-----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, SkkIOofsXEi8dhwFAiUi05/4AoDq3uiish1vg1IYo+myIdr0X1U70h72oc443AIa /bhWBnPr0XiYr5QfLVWWTA== 0000950137-98-000767.txt : 19980227 0000950137-98-000767.hdr.sgml : 19980227 ACCESSION NUMBER: 0000950137-98-000767 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980226 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: SEC FILE NUMBER: 811-05230 FILM NUMBER: 98550229 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.............................. 5 Portfolio of Investments......................... 6 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 Dividend Reinvestment Plan....................... 23
VMT SAR 2/98 2 LETTER TO SHAREHOLDERS February 3, 1998 Dear Shareholder, The new year ushers in what promises to be an exciting and challenging time for investors. The Taxpayer Relief Act of 1997 signed [PHOTO] into law by President Clinton in August creates many new opportunities for you and your family to take a more active role in achieving your long-term financial goals. DENNIS J. MCDONNELL AND DON G. POWELL Most Americans will benefit from the bill's $95 billion in tax cuts over five years. The so-called Kiddie Credit gives parents $400 in immediate tax relief for every child under age 17, and families will find it easier to save for their children's college expenses through the new Education IRA. The bill also cuts capital gains tax rates for the first time in over a decade and loosens restrictions on tax-deductible IRA contributions. Perhaps the most exciting feature of all is the new Roth IRA, which allows investment earnings to grow tax free, not just tax deferred. This year more than ever, it could be important for you to talk to your financial adviser about how to make the tax code work to your advantage. At Van Kampen American Capital, we have prepared a variety of publications to help you understand your choices under the new tax legislation. And with the help of your adviser, we'll help you locate the many benefits hidden among the changing tax landscape. ECONOMIC REVIEW The bond market rallied during the second half of 1997 as fears of rising inflation dissipated, easing concerns that the Federal Reserve Board might raise interest rates. Despite strong economic growth, there was little evidence of increasing inflation -- consumer and wholesale prices rose only slightly during the second half of the year. In addition to a favorable inflation scenario, bonds reaped the benefits of an improved supply-and-demand balance. The supply of new Treasury securities declined as the federal budget deficit dropped to its lowest level in 23 years. At the same time, the demand for Treasury issues among U.S. investors increased amid growing concern that the stock market rally was nearing an end. The seven percent slump in the Dow Jones Industrial Average on October 27 reinforced the benefit of owning bonds for diversification. Foreign investors also continued to be heavy purchasers of U.S. Treasury bonds throughout the year. As a result of these bullish factors, the yield for the 30-year Treasury fell to 5.92 percent at year-end, down from 6.79 percent at mid-year. During the same six-month period, the yield on the long-term municipal revenue bond index fell from 5.78 percent to 5.40 percent. Because yields move in the opposite direction of prices, the smaller yield decline of municipal bonds indicates that municipal Continued on page two 1 3 bond prices did not rise as much as Treasuries. This lag is typical of market rallies, partly because municipal bonds are less liquid than Treasuries. [CREDIT QUALITY GRAPH] PORTFOLIO COMPOSITION BY CREDIT QUALITY* AS OF DECEMBER 31, 1997 AAA............... 49.7% AA................ 7.1% A................. 9.6% BBB............... 28.2% BB................ 1.2% B................. 0.2% Non-Rated......... 4.0%
* As a Percentage of Long-Term Investments Based upon the highest credit quality ratings as issued by Standard & Poor's or Moody's. TRUST STRATEGY In managing the Trust, we continued to employ a "barbell" approach to credit quality, which means we invested in bonds located at both ends of the ratings spectrum. This strategy is designed to help balance the portfolio's volatility in response to changing interest rates. Bonds rated AAA, the highest credit rating used by the Standard & Poor's Ratings Group, have tended to perform better when interest rates are declining and provide the potential for safety of principal. Many of the AAA-rated bonds in the portfolio are insured, which helps protect against credit risk. Insured bonds currently comprise well over half of all new issues in the municipal bond market. In addition, insured bonds benefit from strong demand, which enhances their price appreciation potential. Bonds rated BBB, the lowest investment-grade credit rating, have tended to perform better when rates are rising, and they have the potential to provide additional income. During the six months ended December 31, we moderately