with a Republican Congress, bond prices resumed their rise. The split government was seen as a restraint on spending increases that could potentially undermine efforts to control the federal budget deficit. Municipal bonds found additional support from a waning interest in radical tax reform that could potentially threaten their tax-free status. The 30-year Treasury bond's yield, which moves in the opposite direction of its price, slipped to 6.35 percent by late November from over 7.00 percent in July and September. The scenario shifted again at the start of 1997. Economic growth began to accelerate, reigniting fears of a Fed rate hike, and bond prices resumed their retreat. Despite a temporary reversal in February on signs of moderating inflation, the price decline continued, gaining momentum after the Fed raised short-term interest rates a quarter percentage point in late March. The rate hike was viewed as the first of many, imposing additional downward pressure on bond prices. First-quarter growth soared at a 4.9 percent pace, and by mid-April, the yield on the 30-year Treasury bond jumped to 7.17 percent. The market reversed itself once more after signs of a slowing economy re-emerged in May Continued on page two 1 3 and the Fed refrained from raising rates again. The price of the 30-year Treasury rose as its yield slipped to 6.79 percent by the end of June. During most of the 12 months ended June 30, municipal bonds outperformed Treasuries due to strong demand by retail and institutional investors amid limited supply. From the beginning of July 1996 to the end of June 1997, the yield on long-term municipal bonds fell 47 basis points, while the yield on the 30-year Treasury bond fell only 27 basis points. PORTFOLIO STRATEGY We maintained a barbell approach to credit quality, which means we invested in both the highest and lowest levels within the investment-grade rating spectrum for bonds. As of June 30, 1997, 47 percent of the Trust's investments were rated AAA, the highest credit rating assigned to bonds by the Standard & Poor's Ratings Group, and 29 percent were rated BBB, the lowest rating in the investment grade category. Investing at both ends of the ratings spectrum may help to balance the portfolio's relative volatility to changing interest rates. AAA-rated securities typically have performed better when rates are declining, and have tended to provide for safety of principal. Many are insured bonds, which protect against credit risk. Insured bonds comprise about half of all new issue municipal bonds and, as a result, are extremely liquid. Bonds rated BBB perform better when rates are rising, and have the potential to provide additional income. Please note that the insurance does not remove market risk. Portfolio Composition by Credit Quality as of June 30, 1997* A................. 9.6% AA................ 8.5% AAA............... 47.3% Non-Rated......... 4.5% B................. 0.2% BB................ 1.3% BBB............... 28.6%
*As a Percentage of Long-Term Investments Based upon the highest credit quality ratings as determined by Standard & Poor's or Moody's. In addition to a diversity among credit ratings, the Trust's portfolio contains a mixture of discount bonds, which trade below par, and premium bonds, which trade above par. This combination of bonds should also help to reduce the Trust's relative volatility. Discount bonds have tended to perform better during periods of falling interest rates, while premium bonds usually have outperformed when rates are rising. Continued on page three 2 4 Portfolio turnover during the fiscal year focused on enhancing the call protection of the Trust. Many of the long-term bonds that were acquired in the portfolio at its inception were issued with the typical 10-year call protection, and now have the potential to be redeemed by their issuers. If the bonds are called, the Trust could be forced to reinvest those proceeds in the market's currently lower-yielding securities. We seek to ensure that only a small portion of the Trust's assets are callable in any one year. To help reduce reinvestment risk, we continually sell bonds that are potential call candidates and replace them with long-term high-quality issues with extended call features. High-quality bonds were emphasized because the difference between the yields of AAA-rated bonds and lower-rated bonds was minimal. As a result, there often was not enough reward to justify the additional credit risk of purchasing lower-rated, low-quality bonds. Long-term securities were also favored because their yields tend to be higher than those of short-term securities. Using these strategies, we were able to protect the Trust against calls while reducing negative impact to the Trust's dividend-paying ability. At the end of the reporting period, duration of the securities in the portfolio stood at 6.79 years, or 10.76 years after adjusting for the leveraged component of the Trust. This compares to the Lehman Brothers Municipal Bond Index duration of 7.98 years. Because of the longer-term nature of the Trust, the calculation of this index has been adjusted to eliminate bonds with maturities of five years or less. Duration, which is expressed in years, is a measure of the portfolio's sensitivity to interest rate changes. Portfolios with shorter durations have tended to perform better when interest rates are rising, while those with longer durations have tended to outperform when rates decline. As interest rates fell over the past fiscal year, the leveraged factor helped the Trust perform well compared to its peer group. It should be noted, however, that a rise in short-term rates would have an unfavorable effect on the dividend paying ability of the common shares and could also negatively impact the share price. During the fiscal year, we maintained the Trust's high concentrations in health care, airport, and single-family housing bonds all high-yielding sectors within the tax-exempt market. When selecting new securities, our research team strives to identify those bonds that we believe will outperform within these sectors, as well as other sectors. TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR AS OF JUNE 30, 1997* Health Care..................... 18.3% Airport......................... 10.4% Public Building................. 9.4% Single-Family Housing........... 8.6% General Purpose................. 8.4%
*As a Percentage of Long-Term Investments Continued on page four 3 5 PERFORMANCE SUMMARY For the 12-month period ended June 30, 1997, the Trust generated a total return at market price of 18.32 percent(1). This performance reflects an increase in market price per common share on the New York Stock Exchange from $9.875 on June 30, 1996, to $10.875 on June 30, 1997, plus reinvestment of all dividends. The Trust offered a tax-exempt distribution rate of 6.62 percent(3), based on the closing common stock price. Because income from the Trust is exempt from federal income tax, this distribution rate represents a yield equivalent to a taxable investment earning 10.34 percent(4) for investors in the 36 percent federal income tax bracket. BAR GRAPH Twelve-month Dividend History For the Period Ended June 30, 1997
