-----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, UxxwpVAMx5ZAzvdm650Ml+eZwvsg08YKop3XlCdc7Bq+FdpJRBv4MfuSOWU6hliO kGD1z6k9GczPQQTociwssg== 0000950137-97-000856.txt : 19970303 0000950137-97-000856.hdr.sgml : 19970303 ACCESSION NUMBER: 0000950137-97-000856 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970228 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: 97547444 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 SEMI ANNUAL REPORT 1 TABLE OF CONTENTS Letter to Shareholders........................... 1 Performance Results.............................. 4 Portfolio of Investments......................... 5 Statement of Assets and Liabilities.............. 13 Statement of Operations.......................... 14 Statement of Changes in Net Assets............... 15 Financial Highlights............................. 16 Notes to Financial Statements.................... 18
VMT SAR 2/97 2 LETTER TO SHAREHOLDERS February 10, 1997 Dear Shareholder, Bond prices appreciated during the second half of 1996, recovering much of the ground they had lost in the first six months of the year. [PHOTO] Slower economic growth and moderate inflation eased fears that the Federal Reserve Board would raise interest rates. Specifically, economic growth (real gross domestic DENNIS J. MCDONNELL AND DON G. POWELL product, adjusted for inflation) slowed to 2.0 percent in the third quarter, significantly lower than the 4.7 percent recorded in the second quarter. Employment costs fell, and the Fed refrained from tightening credit. By year end, the yield on the 30-year Treasury bond retreated from above 7.0 percent in July and September to approximately 6.6 percent. A strong dollar encouraged heavy buying of U.S. Treasuries by foreign investors, which also supported the market. During much of the second half of the year, municipal bonds outperformed Treasuries, due to supply-and-demand fundamentals. According to early estimates, the net outstanding issues of municipal bonds (new issues minus maturities and calls), increased by less than $13 billion in 1996. This increase helped to maintain good value in tax-exempt investments. Also, concerns over tax reform abated, which strengthened the demand for municipal securities. PORTFOLIO STRATEGY We maintained a relatively conservative strategy for the Municipal Income Trust during the period. In terms of credit quality, nearly 39 percent of the Fund's long-term assets are AAA-rated, the highest credit rating assigned to bonds by Standard & Poor's Ratings Group. AAA-rated securities involve very little credit risk and are highly liquid. They typically have responded quickly to interest rate changes and perform better in a declining rate environment. Approximately 26 percent of assets are BBB-rated. A combination of high quality holdings and lower-rated holdings helps balance the portfolio's volatility to interest rate movements. The current duration of the Trust's portfolio is fairly short at 6.46 years compared to the Lehman Brothers Municipal Bond Index duration of 7.64 years. Duration, which is expressed in years, is a measure of a bond's price sensitivity to changes in interest rates. The longer the Trust's duration, the greater the effect of changes in interest rate movements on the Trust's net asset value. A portfolio with a shorter duration will normally perform better when interest rates are rising, while a portfolio with a longer duration will perform better in declining rate environments. The Trust has a well-diversified mix of high-coupon securities currently priced at premiums (above par). This is common in many seasoned closed-end funds. Most long-term Continued on page two 1 3 municipal bonds are issued with ten-year call protection. Municipal Income Trust was introduced to the market in 1988 and continues to hold a portion of the "core" position that was acquired at attractive yields that year. This portion of the portfolio is now subject to calls, which presents a risk that the bond issuer might redeem its securities in the near future, forcing the Trust to reinvest those proceeds in lower yielding securities available in the market at the time the securities are called. We seek to manage this risk by ensuring that only a small percentage of the Trust's assets are callable in any year. In 1997, only 3 percent of the Trust's assets are callable, while 10 percent are callable in 1998. Another strategy we use is to exchange these holdings (some of which are AAA-rated) before they are called for lower-rated securities to seek to maintain or enhance the yield. A percentage of holdings in the Trust are discount bonds, which are securities with prices below par. A mixture of premium and discount securities have helped minimize volatility in the Trust, as discount securities have tended to perform better in declining rate environments, and premiums have usually outperformed in rising rate environments. The Trust's largest industry exposures are in the health care, single family housing and general purpose sectors. Our credit research team has significant expertise in these industries, and provides significant added value in security selection, as these sectors provide some of the most attractive yields in the tax-exempt markets. [CREDIT QUALITY GRAPH] Portfolio Composition by Credit Quality as of December 31, 1996 AAA............ 38.5% AA............. 12.0% A.............. 13.1% BBB............ 26.2% BB............. 5.7% B.............. 0.2% Non-Rated...... 4.3%