increased the portion of AAA-rated portfolio assets and reduced the portion of BBB-rated holdings in the Trust's portfolio. This adjustment reflected the narrow yield spreads between high- and low-quality bonds. In adding securities to the portfolio, we favored higher-rated securities because they generated almost as much income as lower-rated bonds with less credit risk. Trades that we initiated during the period focused on enhancing the call protection of the Trust. Because most municipal bonds are issued with 10-year call protection and the Trust is approaching its tenth year, any existing bonds in the portfolio that were acquired at inception have the potential to be redeemed by issuers in 1998. If the bonds are called while interest rates remain near current levels, the Trust could be forced to replace them with lower-yielding securities. We try to limit the potential impact of calls on the portfolio by ensuring that only a small portion of Trust assets will be subject to calls in any given year. We continually sell bonds that are likely to be called in the near term and replace them with new, longer-term issues that are not callable for many years. As a result of this strategy, only 3.28 percent of portfolio assets are callable in 1998. Continued on page three 2 4 During the reporting period, our purchases favored long-term discount bonds, which are priced below their face value. When interest rates fall, as they did throughout most of the second half of the year, discount bonds tend to outperform because they have more room to appreciate in price. We emphasized long-term bonds because they usually yield more than shorter-term securities. When selecting new securities, we try to identify those bonds that we believe will outperform within a particular sector and can be purchased at an attractive price. We believe this selective approach, which is supported by our research, provides significant added value to the portfolio. In managing the portfolio, we lengthened the Trust's duration, which is a measure of the portfolio's price sensitivity to interest rate changes. Portfolios with longer durations tend to perform better when interest rates are falling, while portfolios with shorter durations tend to outperform when rates are rising. During the second half of 1997, when interest rates fell sharply, the Trust's longer duration helped to boost its returns. As of December 31, 1997, the duration of the Trust stood at 7.15 years, compared with 7.25 years for the duration of the Fund's benchmark, the Lehman Brothers Municipal Bond Index. During the second half of 1997, when both short-term and long-term rates fell, the leveraged structure of the Trust helped to boost its performance compared to other funds in its peer group. Leverage involves borrowing short-term securities in order to purchase long-term assets. This practice can support a fund's total return when short-term interest rates are below long-term rates. It should be noted that an increase in short-term interest rates would raise the Trust's borrowing costs and have a negative effect on the dividend- paying ability of its common shares and possibly the price of those shares. TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR AS OF DECEMBER 31, 1997* Health Care.................................... 18.8% Industrial Revenue............................. 13.1% General Purpose................................ 10.0% Public Building................................ 9.2% Single-Family Housing.......................... 7.8% *As a Percentage of Long-Term Investments PERFORMANCE SUMMARY For the six-month period ended December 31, 1997, the Trust generated a total return at market price of 2.85 percent(1). This gain reflects a decrease in market price per common share from $10.875 on June 30, 1997 to $10.8125 on December 31, 1997, plus reinvestment of all dividends. The Trust had a tax-exempt distribution rate of 6.22 percent(3), based on the closing price of its common shares. Because income from the Trust is exempt from federal income tax, this distribution represents a yield equivalent to a taxable investment earning 10.13 percent(4) for investors in the 36 percent federal income tax bracket. Please refer to the chart on page five for additional performance numbers. As a result of a decline in the Trust's earnings, the Board of Trustees approved a decrease in its monthly dividend from $0.0600 to $0.0560 per common share payable December 31, 1997. Continued on page four 3 5 [DIVIDEND HISTORY GRAPH] SIX-MONTH DIVIDEND HISTORY FOR THE PERIOD ENDED DECEMBER 31, 1997
Distribution per Common Share Jul 1997............................... $0.600 Aug 1997............................... $0.600 Sep 1997............................... $0.600 Oct 1997............................... $0.600 Nov 1997............................... $0.600 Dec 1997............................... $0.560 The dividend history represents past performance of the Trust and does not predict the Trust's future distributions.