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 1996 1996 1996 1996 1996 1996 1996 1996 1996 1996 1996 1996 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06
The dividend history represents past performance of the Trust and does not predict the Trust's future distributions. OUTLOOK We continue to see strength in the economy, but we do not believe that second-quarter growth was nearly as vibrant as the 4.9 percent pace set in the first quarter. While labor productivity and manufacturing remained strong in the second quarter, retail sales fell, and the unemployment rate, which had slipped below 5.0 percent in April and May, edged up to that level in June. We are fairly optimistic for the remainder of the year, for several reasons. Inflation appears to be held in check. Also, the days of deficit spending appear to be over, and the U.S. deficit has been dramatically reduced. This combination of low inflation and a declining deficit should bring about lower interest rates, which makes for a bullish environment for the fixed-income market. As a result, we believe that the Federal Reserve will leave rates unchanged through the fourth quarter. We believe the Trust is well-positioned for the second half of 1997. We do not anticipate making major adjustments to the portfolio until market fundamentals shift substantially, and we will monitor the economy in addition to Fed policy in order to recognize such a shift. In addition, we will continue to seek a balance between the Trust's Continued on page five 4 6 total return and its dividend income, and will seek to add value through security selection. Thank you for your continued confidence in Van Kampen American Capital and your Trust's team of managers. Sincerely, [SIG] Don G. Powell Chairman Van Kampen American Capital Investment Advisory Corp. [SIG] Dennis J. McDonnell President Van Kampen American Capital Investment Advisory Corp. Please see footnotes on page six 5 7 PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997 VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST (NYSE TICKER SYMBOL--VMT) COMMON SHARE TOTAL RETURNS One-year total return based on market price(1)............. 18.32% One-year total return based on NAV(2)...................... 10.24% DISTRIBUTION RATES Distribution rate as a % of closing stock price(3)......... 6.62% Taxable-equivalent distribution rate as a % of closing stock price(4)........................................... 10.34% SHARE VALUATIONS Net asset value............................................ $ 10.01 Closing common stock price................................. $10.875 One-year high common stock price (06/30/97)................ $10.938 One-year low common stock price (07/25/96)................. $ 9.750 Preferred share (Series A) rate(5)......................... 3.789% Preferred share (Series B) rate(5)......................... 3.830% Preferred share (series C) rate(5)......................... 3.759%
(1) Total return based on market price assumes an investment at the market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Trust's dividend reinvestment plan, and sale of all shares at the closing common stock price at the end of the period indicated. (2) Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. (3) Distribution rate represents the monthly annualized distributions of the Trust at the end of the period and not the earnings of the Trust. (4) The taxable-equivalent distribution rate is calculated assuming a 36% federal tax bracket. (5) See "Notes to Financial Statements" footnote #6, for more information concerning Preferred Share reset periods. A portion of the interest income may be taxable for those investors subject to the federal alternative minimum tax (AMT). Past performance does not guarantee future results. Investment return, stock price and net asset value will fluctuate with market conditions. Trust shares, when sold, may be worth more or less than their original cost. 6 8 PORTFOLIO OF INVESTMENTS June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- MUNICIPAL BONDS ALABAMA 0.1% $ 500 Alabama St Indl Dev Auth Solid Waste Disp Rev Pine City Fiber Co............................. 6.450% 12/01/23 $ 507,460 ------------ ALASKA 0.8% 3,500 North Slope Borough, AK Ser B (FSA Insd) (b)... 6.100 06/30/99 3,629,360 ------------ ARKANSAS 0.2% 1,000 Conway, AR Hosp Rev Conway Regl Hosp Rfdg...... 8.375 07/01/11 1,080,780 ------------ CALIFORNIA 7.2% 11,150 California Hsg Fin Agy Rev Homeowner Mtg Ser D.............................................. * 08/01/20 1,894,385 5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA Insd).................................... * 09/01/17 1,581,250 10,000 East Bay, CA Muni Util Dist Wastewtr Treatment Sys Rev (FGIC Insd)............................ 4.750 06/01/21 8,844,700 10,000 Los Angeles, CA Wastewtr Sys Rev Ser 1993d (FGIC Insd).................................... 4.700 11/01/17 8,853,800 5,000 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded Cap) (AMBAC Insd).............................. 5.125 12/01/23 4,606,500 6,075 Orange Cnty, CA Recovery Ctfs Ser A Rfdg (MBIA Insd).......................................... 6.000 06/01/09 6,581,169 ------------ 32,361,804 ------------ COLORADO 9.5% 1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B............................... 6.950 08/31/20 1,128,780 1,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B............................... 7.000 08/31/26 1,698,090 19,405 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C............................... * 08/31/26 2,548,071 2,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/07 2,263,620 12,400 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.250 11/15/12 13,988,812 5,600 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/23 6,345,696 6,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.750 11/15/23 7,018,320 2,000 Douglas Cnty, CO Sch Dist No 1 Rev Douglas & Elbert Cntys Impt Ser A (Prerefunded @ 12/15/04) (MBIA Insd).......................... 6.400 12/15/11 2,233,280 3,000 Meridian Metro Dist CO Rfdg.................... 7.500 12/01/11 3,297,150 1,850 Montrose Cnty, CO Ctfs Partn................... 6.350 06/15/06 1,941,686 ------------ 42,463,505 ------------