as of June 30, 1996 AAA............ 36.9% AA............. 9.4% A.............. 18.1% BBB............ 25.0% BB............. 5.9% B.............. 0.2% Non-Rated...... 4.5%
Based upon credit quality ratings issued by Standard & Poor's. For securities not rated by Standard & Poor's, the Moody's rating is used. PERFORMANCE SUMMARY Many closed-end municipal bond funds, such as the Van Kampen American Capital Municipal Income Trust, currently offer higher after-tax yields than taxable income alternatives. For the six-month period ended December 31, 1996, the Trust generated a total return based on market price of 8.92 percent(1). This performance reflects an increase in market price per common share on the American Stock Exchange from $9.875 on June 30, 1996 to $10.375 on December 31, 1996, plus reinvestment of all dividends. Based upon the closing common stock price on December 31, 1996, the Trust generated a tax-exempt distribution rate of 6.94 percent(3). For shareholders in the federal income tax bracket of 36 percent, this distribution rate is equivalent to a yield of 10.84 percent(4) on a taxable investment. Continued on page three 2 4 OUTLOOK We believe that the economy will grow at a modest pace this year, near 2.5 percent, although there could be periods of greater strength. While these growth spurts may be accompanied by short-term market fluctuation, we do not believe they will be strong enough to reignite inflation. Price pressures are well-contained and should remain so. Relatively stable interest rates would be favorable for the leveraged structure of our closed-end funds, which involves borrowing short-term funds to purchase long-term securities. Depending on the difference between long- and short-term market rates, this structure provides opportunities for additional earnings. The leveraged capital structure of the Trust continues to provide common shareholders with above-market levels of dividend income. 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. The bond market should find continued support from the results of the November national elections--the combination of a Democratic president and a Republican Congress should help restrain potential spending increases and tax cuts, and therefore keep the budget deficit under control. This split government should also help minimize the chances of major tax reform, which would likely affect the municipal bond market. The stock market is another factor that will influence the performance of bonds this year. If stocks suffer a protracted setback, the demand for bonds, including municipal securities, could increase. CORPORATE NEWS As you may be aware, shareholders approved the acquisition of VK/AC Holding, Inc. by Morgan Stanley Group Inc. We believe this acquisition will further help investors achieve their long-term goals. Morgan Stanley's strong global presence and commitment to superior investment performance complement our broad range of investment products, money management capability and high level of service. Thank you for your continued confidence in your investment with Van Kampen American Capital. 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. 3 5 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996 VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST (NYSE TICKER SYMBOL--VMT) COMMON SHARE TOTAL RETURNS Six-month total return based on market price(1)............. 8.92% Six-month total return based on NAV(2)...................... 6.23% DISTRIBUTION RATES Distribution rate as a % of closing stock price(3).......... 6.94% Taxable-equivalent distribution rate as a % of closing stock price(4).................................................. 10.84% SHARE VALUATIONS Net asset value............................................. $ 10.00 Closing common stock price.................................. $10.375 Six-month high common stock price (08/13/96)................ $10.625 Six-month low common stock price (07/25/96)................. $ 9.750 Preferred share (Series A) rate(5).......................... 3.510% Preferred share (Series B) rate(5).......................... 3.433% Preferred share (series C) rate(5).......................... 3.619%
(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. 4 6 PORTFOLIO OF INVESTMENTS December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- MUNICIPAL BONDS ALABAMA 0.7% $ 3,000 Alabama St Indl Dev Auth Solid Waste Disp Rev Pine City Fiber Co (b).......................... 6.450% 12/01/23 $ 3,009,930 ------------ ALASKA 1.2% 10,000 Alaska St Hsg Fin Corp Cap Apprec Mtg Ser A (MBIA Insd)..................................... * 12/01/27 1,422,800 315 Alaska St Hsg Fin Corp Rfdg..................... 7.800 12/01/30 320,497 3,500 North Slope Borough, AK Ser B (FSA Insd) (c).... 6.100 06/30/99 3,661,770 ------------ 5,405,067 ------------ ARKANSAS 0.2% 1,000 Conway, AR Hosp Rev Conway Regl Hosp Rfdg....... 8.375 07/01/11 1,080,210 ------------ CALIFORNIA 6.5% 11,150 California Hsg Fin Agy Rev Homeowner Mtg Ser D............................................... * 08/01/20 1,815,555 2,335 California St Dept Wtr Res Cent Vly Proj Rev.... 5.500 12/01/21 2,296,005 5,000 California St Pub Wks Lease CA St Univ Proj Ser A Rfdg (AMBAC Insd)............................. 