ECONOMIC OUTLOOK We expect the economy to remain strong going into 1998, although its growth rate is likely to slow from current levels. The financial crisis in Southeast Asia is anticipated to curb U.S. exports to the region, which could trim the earnings of many U.S. companies and reduce the overall U.S. growth rate. As a result, we believe there is little chance that the Fed will raise interest rates in the near term. A decline in rates would not only boost the prices of long-term assets in the portfolio, but would also positively affect the leveraged structure of the Trust. Finally, we anticipate that the yield on the 30-year Treasury bond remain at current levels. We will continue to monitor market developments in order to assess their effects on the Trust's portfolio. At this time, we do not anticipate making any major changes to the portfolio until market conditions shift more dramatically. We will continue to seek a balance between the Trust's total return and its dividend income, and look to add value through our investment strategies and security selection. Thank you for your continued confidence in Van Kampen American Capital and the management of your Trust. 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 five 4 6 PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997 VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST (NYSE TICKER SYMBOL--VMT) COMMON SHARE TOTAL RETURNS Six-month total return based on market price(1)........... 2.85% Six-month total return based on NAV(2).................... 7.05% DISTRIBUTION RATES Distribution rate as a % of closing stock price(3)........ 6.22% Taxable-equivalent distribution rate as a % of closing stock price(4).......................................... 10.13% SHARE VALUATIONS Net asset value........................................... $ 10.35 Closing common stock price................................ $10.8125 Six-month high common stock price (11/20/97).............. $ 11.250 Six-month low common stock price (12/16/97)............... $ 10.625 Preferred share (Series A) rate(5)........................ 3.650% Preferred share (Series B) rate(5)........................ 3.900% Preferred share (series C) rate(5)........................ 3.890%
(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. 5 7 PORTFOLIO OF INVESTMENTS December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- MUNICIPAL BONDS 101.1% ALABAMA 0.1% $ 500 Alabama St Indl Dev Auth Solid Waste Disp Rev Pine City Fiber Co............................. 6.450% 12/01/23 $ 541,615 ------------ ALASKA 0.8% 3,500 North Slope Borough, AK Ser B (FSA Insd)....... 6.100 06/30/99 3,611,195 ------------ ARKANSAS 0.2% 1,000 Conway, AR Hosp Rev Conway Regl Hosp Rfdg...... 8.375 07/01/11 1,085,970 ------------ CALIFORNIA 10.4% 11,150 California Hsg Fin Agy Rev Homeowner Mtg Ser D.............................................. * 08/01/20 1,986,373 18,530 California Statewide Cmntys Dev Auth Spl Fac United Airls................................... 5.625 10/01/34 18,664,528 5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev (MBIA Insd).................................... * 09/01/17 1,802,700 4,000 Los Angeles Cnty, CA Pub Wks Fin Auth Lease Rev (AMBAC Insd)................................... 5.125 12/01/29 3,941,080 10,000 Los Angeles, CA Wastewtr Sys Rev Ser 1993D (FGIC Insd).................................... 4.700 11/01/17 9,515,900 5,000 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded Cap) (AMBAC Insd).............................. 5.125 12/01/23 4,911,750 6,075 Orange Cnty, CA Recovery Ctfs Ser A Rfdg (MBIA Insd).......................................... 