See Notes to Financial Statements 7 9 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- DISTRICT OF COLUMBIA 0.8% $ 1,000 District of Columbia Ctfs Partn................ 6.875% 01/01/03 $ 1,046,680 2,775 District of Columbia Hosp Rev Medlantic Hlthcare Ser A Rfdg (MBIA Insd)................ 5.250 08/15/12 2,729,351 ------------ 3,776,031 ------------ FLORIDA 3.8% 3,150 Broward Cnty, FL Tourist Dev Tax Spl Rev Convention Cent Proj (Prerefunded @ 10/01/98) (FGIC Insd).................................... 7.750 10/01/13 3,356,829 5,000 Dunes, FL Cmnty Dev Dist Rev Wtr & Swr Proj (Prerefunded @ 10/01/98)....................... 8.250 10/01/18 5,353,850 4,660 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg (Prerefunded @ 06/01/00).................. * 06/01/15 1,426,613 1,000 Florida St Muni Pwr Agy Rev All Requirements Pwr Supply Proj (AMBAC Insd)................... 5.100 10/01/25 926,050 5,685 Palm Beach Cnty, FL Hlth Fac Auth Rev JFK Med Cent Inc Proj Ser 1988 Rfdg (Prerefunded @ 12/01/98)...................................... 8.875 12/01/18 6,160,550 ------------ 17,223,892 ------------ GEORGIA 3.9% 6,288 Fulton Cnty, GA Lease Rev Ctfs Partn........... 7.250 06/15/10 7,222,161 2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA Insd).......................................... 6.500 01/01/20 2,993,123 2,300 Georgia Muni Elec Auth Pwr Rev Ser O (Crossover Refunding @ 01/01/98).......................... 8.125 01/01/17 2,390,965 5,000 Georgia Muni Elec Auth Pwr Rev Ser Z (MBIA Insd).......................................... 5.500 01/01/20 5,003,200 ------------ 17,609,449 ------------ IDAHO 1.0% 4,390 Boise, ID Urban Renewal Agy Pkg Rev Ser A (b)............................................ 8.125 09/01/15 4,621,660 ------------ ILLINOIS 11.2% 2,500 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj (Prerefunded @ 09/01/99)............. 8.375 09/01/14 2,725,925 1,000 Chicago, IL Ser B Rfdg (AMBAC Insd) (b)........ 5.125 01/01/15 970,760 14,270 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84A......................... 8.850 05/01/18 15,954,288 2,700 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84B......................... 8.850 05/01/18 3,057,102 4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd).......................................... * 01/01/07 3,041,753 2,000 Illinois Edl Fac Auth Rev Lewis Univ........... 6.125 10/01/26 2,015,940 1,575 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D.......................................... 9.500 11/15/15 1,854,704 1,275 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (Prerefunded @ 11/15/00)................. 9.500 11/15/15 1,500,764
See Notes to Financial Statements 8 10 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 625 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E.......................................... 9.500% 11/15/19 $ 738,175 1,310 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E (Prerefunded @ 11/15/00)................. 9.500 11/15/19 1,541,962 1,000 Illinois Hlth Fac Auth Rev Lutheran Social Svcs Proj Ser A (Prerefunded @ 08/01/00)............ 7.650 08/01/20 1,112,260 3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys Rfdg........................................... 6.000 11/15/23 3,237,274 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Prerefunded @ 08/15/01)....................... 8.000 08/15/21 2,291,140 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser B (Prerefunded @ 08/15/99)....................... 7.875 08/15/19 2,180,980 45,775 Illinois Hsg Dev Auth Multi-Family Hsg Ser A... * 07/01/27 4,645,705 1,745 Illinois Hsg Dev Auth Multi-Family Hsg Ser C... 7.400 07/01/23 1,824,677 1,250 Sangamon Cnty, IL Ctls Partn................... 10.000 12/01/06 1,716,575 ------------ 50,409,984 ------------ INDIANA 0.8% 1,370 Indiana Hlth Fac Fin Auth Hosp Rev Bartholomew Cnty Hosp Proj (Prerefunded @ 08/15/00) (FSA Insd).......................................... 7.750 08/15/20 1,530,509 1,650 Indiana St Edl Fac Auth Rev Univ Evansville Proj (Prerefunded @ 11/01/00).................. 8.125 11/01/10 1,872,849 ------------ 3,403,358 ------------ KENTUCKY 1.1% 1,465 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)................ 5.750 03/01/02 1,506,064 1,100 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)................ 5.800 03/01/03 1,135,475 2,190 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)................ 6.250 03/01/09 2,329,218 ------------ 4,970,757 ------------ LOUISIANA 1.9% 1,567 Lafayette, LA Pub Fin Auth Single Family Mtg Rev Ser A Rfdg..................................... 8.500 11/15/12 1,667,954 5,003 Louisiana Pub Fac Auth Rev Multi-Family Hsg Pontchartn Arpts Ser B (GNMA Collateralized).............. 8.375 07/20/23 5,315,880 1,250 New Orleans, LA Hsg Dev Corp Multi-Family Rev Hsg Southwood Patio Ser A (FNMA Collateralized).... 7.700 02/01/22 1,332,450 ------------ 8,316,284 ------------
See Notes to Financial Statements 9 11 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- MAINE 0.2% $ 840 Maine St Hsg Auth Ser C........................ 8.300% 11/15/20 $ 873,289 ------------ MARYLAND 0.5% 4,650 Baltimore, MD Cap Apprec Cons Pub Impt Ser A Rfdg (FGIC Insd)............................... * 10/15/09 2,399,400 ------------ MASSACHUSETTS 1.5% 2,700 Massachusetts Muni Whsl Elec Co Pwr Supply Sys Rev Ser A Rfdg (AMBAC Insd).................... 5.000 07/01/10 2,617,191 2,695 Massachusetts St Hlth & Edl Fac Auth Rev Farmingham Union Hosp Ser B (Prerefunded @ 07/01/00)...................................... 8.500 07/01/10 3,022,685 1,000 Massachusetts St Indl Fin Agy Rev Higher Edl Hampshire College Proj......................... 5.625 10/01/12 974,940 ------------ 6,614,816 ------------ MICHIGAN 2.2% 4,450 Michigan St Hosp Fin Auth Rev Hosp Battle Creek Hosp Ser G Rfdg................................ 9.500 11/15/15 5,221,051 2,000 Michigan St Hosp Fin Auth Rev Hosp Bay Med Cent Ser A Rfdg (Crossover Refunding @ 07/01/00).... 8.250 07/01/12 2,234,460 2,300 Muskegon, MI Hosp Fin Auth Rev Hackley Hosp Ser A Rfdg......................................... 8.000 02/01/08 2,387,239 ------------ 9,842,750 ------------ MINNESOTA 1.3% 5,000 Duluth, MN Econ Dev Auth Hlthcare Fac Rev Benedictine Hlth Saint Mary's Proj (Prerefunded @ 02/15/00).................................... 8.375 02/15/20 5,593,450 ------------ MISSISSIPPI 0.4% 1,500 Mississippi Hosp Equip & Fac MS Baptist Med Cent Rfdg (MBIA Insd).......................... 6.000 05/01/13 1,562,040 ------------ MISSOURI 1.1% 3,000 Missouri St Hsg Dev Cmnty Mtg Rev Ser B Rfdg (FHA Gtd)...................................... 7.000 09/01/10 3,167,160 1,500 Phelps Cnty, MO Hosp Rev Phelps Cnty Regl Med Cent (Prerefunded @ 03/01/00).................. 8.300 03/01/20 1,675,980 ------------ 4,843,140 ------------ NEBRASKA 1.6% 6,535 Nebraska Invt Fin Single Family Mtg Rev Pgm B (Inverse Fltg) (GNMA Collateralized)........... 10.886 03/15/22 7,180,331 ------------