5.375 10/01/17 4,901,550 5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA Insd)..................................... * 09/01/17 1,500,400 2,690 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev Multi-Cap Fac Proj IV (MBIA Insd)............... 5.250 12/01/16 2,582,373 5,215 Los Angeles, CA Dept Wtr & Pwr Elec Rev (MBIA Insd)........................................... 5.300 02/15/25 4,969,582 5,000 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded Cap) (AMBAC Insd)............................... 5.125 12/01/23 4,497,800 6,075 Orange Cnty, CA Recovery Ser A Rfdg (MBIA Insd) (c)............................................. 6.000 06/01/09 6,552,738 ------------ 29,116,003 ------------ COLORADO 10.8% 1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B................................ 6.950 08/31/20 1,103,250 1,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B................................ 7.000 08/31/26 1,657,755 19,405 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C................................ * 08/31/26 2,348,975 2,000 Denver, CO City & Cnty Arpt Rev Ser A........... 8.500 11/15/07 2,279,180 12,400 Denver, CO City & Cnty Arpt Rev Ser A........... 8.250 11/15/12 14,093,592 5,600 Denver, CO City & Cnty Arpt Rev Ser A (c)....... 8.500 11/15/23 6,394,528 6,000 Denver, CO City & Cnty Arpt Rev Ser A........... 8.750 11/15/23 7,083,240 6,000 Denver, CO City & Cnty Sch Dist No 1 Ser A Rfdg............................................ 5.125 12/01/12 5,821,920
See Notes to Financial Statements 5 7 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- COLORADO (CONTINUED) $ 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 $ 2,246,480 3,000 Meridian Metro Dist CO Peninsular & Oriental Steam Navig Co Rfdg............................. 7.500 12/01/11 3,304,020 1,850 Montrose Cnty, CO Ctfs Partn.................... 6.350 06/15/06 1,919,690 ------------ 48,252,630 ------------ CONNECTICUT 1.1% 5,150 Connecticut St Hsg Fin Auth Hsg Mtg Fin Pgm Subser F2 (b)................................... 6.000 11/15/27 5,106,637 ------------ DISTRICT OF COLUMBIA 1.9% 1,000 District of Columbia Ctfs Partn................. 6.875 01/01/03 1,025,860 2,775 District of Columbia Hosp Rev Medlantic Hlthcare Ser A Rfdg (MBIA Insd).......................... 5.250 08/15/12 2,697,050 4,500 District of Columbia Ser A (Prerefunded @ 06/01/97) (AMBAC Insd) (c)...................... 8.000 06/01/07 4,648,005 ------------ 8,307,915 ------------ FLORIDA 5.0% 3,150 Broward Cnty, FL Tourist Dev Tax Spl Rev Convention Cent Proj (Prerefunded @ 10/01/98) (FGIC Insd)..................................... 7.750 10/01/13 3,412,111 5,000 Dunes, FL Cmnty Dev Dist Rev Wtr & Swr Proj (Prerefunded @ 10/01/98)........................ 8.250 10/01/18 5,456,550 4,660 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg (Prerefunded @ 06/01/00)........................ * 06/01/15 1,399,911 1,000 Florida St Muni Pwr Agy Rev All Requirements Pwr Supply Proj (AMBAC Insd)........................ 5.100 10/01/25 925,520 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 6,270,214 1,675 Pinellas Cnty, FL Hlth Fac Auth Sun Coast Hlth Sys Rev Sun Coast Hosp Ser A (Prerefunded @ 03/01/00)....................................... 8.500 03/01/20 1,909,148 3,000 Santa Rosa Bay Bridge Auth FL................... 6.250 07/01/28 2,969,430 ------------ 22,342,884 ------------ GEORGIA 3.0% 7,000 Fulton Cnty, GA Lease Rev Ctfs Partn............ 7.250 06/15/10 7,999,390 2,300 Georgia Muni Elec Auth Pwr Rev Ser O............ 8.125 01/01/17 2,436,666 2,635 Muni Elec Auth GA Spl Oblig 1st Crossover (MBIA Insd)........................................... 6.500 01/01/20 2,989,645 ------------ 13,425,701 ------------ IDAHO 1.1% 4,390 Boise, ID Urban Renewal Agy Pkg Rev Ser A....... 8.125 09/01/15 4,684,218 ------------
See Notes to Financial Statements 6 8 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- ILLINOIS 11.5% $ 2,500 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj (Prerefunded @ 09/01/99)................... 8.375% 09/01/14 $ 2,767,350 1,000 Chicago, IL Ser B Rfdg (AMBAC Insd)............. 5.125 01/01/15 950,370 14,550 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84A.......................... 8.850 05/01/18 16,366,713 2,750 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84B.......................... 8.850 05/01/18 3,128,592 4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd)........................................... * 01/01/07 2,895,539 2,910 Cook Cnty, IL Cmnty Cons Sch Cap Apprec Ser A Rfdg (MBIA Insd)................................ * 12/01/15 990,331 2,000 Illinois Edl Fac Auth Rev Lewis Univ (b)........ 6.125 10/01/26 1,970,160 1,575 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D............................................... 9.500 11/15/15 1,795,752 1,275 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (Prerefunded @ 11/15/00)...................... 