6.000 06/01/09 6,896,461 ------------ 47,718,792 ------------ COLORADO 10.0% 1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B (Prerefunded @ 08/31/05)...... 6.950 08/31/20 1,192,220 1,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser B (Prerefunded @ 08/31/05)...... 7.000 08/31/26 1,793,175 19,405 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev E-470 Proj Ser C (Prerefunded @ 08/31/05)...... * 08/31/26 2,885,718 1,825 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/07 2,055,826 11,334 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.250 11/15/12 12,642,517 5,115 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/23 5,747,163 5,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.750 11/15/23 5,807,850 175 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @ 11/15/00)....................... 8.500 11/15/07 198,882 1,066 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @ 11/15/00)....................... 8.250 11/15/12 1,204,787 485 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @ 11/15/00)....................... 8.500 11/15/23 551,188 1,000 Denver, CO City & Cnty Arpt Rev Ser A (Prerefunded @ 11/15/01)....................... 8.750 11/15/23 1,180,560 2,000 Douglas Cnty, CO Sch Dist No 1 Rev Douglas & Elbert Cntys Impt Ser A (Prerefunded @ 12/15/04) (MBIA Insd) (b)...................... 6.400 12/15/11 2,269,540 10,000 E-470 Pub Hwy Auth CO Rev Cap Apprec Sr Ser B Rfdg (MBIA Insd)............................... * 09/01/21 2,955,700
See Notes to Financial Statements 6 8 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- COLORADO (CONTINUED) $ 3,000 Meridian Metro Dist CO Peninsular & Oriental Steam Navig Co Rfdg............................ 7.500% 12/01/11 $ 3,308,250 1,850 Montrose Cnty, CO Ctfs Partn................... 6.350 06/15/06 2,010,413 ------------ 45,803,789 ------------ DISTRICT OF COLUMBIA 0.8% 860 District of Columbia Ctfs Partn................ 6.875 01/01/03 902,286 2,775 District of Columbia Hosp Rev Medlantic Hlthcare Ser A Rfdg (MBIA Insd) (b)............ 5.250 08/15/12 2,838,353 ------------ 3,740,639 ------------ FLORIDA 3.9% 3,150 Broward Cnty, FL Tourist Dev Tax Spl Rev Convention Cent Proj (Prerefunded @ 10/01/98) (FGIC Insd) (b)................................ 7.750 10/01/13 3,305,799 2,000 Dade Cnty, FL Seaport Rfdg (MBIA Insd)......... 5.125 10/01/21 1,982,200 5,000 Dunes, FL Cmnty Dev Dist Rev Wtr & Swr Proj (Prerefunded @ 10/01/98)....................... 8.250 10/01/18 5,262,900 4,660 Florida St Brd Edl Cap Outlay Pub Edl Ser A Rfdg (Prerefunded @ 06/01/00).................. * 06/01/15 1,481,274 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 6,052,479 ------------ 18,084,652 ------------ GEORGIA 3.5% 6,288 Fulton Cnty, GA Lease Rev Ctfs Partn........... 7.250 06/15/10 7,369,234 2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA Insd).......................................... 6.500 01/01/20 3,180,708 5,000 Georgia Muni Elec Auth Pwr Rev Ser Z (MBIA Insd).......................................... 5.500 01/01/20 5,373,100 ------------ 15,923,042 ------------ IDAHO 1.0% 4,390 Boise, ID Urban Renewal Agy Pkg Rev Ser A (b)............................................ 8.125 09/01/15 4,556,864 ------------ ILLINOIS 14.1% 2,435 Alton, IL Hosp Fac Rev Saint Anthony's Hlth Cent Proj (Prerefunded @ 09/01/99)............. 8.375 09/01/14 2,639,930 14,270 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84A......................... 8.850 05/01/18 16,016,505 2,700 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United Airls Inc Proj Ser 84B......................... 8.850 05/01/18 3,080,673 4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA Insd).......................................... * 01/01/07 3,252,238 1,000 Chicago, IL Ser B Rfdg (AMBAC Insd) (b)........ 5.125 01/01/15 1,018,800 4,000 DuPage Cnty, IL Fst Presv Dist................. 5.000 10/01/17 3,965,000 2,000 Illinois Edl Fac Auth Rev Lewis Univ........... 6.125 12/01/26 2,093,620 4,000 Illinois Hlth Fac Auth Rev Sherman Health Systems (AMBAC Insd)........................... 5.250 08/01/22 3,972,520 1,515 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D.......................................... 9.500 11/15/15 1,792,972