See Notes to Financial Statements 10 12 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- NEW YORK 13.8% $ 2,000 Metropolitan Tran Auth New York Tran Fac Rev Ser A (MBIA Insd).............................. 5.750% 07/01/21 $ 2,019,860 2,250 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser C (Prerefunded @ 06/15/01)............. 7.750 06/15/20 2,556,045 7,000 New York City Ser A Rfdg....................... 7.000 08/01/04 7,769,090 4,500 New York City Ser B (AMBAC Insd)............... 7.250 08/15/07 5,296,410 3,480 New York City Ser C............................ 7.000 08/15/08 3,679,856 320 New York City Ser C (Prerefunded @ 08/15/01)... 7.000 08/15/08 351,242 5,000 New York City Tran Auth Tran Fac Livingston Plaza Proj Rfdg (FSA Insd)..................... 5.400 01/01/18 4,972,400 8,625 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 8,529,607 2,500 New York St Dorm Auth Rev City Univ Ser F...... 5.000 07/01/20 2,228,825 4,615 New York St Dorm Auth Rev St Univ Edl Fac Ser B Rfdg........................................... 7.000 05/15/16 4,929,420 415 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A............................ 7.750 08/15/11 463,348 695 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A (Prerefunded @ 02/15/01)... 7.750 08/15/11 786,177 5,000 New York St Thruway Auth Svc Contract Rev Loc Hwy & Brdg..................................... 5.750 04/01/08 5,169,750 2,500 New York St Urban Dev Corp Rev Correctional Cap Fac Ser A...................................... 5.250 01/01/21 2,314,225 2,635 New York St Urban Dev Corp Rev Youth Fac....... 5.875 04/01/08 2,734,155 4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt Terminal 6 (MBIA Insd)............... 5.750 12/01/22 4,005,040 4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt Terminal 6 (MBIA Insd)............... 5.750 12/01/25 4,001,320 ------------ 61,806,770 ------------ NORTH CAROLINA 3.6% 15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev (MBIA Insd)................................ 6.000 01/01/12 16,187,700 ------------
See Notes to Financial Statements 11 13 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- OHIO 3.2% $ 3,175 Cleveland, OH Ctfs Partn Cleveland Stad Proj (AMBAC Insd)................................... 5.250% 11/15/10 $ 3,176,238 5,945 Cleveland, OH Ctfs Partn Cleveland Stad Proj (AMBAC Insd)................................... 5.250 11/15/12 5,898,213 3,900 Mason, OH Hlthcare Fac MCV Hlthcare Fac (FHA Gtd)........................................... 7.625 02/01/40 4,107,246 1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Partnership Proj Rfdg (AMBAC Insd)......... 6.375 04/01/29 1,054,160 ------------ 14,235,857 ------------ OKLAHOMA 0.3% 1,250 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med Cent (Prerefunded @ 06/01/03).................. 7.200 06/01/17 1,438,250 ------------ OREGON 0.6% 2,500 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single Family Mtg Proj Ser B.......................... 6.875 07/01/28 2,658,425 ------------ PENNSYLVANIA 6.2% 1,750 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool Pgm Ser B Var Rate Cpn (BIGI Insd)............. 8.000 05/15/18 1,831,148 10,000 Geisinger Auth PA Hlth Sys Ser A............... 6.400 07/01/22 10,520,200 5,000 Pennsylvania St Higher Edl Assistance Agy Student Ln Rev Ser B (Inverse Fltg) (MBIA Insd). 10.749 03/01/20 5,725,000 1,100 Pennsylvania St Higher Edl Fac Auth Rev Med College PA Ser A (Prerefunded @ 03/01/99)...... 8.375 03/01/11 1,194,303 1,750 Philadelphia, PA Sch Dist Cap Apprec Ser A Rfdg (AMBAC Insd)................................... * 07/01/01 1,455,895 2,000 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev Ser 1993 A......................................... 6.000 12/01/13 1,980,540 4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin Pgm Ser C (AMBAC Insd) (b)................. 7.700 12/01/15 5,096,889 ------------ 27,803,975 ------------ RHODE ISLAND 0.2% 1,000 Providence, RI Pub Bldg Auth Genl Rev Ser B (FSA Insd)..................................... 7.250 12/15/10 1,099,040 ------------ SOUTH CAROLINA 0.4% 1,610 South Carolina St Hsg Fin & Dev Auth Homeowner Mtg Ser A...................................... 7.400 07/01/23 1,694,928 ------------ TENNESSEE 2.7% 11,470 Tennessee Hsg Dev Agy Mtg Fin Ser A............ 7.125 07/01/26 12,155,677 ------------
See Notes to Financial Statements 12 14 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- TEXAS 6.2% $ 7,065 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (MBIA Insd)............................. * 02/15/20 $ 1,426,070 935 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (Prerefunded @ 02/15/00) (MBIA Insd).... * 02/15/20 194,667 4,820 Harris Cnty, TX Toll Road (Prerefunded @ 08/15/09) (AMBAC Insd)......................... * 08/15/18 1,389,220 1,000 Harris Cnty, TX Toll Road (Prerefunded @ 08/15/09) (AMBAC Insd)......................... * 08/15/21 233,080 3,585 Houston, TX Arpt Sys Rev Spl Fac People Mover Ser A (FSA Insd)............................... 5.375% 07/15/09 3,573,887 2,000 Houston, TX Arpt Sys Rev Spl Fac People Mover Ser A (FSA Insd)............................... 5.375 07/15/10 1,975,060 3,300 Houston, TX Arpt Sys Rev Spl Fac People Mover Ser A (FSA Insd)............................... 5.375 07/15/11 3,237,795 3,525 Texas Muni Pwr Agy Rev Cap Apprec Rfdg (AMBAC Insd).......................................... * 09/01/07 2,105,941 8,220 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation Rfdg (Cap Guar Insd)............... 5.500 09/01/13 8,230,028 1,860 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation (Prerefunded @ 01/01/98) (BIGI Insd).......................................... 7.875 01/01/08 1,897,553 2,000 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation (Prerefunded @ 01/01/98) (BIGI Insd).......................................... 7.875 01/01/09 2,015,660 1,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union Carbide Chem & Plastics....... 8.200 03/15/21 1,392,063 ------------ 27,671,024 ------------ UTAH 2.2% 5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc Proj........................................... 7.900 06/01/17 5,523,278 3,300 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Embedded Cap)................................. 5.500 02/15/17 3,222,417 1,125 Utah St Hsg Fin Agy Single Family Mtg Ser B Class 2........................................ 6.250 07/01/14 1,152,821 ------------ 9,898,516 ------------ WASHINGTON 2.3% 10,000 King Cnty, WA Ser B............................ 5.800 12/01/12 10,262,400 ------------ WEST VIRGINIA 1.0% 2,480 South Charleston, WV Indl Dev Rev Union Carbide Chem & Plastics Ser A.......................... 8.000 08/01/20 2,674,482 1,600 West Virginia St Hsg Dev Hsg Fin Ser A (b)..... 7.400 11/01/11 1,646,096 ------------ 4,320,578 ------------
See Notes to Financial Statements 13 15 PORTFOLIO OF INVESTMENTS (CONTINUED) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- PUERTO RICO 0.1% $ 365 Puerto Rico Elec Pwr Auth Pwr Ser N............ 7.000% 07/01/07 $ 390,678 ------------ TOTAL LONG-TERM INVESTMENTS 93.9% (Cost $389,534,198)....................................................... 420,907,358 ------------ SHORT-TERM INVESTMENTS 5.6% Burke Cnty, GA Dev Auth Pollutn Ctl Rev Georgia Pwr Co Plant Vogtle ($2,000,000 par, yielding 4.000%, 07/01/97 maturity)........................ 2,000,000 Delaware St Econ Dev Auth Rev Var Delmarva Pwr & Lt Co Proj ($1,500,000 par, yielding 4.200%, 07/01/97 maturity)......................................... 1,500,000 Indiana and Purdue Univ's Rev - Student Fees Ser E ($3,500,000 par, yielding 4.150%, 07/01/97 maturity).................................................. 3,500,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Adj Ser A ($3,100,000 par, yielding 5.500%, 07/01/97 maturity)......................................... 3,100,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Adj Ser C ($2,300,000 par, yielding 4.150%, 07/01/97 maturity)......................................... 