9.500 11/15/15 1,522,592 625 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E............................................... 9.500 11/15/19 712,600 1,310 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E (Prerefunded @ 11/15/00)...................... 9.500 11/15/19 1,564,389 1,000 Illinois Hlth Fac Auth Rev Lutheran Social Svcs Proj A (Prerefunded @ 08/01/00)................. 7.650 08/01/20 1,116,460 3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys Rfdg............................................ 6.000 11/15/23 3,208,013 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Prerefunded @ 08/15/01)........................ 8.000 08/15/21 2,311,140 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser B (Prerefunded @ 08/15/99)........................ 7.875 08/15/19 2,202,220 45,775 Illinois Hsg Dev Auth Multi-Family Hsg Ser A.... * 07/01/27 4,479,084 1,745 Illinois Hsg Dev Auth Multi-Family Hsg Ser C.... 7.400 07/01/23 1,837,555 1,250 Sangamon Cnty, IL Ctfs Partn.................... 10.000 12/01/06 1,723,788 ------------ 51,542,648 ------------ 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 1,548,634 1,650 Indiana St Edl Fac Auth Rev Univ Evansville Proj (Prerefunded @ 11/01/00)........................ 8.125 11/01/10 1,887,567 ------------ 3,436,201 ------------
See Notes to Financial Statements 7 9 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- LOUISIANA 1.9% $ 1,698 Lafayette, LA Pub Fin Auth Single Family Mtg Rev Ser A Rfdg...................................... 8.500% 11/15/12 $ 1,819,446 5,027 Louisiana Pub Fac Auth Rev Multi-Family Hsg Pontchartn Arpts Ser B (GNMA Collateralized).... 8.375 07/20/23 5,367,642 1,250 New Orleans, LA Hsg Dev Corp Multi-Family Rev Hsg Southwood Patio Ser A (FNMA Collateralized)................................. 7.700 02/01/22 1,335,912 ------------ 8,523,000 ------------ MAINE 0.2% 840 Maine St Hsg Auth Ser C......................... 8.300 11/15/20 878,329 ------------ MARYLAND 0.5% 4,650 Baltimore, MD Cap Apprec Cons Pub Impt Ser A Rfdg (FGIC Insd)................................ * 10/15/09 2,359,410 ------------ MASSACHUSETTS 0.7% 2,695 Massachusetts St Hlth & Edl Fac Auth Rev Farmingham Union Hosp Ser B (Prerefunded @ 07/01/00)....................................... 8.500 07/01/10 3,066,964 ------------ MICHIGAN 2.4% 4,450 Michigan St Hosp Fin Auth Rev Hosp Battle Creek Hosp Ser G Rfdg................................. 9.500 11/15/15 5,280,815 2,000 Michigan St Hosp Fin Auth Rev Hosp Bay Med Cent Ser A Rfdg...................................... 8.250 07/01/12 2,158,240 2,300 Muskegon, MI Hosp Fin Auth Hosp Rev Hackley Hosp Ser A Rfdg...................................... 8.000 02/01/08 2,416,702 1,000 Whitmore Lake Michigan Pub Sch Dist (FGIC Insd)........................................... 5.100 05/01/26 933,060 ------------ 10,788,817 ------------ MINNESOTA 1.6% 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 5,669,450 6,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A (MBIA Insd)................................... * 01/01/22 1,468,500 ------------ 7,137,950 ------------ MISSISSIPPI 0.3% 1,500 Mississippi Hosp Equip & Fac MS Baptist Med Cent Rfdg (MBIA Insd)................................ 6.000 05/01/13 1,555,995 ------------
See Notes to Financial Statements 8 10 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- MISSOURI 1.1% $ 3,000 Missouri St Hsg Dev Cmnty Mtg Rev Ser B Rfdg (FHA Gtd)....................................... 7.000% 09/01/10 $ 3,179,580 1,500 Phelps Cnty, MO Hosp Rev Phelps Cnty Regl Med Cent (Prerefunded @ 03/01/00)................... 8.300 03/01/20 1,701,090 ------------ 4,880,670 ------------ NEBRASKA 1.7% 7,035 Nebraska Invt Fin Single Family Mtg Rev Pgm B (Inverse Fltg) (GNMA Collateralized)............ 11.267 03/15/22 7,756,087 ------------ NEVADA 1.7% 5,000 Nevada Hsg Div Single Family Mtg Ser E.......... 6.200 10/01/28 5,011,800 2,585 Nevada Hsg Div Single Family Pgm Ser B.......... 8.375 10/01/20 2,725,546 ------------ 7,737,346 ------------ NEW YORK 13.6% 2,250 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser C (Prerefunded @ 06/15/01).............. 7.750 06/15/20 2,582,168 7,000 New York City Ser A Rfdg........................ 7.000 08/01/04 7,702,660 4,500 New York City Ser B (AMBAC Insd)................ 7.250 08/15/07 5,261,355 3,800 New York City Ser C............................. 7.000 08/15/08 4,035,106 5,000 New York City Tran Auth Tran Fac Livingston Plaza Proj Rfdg (FSA Insd)...................... 5.400 01/01/18 4,941,250 8,625 New York St Dorm Auth Rev City Univ Ser F....... 5.500 07/01/12 8,337,097 5,000 New York St Dorm Auth Rev City Univ Ser F....... 5.000 07/01/20 4,337,650 4,615 New York St Dorm Auth Rev St Univ Edl Fac Ser B Rfdg............................................ 7.000 05/15/16 4,946,911 1,105 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A.................................. 7.750 08/15/11 1,241,700 5 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A (Prerefunded @ 02/15/01)......... 7.750 08/15/11 5,709 2,530 New York St Med Care Fac Fin Agy Rev Presbyterian Hosp Ser A Rfdg (MBIA Insd)........ 5.375 02/15/25 2,406,764 2,500 New York St Mtg Agy Rev Homeowner Mtg Ser 54 Rfdg............................................ 6.200 10/01/26 2,548,400 2,520 New York St Twy Auth Genl Rev Spl Oblig Crossover Ser A................................. * 01/01/97 2,520,000 5,000 New York St Twy Auth Svc Contract Rev Loc Hwy & Brdg............................................ 5.750 04/01/08 5,053,150 2,200 New York St Urban Dev Corp Rev Correctional Fac Ser D (Prerefunded @ 01/01/98) (AMBAC Insd)..... 7.750 01/01/13 2,331,208 2,635 New York St Urban Dev Corp Rev Youth Fac........ 5.875 04/01/08 2,680,796 ------------ 60,931,924 ------------