See Notes to Financial Statements 7 9 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- ILLINOIS (CONTINUED) $ 1,275 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser D (Prerefunded @ 11/15/00)................. 9.500% 11/15/15 $ 1,482,659 600 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E.......................................... 9.500 11/15/19 710,346 1,310 Illinois Hlth Fac Auth Rev Glenoaks Med Cent Ser E (Prerefunded @ 11/15/00)................. 9.500 11/15/19 1,523,360 1,000 Illinois Hlth Fac Auth Rev Lutheran Social Svcs Proj Ser A (Prerefunded @ 08/01/00) (Letter of Credit - Bank of Japan) (b).................... 7.650 08/01/20 1,104,660 3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys Rfdg........................................... 6.000 11/15/23 3,326,758 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser A (Prerefunded @ 08/15/01)....................... 8.000 08/15/21 2,284,620 2,000 Illinois Hlth Fac Auth Rev Servantcor Ser B (Prerefunded @ 08/15/99)....................... 7.875 08/15/19 2,156,280 45,775 Illinois Hsg Dev Auth Multi-Family Hsg Ser A... * 07/01/27 4,840,706 1,745 Illinois Hsg Dev Auth Multi-Family Hsg Ser C... 7.400 07/01/23 1,838,742 1,500 Kane Cnty, IL Sch Dist No 129 Aurora West Side (FGIC Insd).................................... 5.125 02/01/14 1,506,270 2,000 Kane Cnty, IL Sch Dist No 129 Aurora West Side (FGIC Insd).................................... 5.000 02/01/16 1,971,360 1,250 Sangamon Cnty, IL Ctfs Partn................... 10.000 12/01/06 1,751,425 6,500 Will Cnty, IL Cmnty Unit Sch Dist No 365 U Valley View (FSA Insd)......................... * 11/01/17 2,339,155 ------------ 64,668,599 ------------ INDIANA 0.7% 1,370 Indiana Hlth Fac Fin Auth Hosp Rev Bartholomew Cnty Hosp Proj (Prerefunded @ 08/15/00) (FSA Insd) (b)...................................... 7.750 08/15/20 1,519,412 1,650 Indiana St Edl Fac Auth Rev Univ Evansville Proj (Prerefunded @ 11/01/00).................. 8.125 11/01/10 1,858,775 ------------ 3,378,187 ------------ 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 1,547,304 1,100 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)........ 5.800 03/01/03 1,174,987 2,190 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)........ 6.250 03/01/09 2,463,465 ------------ 5,185,756 ------------ LOUISIANA 1.8% 1,425 Lafayette, LA Pub Fin Auth Single Family Mtg Rev Ser A Rfdg................................. 8.500 11/15/12 1,511,618 4,977 Louisiana Pub Fac Auth Rev Multi-Family Hsg Pontchartn Arpts Ser B (GNMA Collateralized) (b)............................................ 8.375 07/20/23 5,266,235 1,250 New Orleans, LA Hsg Dev Corp Multi-Family Rev Hsg Southwood Patio Ser A (FNMA Collateralized)................................ 7.700 02/01/22 1,349,762 ------------ 8,127,615 ------------