2,300,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Adj Ser G ($1,500,000 par, yielding 4.050%, 07/01/97 maturity)......................................... 1,500,000 New York City Ser B ($900,000 par, yielding 5.500%, 07/01/97 maturity)...... 900,000 New York St Energy Resh & Dev Auth Pollutn Ctl Rev Niagara Pwr Corp Proj B ($6,000,000 par, yielding 5.500%, 07/01/97 maturity)........................ 6,000,000 New York St Energy Resh & Dev Auth Pollutn Ctl Rev NY St Elec & Gas Ser C Rfdg ($900,000 par, yielding 3.250%, 07/01/97 maturity)..................... 900,000 Phenix Cnty, AL Indl Dev Brd Environmental Impt Rev Mead Coated Brd Proj Ser A ($1,000,000 par, yielding 4.150%, 07/01/97 maturity)...................... 1,000,000 Uinta Cnty, WY Pollutn Ctl Rev Chevron USA Inc Proj Rfdg ($2,500,000 par, yielding 4.000%, 07/01/97 maturity)......................................... 2,500,000 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $25,200,000)........................................................ 25,200,000 ------------ TOTAL INVESTMENTS 99.5% (Cost $414,734,198)....................................................... 446,107,358 OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................. 2,140,065 ------------ NET ASSETS 100.0%.......................................................... $448,247,423 -----------
*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 option and futures transactions. See Notes to Financial Statements 14 16 STATEMENT OF ASSETS AND LIABILITIES June 30, 1997 - -------------------------------------------------------------------------------- ASSETS: Total Investments (Cost $414,734,198)....................... $446,107,358 Cash........................................................ 175,249 Receivables: Interest.................................................. 6,923,751 Investments Sold.......................................... 1,077,048 Other....................................................... 13,114 ------------ Total Assets............................................ 454,296,520 ------------ LIABILITIES: Payables: Investments Purchased..................................... 4,881,700 Investment Advisory Fee................................... 221,437 Income Distributions -- Common and Preferred Shares....... 176,064 Variation Margin on Futures............................... 118,750 Affiliates................................................ 11,823 Options at Market Value (Net premiums received of $308,208)................................................. 425,782 Accrued Expenses............................................ 149,333 Deferred Compensation and Retirement Plans.................. 64,208 ------------ Total Liabilities....................................... 6,049,097 ------------ NET ASSETS.................................................. $448,247,423 ============ NET ASSETS CONSIST OF: Preferred Shares ($.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, 28,286,058 shares issued and outstanding).............................................. 282,861 Paid in Surplus............................................. 261,704,481 Net Unrealized Appreciation................................. 31,305,431 Accumulated Undistributed Net Investment Income............. 1,537,747 Accumulated Net Realized Loss............................... (11,583,097) ------------ Net Assets Applicable to Common Shares.................. 283,247,423 ------------ NET ASSETS.................................................. $448,247,423 ============ NET ASSET VALUE PER COMMON SHARE ($283,247,423 divided by 28,286,058 shares outstanding)............................ $ 10.01 ============
See Notes to Financial Statements 15 17 STATEMENT OF OPERATIONS For the Year Ended June 30, 1997 - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.................................................... $29,394,521 ----------- EXPENSES: Investment Advisory Fee..................................... 2,665,199 Preferred Share Maintenance................................. 450,944 Custody..................................................... 42,376 Trustees Fees and Expenses.................................. 29,387 Legal....................................................... 27,018 Other....................................................... 355,511 ----------- Total Expenses.......................................... 3,570,435 ----------- NET INVESTMENT INCOME....................................... $25,824,086 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 2,657,615 Options................................................... (114,598) Futures................................................... 219,081 ----------- Net Realized Gain........................................... 2,762,098 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 26,683,519 ----------- End of the Period: Investments............................................. 31,373,160 Options................................................. (117,574) Futures................................................. 49,845 ----------- 31,305,431 ----------- Net Unrealized Appreciation During the Period............... 4,621,912 ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 7,384,010 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $33,208,096 ===========
See Notes to Financial Statements 16 18 STATEMENT OF CHANGES IN NET ASSETS For the Years Ended June 30, 1997 and 1996 - --------------------------------------------------------------------------------
Year Ended Year Ended June 30, 1997 June 30, 1996 - ------------------------------------------------------------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income...................................... $25,824,086 $ 26,234,758 Net Realized Gain.......................................... 2,762,098 4,390,254 Net Unrealized Appreciation/Depreciation During the Period................................................... 4,621,912 (3,167,431) ------------- ------------- Change in Net Assets from Operations....................... 33,208,096 27,457,581 ------------- ------------- Distributions from Net Investment Income: Common Shares............................................ (20,273,120) (21,482,382) Preferred Shares......................................... (5,768,834) (6,131,780) ------------- ------------- Total Distributions........................................ (26,041,954) (27,614,162) ------------- ------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........ 7,166,142 (156,581) FROM CAPITAL TRANSACTIONS: Value of Common Shares Issued Through Dividend Reinvestment............................................. 2,382,543 2,765,783 ------------- ------------- TOTAL INCREASE IN NET ASSETS............................... 9,548,685 2,609,202 NET ASSETS: Beginning of the Period.................................... 438,698,738 436,089,536 ------------- ------------- End of the Period (Including accumulated undistributed net investment income of $1,537,747 and $1,755,615, respectively)............................................ $ 448,247,423 $ 438,698,738 ============= =============