See Notes to Financial Statements 9 11 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- NORTH CAROLINA 5.7% $ 7,000 North Carolina Eastn Muni Pwr Agy Pwr Sys Rev Ser B Rfdg (Embedded Cap)....................... 6.000% 01/01/14 $ 6,890,170 15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev (Embedded Cap) (MBIA Insd).................. 6.000 01/01/12 16,117,500 2,555 University NC Chapel Hill Univ NC Hosp Rev...... 5.000 02/15/29 2,301,288 ------------ 25,308,958 ------------ NORTH DAKOTA 0.3% 1,190 North Dakota St Hsg Fin Agy Single Family Mtg Rev Ser A....................................... 8.375 07/01/21 1,255,307 ------------ OHIO 1.1% 3,900 Mason, OH Hlthcare Fac MCV Hlthcare Fac......... 7.625 02/01/40 4,040,790 1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Partnership Proj Rfdg (AMBAC Insd).............. 6.375 04/01/29 1,067,190 ------------ 5,107,980 ------------ OKLAHOMA 0.3% 1,250 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med Cent (Prerefunded @ 06/01/03)........................ 7.200 06/01/17 1,441,150 ------------ OREGON 0.6% 2,500 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single Family Mtg Proj Ser B........................... 6.875 07/01/28 2,662,750 ------------ PENNSYLVANIA 8.0% 6,000 Delaware Cnty, PA Indl Dev Auth Rev Res Recovery Proj Ser A Rfdg................................. 8.100 12/01/13 6,283,980 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 1,858,010 10,000 Geisinger Auth PA Hlth Sys Ser A................ 6.400 07/01/22 10,357,800 1,400 Pennsylvania Hsg Fin Agy Single Family Mtg Ser 52B............................................. 6.250 10/01/24 1,419,026 5,000 Pennsylvania St Higher Edl Assistance Agy Student Ln Rev Ser B (Inverse Fltg) (MBIA Insd)........................................... 10.990 03/01/20 5,831,250 1,100 Pennsylvania St Higher Edl Fac Auth Rev Med College PA Ser A (Prerefunded @ 03/01/99)....... 8.375 03/01/11 1,215,720 1,750 Philadelphia, PA Sch Dist Cap Apprec Ser A Rfdg (AMBAC Insd).................................... * 07/01/01 1,428,630 2,000 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev Ser 1993 A.......................................... 6.000 12/01/13 1,953,620 4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin Pgm Ser C (AMBAC Insd)...................... 7.700 12/01/15 5,168,349 ------------ 35,516,385 ------------
See Notes to Financial Statements 10 12 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- RHODE ISLAND 0.3% $ 1,000 Providence, RI Pub Bldg Auth Genl Rev Ser B (FSA Insd)........................................... 7.250% 12/15/10 $ 1,110,560 ------------ SOUTH CAROLINA 0.4% 1,610 South Carolina St Hsg Fin & Dev Auth Homeowner Mtg Ser A....................................... 7.400 07/01/23 1,682,370 ------------ TENNESSEE 2.9% 12,230 Tennessee Hsg Dev Agy Mtg Fin Ser A............. 7.125 07/01/26 12,849,939 ------------ TEXAS 4.2% 7,065 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (MBIA Insd).............................. * 02/15/20 1,396,468 935 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (Prerefunded @ 02/15/00) (MBIA Insd)..... * 02/15/20 190,067 4,820 Harris Cnty, TX Toll Road (Prerefunded @ 08/15/09) (AMBAC Insd).......................... * 08/15/18 1,321,162 1,000 Harris Cnty, TX Toll Road (Prerefunded @ 08/15/09) (AMBAC Insd).......................... * 08/15/21 224,360 3,525 Texas Muni Pwr Agy Rev Cap Apprec Rfdg (AMBAC Insd)........................................... * 09/01/07 2,023,914 8,420 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation Rfdg (Cap Guar Insd)................ 5.500 09/01/13 8,378,405 1,860 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation (Prerefunded @ 01/01/98) (BIGI Insd)........................................... 7.875 01/01/08 1,935,535 2,000 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation (Prerefunded @ 01/01/98) (BIGI Insd)........................................... 7.875 01/01/09 2,034,700 1,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union Carbide Chem & Plastics........ 8.200 03/15/21 1,398,937 ------------ 18,903,548 ------------ UTAH 3.3% 6,000 Intermountain Pwr Agy UT Pwr Supply Rev Ser B Rfdg (MBIA Insd) (b)............................ 5.750 07/01/19 5,883,780 5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc Proj............................................ 7.900 06/01/17 5,528,018 3,300 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg (Embedded Cap).................................. 5.500 02/15/17 3,138,036 ------------ 14,549,834 ------------ WEST VIRGINIA 1.0% 2,480 South Charleston, WV Indl Dev Rev Union Carbide Chem & Plastics Ser A........................... 8.000 08/01/20 2,666,918 1,600 West Virginia St Hsg Dev Hsg Fin Ser A.......... 7.400 11/01/11 1,658,576 ------------ 4,325,494 ------------