See Notes to Financial Statements 17 19 FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one common share of the Trust outstanding throughout the periods indicated. - --------------------------------------------------------------------------------
---------------------------------------------- 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period (a).............................. $ 9.758 $9.760 $ 9.924 $11.133 ------ ----- ------ ------ Net Investment Income..................... .916 .940 .964 1.000 Net Realized and Unrealized Gain/Loss..... .264 .048 (.065) (1.214) ------ ----- ------ ------ Total from Investment Operations.......... 1.180 .988 .899 (.214) ------ ----- ------ ------ Less: Distributions from Net Investment Income: Paid to Common Shareholders........... .720 .770 .840 .840 Common Share Equivalent of Distributions Paid to Preferred Shareholders........................ .204 .220 .223 .155 Distributions from and in Excess of Net Realized Gain Paid to Common Shareholders.......................... -0- -0- -0- -0- ------ ----- ------ ------ Total Distributions....................... .924 .990 1.063 .995 ------ ----- ------ ------ Net Asset Value, End of the Period........ $10.014 $9.758 $ 9.760 $ 9.924 ======= ====== ======= ======= Market Price Per Share at End of the Period.................................. $10.875 $9.875 $11.125 $11.125 Total Investment Return at Market Price (b)............................... 18.32% (4.27%) 8.59% (0.05%) Total Return at Net Asset Value (c)....... 10.24% 8.02% 7.24% (3.63%) Net Assets at End of the Period (In millions)............................... $448.2 $438.7 $436.1 $437.7 Ratio of Expenses to Average Net Assets Applicable to Common Shares............. 1.28% 1.31% 1.33% 1.28% Ratio of Expenses to Average Net Assets... .80% .82% .83% .82% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d).............................. 7.18% 7.26% 7.56% 7.86% Portfolio Turnover........................ 53% 29% 38% 45%
* Non-Annualized ** If certain expenses had not been assumed by the Adviser for the period ended June 30, 1989, the Ratio of Expenses to Average Net Assets Applicable to Common Shares would have been 1.07% and the Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares would have been 5.99%. (a) Net Asset Value at August 26, 1988, is adjusted for common and preferred share offering costs of $.120 per 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 common share equivalent of distributions paid to preferred shareholders. N/A = Not Applicable 18 20 - --------------------------------------------------------------------------------
August 26, 1988 (Commencement Year Ended June 30, of Investment - ------------------------------------------ Operations) to 1993 1992 1991 1990 June 30, 1989 - ------------------------------------------------------------------- $10.688 $ 9.805 $ 9.534 $9.767 $9.180 ------ ------ ------ ----- ----- 1.078 1.095 1.093 1.070 .766 .520 .848 .295 (.229) .559 ------ ------ ------ ----- ----- 1.598 1.943 1.388 .841 1.325 ------ ------ ------ ----- ----- .829 .791 .725 .685 .501 .162 .238 .337 .389 .237 .162 .031 .055 -0- -0- ------ ------ ------ ----- ----- 1.153 1.060 1.117 1.074 .738 ------ ------ ------ ----- ----- $11.133 $10.688 $ 9.805 $9.534 $9.767 ======= ======= ======= ====== ====== $12.000 $11.375 $10.125 $9.250 $9.500 15.20% 21.65% 18.71% 4.65% .10%* 13.97% 18.08% 11.61% 4.76% 10.62%* $467.9 $452.7 $426.7 $418.3 $424.4 1.25% 1.35% 1.46% 1.43% .92%** .80% .84% .89% .87% N/A 8.41% 8.41% 7.88% 7.11% 6.15%** 45% 27% 69% 116% 90%*
See Notes to Financial Statements 19 21 NOTES TO FINANCIAL STATEMENTS June 30, 1997 - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen American Capital Municipal Income Trust (the "Trust") is registered as a diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The Trust's investment objective is to provide a high level of current income exempt from federal income taxes with safety of principal through investment in a diversified portfolio of investment grade tax-exempt municipal securities. The Trust commenced investment operations on August 26, 1988. The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. A. SECURITY VALUATION--Investments are stated at value using market quotations or, if such valuations are not available, estimates obtained from yield data relating to instruments or securities with similar characteristics in accordance with procedures established in good faith by the Board of Trustees. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost. B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Trust may purchase and sell securities on a "when issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Trust will maintain, in a segregated account with its custodian, assets having an aggregate value at least equal to the amount of the when issued or delayed delivery purchase commitments until payment is made. C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond premium and original issue discount are amortized over the expected life of each applicable security. D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. 20 22 NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 1997 - -------------------------------------------------------------------------------- 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, 1997, the Trust had an accumulated capital loss carryforward for tax purposes of $11,650,826 which will expire on June 30, 2004. Net realized gains or losses may differ for financial and tax reporting purposes primarily as a result of post October 31 losses which are not recognized for tax purposes until the first day of the following fiscal year and as a result of gains or losses recognized for tax purposes or the mark-to-market of open option and futures at June 30, 1997. At June 30, 1997, for federal income tax purposes, cost of long- and short-term investments is $414,734,198; the aggregate gross unrealized appreciation is $31,491,910 and the aggregate gross unrealized depreciation is $118,750, resulting in net unrealized appreciation on investments of $31,373,160. 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 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. For the year ended June 30, 1997, 99.99% of the income distributions made by the Trust were exempt from federal income taxes. In January, 1998, the Trust will provide tax information to shareholders for the 1997 calendar year. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Trust's Investment Advisory Agreement, Van Kampen American Capital 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, 1997, the Trust recognized expenses of approximately $17,100 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust is an affiliated person. For the year ended June 30, 1997, the Trust recognized expenses of approximately $92,500 representing Van Kampen American Capital Distributors, Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting and legal services to the Trust. Certain officers and trustees of the Trust are also officers and directors of VKAC. The Trust does not compensate its officers or trustees who are officers of VKAC. 21 23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 1997 - -------------------------------------------------------------------------------- The Trust provides deferred compensation and retirement plans for its trustees who are not officers of VKAC. 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 under the plan is equal to the trustee's annual retainer fee, which is currently $2,500. 3. CAPITAL TRANSACTIONS At June 30, 1997 and June 30, 1996, common share paid in surplus aggregated $261,704,481 and $259,324,321, respectively. Transactions in common shares were as follows:
YEAR ENDED YEAR ENDED JUNE 30, 1997 JUNE 30, 1996 - ------------------------------------------------------------------------------ Beginning Shares............................... 28,047,767 27,775,981 Shares Issued Through Dividend Reinvestment.... 238,291 271,786 ---------- ---------- Ending Shares.................................. 28,286,058 28,047,767 ========== ==========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments excluding short-term investments, were $232,385,810 and $251,176,102, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Trust has a variety of reasons to use derivative instruments, such as to attempt to protect the Trust against possible changes in the market value of its portfolio and to manage the portfolio's effective yield, maturity and duration. All of the Trust's portfolio holdings, including derivative instruments, are marked to market each day with the change in value reflected in the unrealized appreciation/depreciation. Upon disposition, a realized gain or loss is recognized accordingly, except when exercising an option contract or taking delivery of a security underlying a futures contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the option or futures contract. Summarized below are the specific types of derivative financial instruments used by the Trust. 22 24 NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 1997 - -------------------------------------------------------------------------------- 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, 1997, were as follows:
CONTRACTS PREMIUM - -------------------------------------------------------------------------- Outstanding at June 30, 1996.................... -0- $ -0- Options Written and Purchased (Net)............. 8,025 (782,168) Options Terminated in Closing Transactions (Net)......................................... (4,800) 551,067 Options Expired (Net)........................... (1,725) 539,309 ------ --------- Outstanding at June 30, 1997.................... 1,500 $ 308,208 ====== =========
The related futures contracts of the outstanding option transactions as of June 30, 1997, and the descriptions and market values are as follows:
MARKET EXPIRATION MONTH/ VALUE OF CONTRACTS EXERCISE PRICE OPTIONS - -------------------------------------------------------------------------------- MUNICIPAL BOND FUTURES Aug 1997--Purchased Call......... 250 Aug/120 $ 62,500 Aug 1997--Written Put............ 250 Aug/115 (183,594) Sep 1997--Written Put............ 250 Sep/114 (183,594) Sep 1997--Written Put............ 250 Sep/115 (257,813) US TREASURY BOND FUTURES Sep 1997--Purchased Put.......... 250 Aug/110 226,563 Sep 1997--Written Call........... 250 Aug/114 (89,844) ------ --------- 1,500 $(425,782) ====== =========
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index and typically closes the contract prior to the delivery date. These contracts are generally used to manage the portfolio's effective maturity and duration. Upon entering into futures contracts, the Trust maintains, in a segregated account with its custodian, securities with a value equal to its obligation under the futures contracts. During the period the futures contract is open, payments are received from or 23 25 NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 1997 - -------------------------------------------------------------------------------- made to the broker based upon changes in the value of the contract (the variation margin). Transactions in futures contracts for the year ended June 30, 1997, were as follows:
CONTRACTS - ----------------------------------------------------------------------- Outstanding at June 30, 1996.............................. 0 Futures Opened............................................ 1,900 Futures Closed............................................ (1,300) ------ Outstanding at June 30, 1997.............................. 600 ======
The futures contracts outstanding as of June 30, 1997, and the descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED CONTRACTS APPRECIATION/DEPRECIATION - ------------------------------------------------------------------------------- Long Contracts--US Treasury Bond Futures Sep 1997 (Current notional value of $111,063 per contract)...................... 350 $(182,512) Short Contracts--Municipal Bond Futures Sep 1997 (Current notional value of $116,500 per contract)...................... 250 232,357 --- --------- 600 $ 49,845 === =========
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 24 26 NOTES TO FINANCIAL STATEMENTS (CONTINUED) June 30, 1997 - -------------------------------------------------------------------------------- in effect on June 30, 1997, was 3.793%. During the year ended June 30, 1997, the rates ranged from 3.346% to 3.830%. 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. 25 27 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Trustees and Shareholders of Van Kampen American Capital Municipal Income Trust: We have audited the accompanying statement of assets and liabilities of Van Kampen American Capital Municipal Income Trust (the "Trust"), including the portfolio of investments, as of June 30, 1997, 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 June 30, 1997, 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 American Capital Municipal Income Trust as of June 30, 1997, 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 Peat Marwick LLP Chicago, Illinois July 31, 1997 26 28 DIVIDEND REINVESTMENT PLAN The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which Common Shareholders may elect to have dividends and capital gains distributions reinvested in Common Shares of the Trust. The Trust declares dividends out of net investment income, and will distribute annually net realized capital gains, if any. Common Shareholders may join or withdraw from the Plan at any time. If you decide to participate in the Plan, State Street Bank and Trust Company, as your Plan Agent, will automatically invest your dividends and capital gains distributions in Common Shares of the Trust for your account. HOW TO PARTICIPATE If you wish to participate and your shares are held in your own name, call 1-800-341-2929 for more information and a Plan brochure. If your shares are held in the name of a brokerage firm, bank, or other nominee, you should contact your nominee to see if it would participate in the Plan on your behalf. If you wish to participate