See Notes to Financial Statements 11 13 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - -------------------------------------------------------------------------------------------- WISCONSIN 0.8% $ 3,500 Wisconsin St Hlth & Edl Fac Auth Rev Meriter Hosp Inc (b).................................... 6.000% 12/01/17 $ 3,473,015 ------------ PUERTO RICO 0.1% 365 Puerto Rico Elec Pwr Auth Pwr Ser N............. 7.000 07/01/07 393,996 ------------ TOTAL LONG-TERM INVESTMENTS 98.5% (Cost $408,040,786) (a)..................................................... 439,970,822 SHORT-TERM INVESTMENTS AT AMORTIZED COST 4.3%................................ 18,995,000 LIABILITIES IN EXCESS OF OTHER ASSETS (2.8%)................................. (12,419,348) ------------ NET ASSETS 100.0%............................................................ $446,546,474 ============ *Zero coupon bond
(a) At December 31, 1996, for federal income tax purposes cost is $408,040,786; the aggregate gross unrealized appreciation is $32,367,804 and the aggregate gross unrealized depreciation is $617,507, resulting in net unrealized appreciation including options transactions of $31,750,297. (b) Securities purchased on a when issued or delayed delivery basis. (c) Assets segregated as collateral for when issued or delayed delivery purchase commitments and open option transactions. See Notes to Financial Statements 12 14 STATEMENT OF ASSETS AND LIABILITIES December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Long Term Investments, at Market Value (Cost $408,040,786) (Note 1)....... $439,970,822 Short-Term Investments (Note 1)........................................... 18,995,000 Cash...................................................................... 84,970 Receivables: Interest................................................................ 7,261,196 Securities Sold......................................................... 2,101,433 Options at Market Value (Net premiums paid of $329,739)................... 150,000 Other..................................................................... 15,194 ------------ Total Assets.......................................................... 468,578,615 ------------ LIABILITIES: Payables: Securities Purchased.................................................... 21,260,238 Income Distributions -- Common and Preferred Shares..................... 253,496 Investment Advisory Fee (Note 2)........................................ 227,427 Affiliates (Note 2)..................................................... 19,890 Accrued Expenses.......................................................... 220,372 Deferred Compensation and Retirement Plans (Note 2)....................... 50,718 ------------ Total Liabilities..................................................... 22,032,141 ------------ NET ASSETS................................................................. $446,546,474 ============ NET ASSETS CONSIST OF: Preferred Shares ($.01 par value, authorized 1,000,000 shares, 330 issued with liquidation preference of $500,000 per share) (Note 6)....... $165,000,000 ------------ Common Shares ($.01 par value with an unlimited number of shares authorized, 28,168,221 shares issued and outstanding) (Note 3)........... 281,682 Paid in Surplus (Note 3)................................................... 260,521,240 Net Unrealized Appreciation on Securities.................................. 31,750,297 Accumulated Undistributed Net Investment Income............................ 1,769,980 Accumulated Net Realized Loss on Securities................................ (12,776,725) ------------ Net Assets Applicable to Common Shares................................. 281,546,474 ------------ NET ASSETS................................................................. $446,546,474 ============ NET ASSET VALUE PER COMMON SHARE ($281,546,474 divided by 28,168,221 shares outstanding)...................................................... $ 10.00 ============
See Notes to Financial Statements 13 15 STATEMENT OF OPERATIONS For the Six Months Ended December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest..................................................... $14,824,982 ----------- EXPENSES: Investment Advisory Fee (Note 2)............................. 1,339,641 Preferred Share Maintenance (Note 6)......................... 233,481 Custody...................................................... 62,517 Legal (Note 2)............................................... 21,171 Trustees Fees and Expenses (Note 2).......................... 11,858 Other........................................................ 154,320 ----------- Total Expenses........................................... 1,822,988 ----------- NET INVESTMENT INCOME........................................ $13,001,994 =========== REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES: Realized Gain/Loss on Securities: Investments................................................ $ 1,317,510 Options.................................................... 250,960 ----------- Net Realized Gain on Securities.............................. 1,568,470 ----------- Unrealized Appreciation/Depreciation on Securities: Beginning of the Period.................................... 26,683,519 ----------- End of the Period: Investments.............................................. 31,930,036 Options.................................................. (179,739) ----------- 31,750,297 ----------- Net Unrealized Appreciation on Securities During the Period.. 5,066,778 ----------- NET REALIZED AND UNREALIZED GAIN ON SECURITIES............... $ 6,635,248 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS................... $19,637,242 ===========
See Notes to Financial Statements 14 16 STATEMENT OF CHANGES IN NET ASSETS For the Six Months Ended December 31, 1996 and the Year Ended June 30, 1996 (Unaudited) - --------------------------------------------------------------------------------
Six Months Ended Year Ended December 31, 1996 June 30, 1996 - --------------------------------------------------------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.................................. $ 13,001,994 $ 26,234,758 Net Realized Gain on Securities........................ 1,568,470 4,390,254 Net Unrealized Appreciation/Depreciation on Securities During the Period......................... 5,066,778 (3,167,431) ------------ ------------- Change in Net Assets from Operations................... 19,637,242 27,457,581 ------------ ------------- Distributions from Net Investment Income: Common Shares........................................ (10,115,188) (21,482,382) Preferred Shares..................................... (2,872,441) (6,131,780) ------------ ------------- Total Distributions.................................... (12,987,629) (27,614,162) ------------ ------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 6,649,613 (156,581) FROM CAPITAL TRANSACTIONS (NOTE 3): Value of Common Shares Issued Through Dividend Reinvestment......................................... 1,198,123 2,765,783 ------------ ------------- TOTAL INCREASE IN NET ASSETS........................... 7,847,736 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 $1,769,980 and $1,755,615, respectively)........................................ $446,546,474 $ 438,698,738 ============ =============
See Notes to Financial Statements 15 17 FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for one common share of the Trust outstanding throughout the periods indicated. (Unaudited) - --------------------------------------------------------------------------------
Six Months Ended December 31, ---------------------------- 1996 1996 1995 1994 - ------------------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period (a).............................. $ 9.758 $9.760 $ 9.924 $11.133 ------- ------ ------- ------- Net Investment Income..................... .462 .940 .964 1.000 Net Realized and Unrealized Gain/Loss on Securities.............................. .237 .048 (.065) (1.214) ------- ------ ------- ------- Total from Investment Operations.......... .699 .988 .899 (.214) ------- ------ ------- ------- Less: Distributions from Net Investment Income: Paid to Common Shareholders........... .360 .770 .840 .840 Common Share Equivalent of Distributions Paid to Preferred Shareholders........................ .102 .220 .223 .155 Distributions from and in Excess of Net Realized Gain on Securities Paid to Common Shareholders (Note 1).......... -0- -0- -0- -0- ------- ------ ------- ------- Total Distributions....................... .462 .990 1.063 .995 ------- ------ ------- ------- Net Asset Value, End of the Period........ $ 9.995 $9.758 $ 9.760 $ 9.924 ======= ====== ======= ======= Market Price Per Share at End of the Period.................................. $10.375 $9.875 $11.125 $11.125 Total Investment Return at Market Price (b)............................... 8.92%* (4.27%) 8.59% (0.05%) Total Return at Net Asset Value (c)....... 6.23%* 8.02% 7.24% (3.63%) Net Assets at End of the Period (In millions)............................... $446.5 $438.7 $436.1 $437.7 Ratio of Expenses to Average Net Assets Applicable to Common Shares............. 1.31% 1.31% 1.33% 1.28% Ratio of Expenses to Average Net Assets... .82% .82% .83% .82% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d).............................. 7.29% 7.26% 7.56% 7.86% Portfolio Turnover........................ 20%* 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 16 18 - --------------------------------------------------------------------------------
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 17 19 NOTES TO FINANCIAL STATEMENTS December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- 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. 18 20 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- 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, 1996, the Trust had an accumulated capital loss carryforward for tax purposes of $14,345,195 which will expire between June 30, 2002 and 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. 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. 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. Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom, counsel to the Trust, of which a trustee of the Trust is an affiliated person. For the six months ended December 31, 1996, the Trust recognized expenses of approximately $50,000 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. The Trust has implemented deferred compensation and retirement plans for its trustees. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation to a later date. The retirement plan covers those trustees who are not officers of VKAC. 19 21 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- 3. CAPITAL TRANSACTIONS At December 31, 1996 and June 30, 1996, common share paid in surplus aggregated $260,521,240 and $259,324,321, respectively. Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 1996 JUNE 30, 1996 - ------------------------------------------------------------------------------ Beginning Shares........................... 28,047,767 27,775,981 Shares Issued Through Dividend Reinvestment............................. 120,454 271,786 ------------- ----------- Ending Shares.............................. 28,168,221 28,047,767 ============= ===========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments excluding short-term investments, were $87,449,182 and $85,884,510, 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 on securities. Upon disposition, a realized gain or loss is recognized accordingly, except when exercising an option contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the option contract. Summarized below are the specific types of derivative financial instruments used by the Trust. A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the obligation to buy (call) or sell (put) an underlying item at a fixed exercise price during a specified period. These contracts are generally used by the Trust to manage the portfolio's effective maturity and duration. 20 22 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- Transactions in options for the six months ended December 31, 1996, were as follows:
Contracts Premium - -------------------------------------------------------------------------- Outstanding at June 30, 1996.................... -0- $ -0- Options Written and Purchased (Net)............. 950 (843,604) Options Terminated in Closing Transactions (Net)......................................... (300) 521,952 Options Expired (Net)........................... (450) (8,087) ------ --------- Outstanding at December 31, 1996................ 200 $(329,739) ====== =========
The related futures contracts of the outstanding option transactions as of December 31, 1996, and the description and market value are as follows:
Market Expiration Month/ Value of Contracts Exercise Price Options - -------------------------------------------------------------------------------- U.S. Treasury Bond Future March 1997 Purchased Put......... 200 Feb/110 $150,000 ------ --------
B. INDEXED SECURITIES--These instruments are identified in the portfolio of investments. The price of these securities may be more volatile than the price of a comparable fixed rate security. An Inverse Floating security is one where the coupon is inversely indexed to a short-term floating interest rate multiplied by a specified factor. As the floating rate rises, the coupon is reduced. Conversely, as the floating rate declines, the coupon is increased. These instruments are typically used by the Trust to enhance the yield of the portfolio. An Embedded Cap security includes a cap strike level such that the coupon payment may be supplemented by cap payments if the floating rate index upon which the cap is based rises above the strike level. The Trust invests in these instruments as a hedge against a rise in the short term interest rates which it pays on its preferred shares. 6. PREFERRED SHARES The Trust has outstanding 330 shares of rate adjusted tax-exempt preferred shares ("Rates") in three series of 110 shares each. Dividends are cumulative and the rate on each series is currently reset every 28 days through an auction process. The average rate in effect on December 31, 1996, was 3.521%. During the six months ended December 31, 1996, the rates ranged from 3.365% to 3.650%. 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. 21 23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- 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. 22 24 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 Balanced Fund 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 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 1-800-282-4404 for Morgan Stanley retail funds. 23 25 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 A Special Meeting of Shareholders of the Trust was held on October 23, 1996, where shareholders voted on a new investment advisory agreement and changes to investment policies. With regard to the approval of a new investment advisory agreement between Van Kampen American Capital Investment Advisory Corp. and the Trust, 21,061,949 shares voted for the proposal, 488,542 shares voted against, 869,432 shares abstained and 1,216,697 shares represented broker non-votes. With regard to the approval of certain changes to the Trust's fundamental investment policies with respect to investments in other investment companies, 13,722,392 shares voted for the proposal, 614,234 shares voted against, 928,971 shares abstained and 8,371,023 shares represented broker non-votes. 24 -----END PRIVACY-ENHANCED MESSAGE-----