in the Plan, but your brokerage firm, bank or nominee is unable to participate on your behalf, you should request that your shares be re- registered in your own name which will enable your participation in the Plan. HOW THE PLAN WORKS Participants in the Plan will receive the equivalent in Common Shares valued on the valuation date, generally at the lower of market price or net asset value, except as specified below. The valuation date will be the dividend or distribution payment date or, if that date is not a trading day on the national securities exchange or market system on which the Common Shares are listed for trading, the next preceding trading day. If the market price per Common Share on the valuation date equals or exceeds net asset value per Common Share on that date, the Trust will issue new Common Shares to participants valued at the higher of net asset value or 95% of the market price on the valuation date. In the foregoing situation, the Trust will not issue Common Shares under the Plan below net asset value. If net asset value per Common Share on the valuation date exceeds the market price per Common Share on that date, or if the Board of Trustees should declare a dividend or capital gains distribution payable to the Common Shareholders only in cash, participants in the Plan will be deemed to have elected to receive Common Shares from the Trust valued at the market price on that date. Accordingly, in this circumstance, the Plan Agent will, as agent for the participants, buy the Trust's Common Shares in the open market for the participants' accounts on or shortly after the payment date. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value per share of the Common Shares, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the Trust's Common Shares, resulting in the acquisition of fewer Common Shares than if the dividend or distribution had been paid in Common Shares issued by the Trust. All reinvestments are in full and fractional Common shares and are carried to three decimal places. Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all Common Shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent by at least 90 days written notice to all Common Shareholders of the Trust. COSTS OF THE PLAN The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. No other charges will be made to participants for reinvesting dividends or capital gains distributions, except for certain brokerage commissions, as described above. TAX IMPLICATIONS You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and capital gains distributions does not relieve you of any income tax which may be payable on dividends or distributions. RIGHT TO WITHDRAW Plan participants may withdraw at any time by calling 1-800-341-2929 or by writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266- 8200. If you withdraw, you will receive, without charge, a share certificate issued in your name for all full Common Shares credited to your account under the Plan and a cash payment will be made for any fractional Common Share credited to your account under the Plan. You may again elect to participate in the Plan at any time by calling 1-800-341-2929 or writing to the Trust at: Van Kampen American Capital Attn: Closed-End Funds 2800 Post Oak Blvd. Houston, TX 77056 27 29 FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL GLOBAL AND INTERNATIONAL Global Equity Fund Global Government Securities Fund Global Managed Assets Fund Short-Term Global Income Fund Strategic Income Fund EQUITY Growth Aggressive Growth Fund Emerging Growth Fund Enterprise Fund Growth Fund Pace Fund Growth & Income Comstock Fund Equity Income Fund Growth and Income Fund Harbor Fund Real Estate Securities Fund Utility Fund FIXED INCOME Corporate Bond Fund Government Securities Fund High Income Corporate Bond Fund High Yield Fund Limited Maturity Government Fund Prime Rate Income Trust Reserve Fund U.S. Government Fund U.S. Government Trust for Income TAX-FREE California Insured Tax Free Fund Florida Insured Tax Free Income Fund High Yield Municipal Fund Insured Tax Free Income Fund Intermediate Term Municipal Income Fund Municipal Income Fund New Jersey Tax Free Income Fund New York Tax Free Income Fund Pennsylvania Tax Free Income Fund Tax Free High Income Fund Tax Free Money Fund MORGAN STANLEY FUND, INC. Aggressive Equity Fund American Value Fund Asian Growth Fund Emerging Markets Fund Global Equity Allocation Fund Global Fixed Income Fund High Yield Fund International Magnum Fund Latin American Fund U.S. Real Estate Fund Value Fund Worldwide High Income Fund Ask your investment representative for a prospectus containing more complete information, including sales charges and expenses. Please read it carefully before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or Morgan Stanley retail funds. 28 30 VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH ROD DAMMEYER HOWARD J KERR DENNIS J. MCDONNELL* - Chairman THEODORE A. MYERS HUGO F. SONNENSCHEIN WAYNE W. WHALEN* OFFICERS DENNIS J. MCDONNELL* President RONALD A. NYBERG* Vice President and Secretary EDWARD C. WOOD, III* Vice President and Chief Financial Officer CURTIS W. MORELL* Vice President and Chief Accounting Officer JOHN L. SULLIVAN* Treasurer TANYA M. LODEN* Controller PETER W. HEGEL* Vice President INVESTMENT ADVISER VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP. One Parkview Plaza Oakbrook Terrace, Illinois 60181 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 PEAT MARWICK LLP Peat Marwick Plaza 303 East Wacker Drive Chicago, Illinois 60601 * "Interested" persons of the Trust, as defined in the Investment Company Act of 1940. (C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved. (SM) denotes a service mark of Van Kampen American Capital Distributors, Inc. RESULTS OF SHAREHOLDER VOTES The Annual Meeting of Shareholders of the Trust was held on June 28, 1997, where shareholders voted on a new investment advisory agreement, the election of Trustees and the selection of independent public accountants. With regard to the approval of a new investment advisory agreement between Van Kampen American Capital Investment Advisory Corp. and the Trust, 30,588,285 shares voted for the proposal, 482,351 shares voted against, 705,471 shares abstained and 0 shares represented broker non-votes. With regard to the election of Rod Dammeyer as elected trustee by the preferred shareholders of the Trust, 194 shares voted in his favor, 0 shares withheld. With regard to the election of Wayne W. Whalen as elected trustee by the common shareholders of the Trust, 31,204,991 shares voted in his favor, 570,921 shares withheld. The other trustees of the Trust whose terms did not expire in 1997 are Dennis J. McDonnell, Theodore A. Myers, Hugo Sonnenschein, David C. Arch and Howard J Kerr. With regard to the ratification of KPMG Peat Marwick LLP as independent public accountants for the Trust, 31,207,766 shares voted in favor of the proposal, 132,517 shares voted against, 435,823 shares abstained and 0 shares represented broker non-votes. 29 -----END PRIVACY-ENHANCED MESSAGE-----