See Notes to Financial Statements 8 10 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- MAINE 0.2% $ 840 Maine St Hsg Auth Ser C........................ 8.300% 11/15/20 $ 869,081 ------------ MARYLAND 0.6% 4,650 Baltimore, MD Cap Apprec Cons Pub Impt Ser A Rfdg (FGIC Insd)............................... * 10/15/09 2,562,987 ------------ MASSACHUSETTS 2.5% 2,695 Massachusetts St Hlth & Edl Fac Auth Rev Farmingham Union Hosp Ser B (Prerefunded @ 07/01/00)...................................... 8.500 07/01/10 3,022,415 1,000 Massachusetts St Indl Fin Agy Rev Higher Edl Hampshire College Proj......................... 5.625 10/01/12 1,017,550 7,500 Massachusetts St Port Auth Rev Ser A........... 5.000 07/01/27 7,275,000 ------------ 11,314,965 ------------ MICHIGAN 2.1% 4,360 Michigan St Hosp Fin Auth Rev Hosp Battle Creek Hosp Ser G Rfdg................................ 9.500 11/15/15 5,055,856 2,000 Michigan St Hosp Fin Auth Rev Hosp Bay Med Cent Ser A Rfdg (Crossover Rfdg @ 07/01/00)......... 8.250 07/01/12 2,219,820 2,300 Muskegon, MI Hosp Fin Auth Hosp Rev Hackley Hosp Ser A Rfdg................................ 8.000 02/01/08 2,352,624 ------------ 9,628,300 ------------ MINNESOTA 2.5% 5,000 Duluth, MN Econ Dev Auth Hlthcare Fac Rev Benedictine Hlth Saint Mary's Proj (Prerefunded @ 02/15/00) (b)................................ 8.375 02/15/20 5,532,400 6,000 Southern MN Muni Pwr Agy Pwr Supply Sys Rev Ser A Rfdg (MBIA Insd)............................. 4.750 01/01/16 5,823,300 ------------ 11,355,700 ------------ MISSISSIPPI 0.3% 1,500 Mississippi Hosp Equip & Fac MS Baptist Med Cent Rfdg (MBIA Insd).......................... 6.000 05/01/13 1,634,160 ------------ MISSOURI 1.0% 3,000 Missouri St Hsg Dev Cmnty Mtg Rev Ser B Rfdg (FHA Gtd)...................................... 7.000 09/01/10 3,189,240 1,500 Phelps Cnty, MO Hosp Rev Phelps Cnty Regl Med Cent (Prerefunded @ 03/01/00).................. 8.300 03/01/20 1,659,825 ------------ 4,849,065 ------------ NEBRASKA 1.5% 6,135 Nebraska Invt Fin Single Family Mtg Rev Pgm B (Inverse Fltg) (GNMA Collateralized)........... 10.861 03/15/22 6,809,850 ------------ NEVADA 0.4% 2,000 Clark Cnty, NV Indl Dev Rev Nevada Pwr Co Proj Ser B Rfdg..................................... 5.900 10/01/30 2,037,420 ------------ NEW YORK 13.2% 2,000 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser A Rfdg................................. 5.125 06/15/21 1,974,420 2,250 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Ser C (Prerefunded @ 06/15/01)............. 7.750 06/15/20 2,545,268 7,000 New York City Ser A Rfdg....................... 7.000 08/01/04 7,936,110
See Notes to Financial Statements 9 11 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- NEW YORK (CONTINUED) $ 4,500 New York City Ser B (AMBAC Insd)............... 7.250% 08/15/07 $ 5,449,320 3,480 New York City Ser C............................ 7.000 08/15/08 3,766,369 320 New York City Ser C (Prerefunded @ 08/15/01)... 7.000 08/15/08 350,640 5,000 New York City Tran Auth Tran Fac Livingston Plaza Proj Rfdg (FSA Insd)..................... 5.400 01/01/18 5,290,150 8,625 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 8,805,435 2,500 New York St Dorm Auth Rev City Univ Ser F...... 5.000 07/01/20 2,383,175 4,615 New York St Dorm Auth Rev St Univ Edl Fac Ser B Rfdg........................................... 7.000 05/15/16 4,975,201 415 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A...................................... 7.750 08/15/11 465,082 695 New York St Med Care Fac Fin Agy Rev Mental Hlth Svcs Fac Ser A (Prerefunded @ 02/15/01)............. 7.750 08/15/11 781,819 2,500 New York St Urban Dev Corp Rev Correctional Cap Fac Ser A.......................................... 5.250 01/01/21 2,441,300 2,635 New York St Urban Dev Corp Rev Youth Fac....... 5.875 04/01/08 2,824,615 2,000 New York St Urban Dev Corp Rfdg Sr Lien Corp Purp Rfdg...................................... 5.375 07/01/22 2,019,980 4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt Terminal 6 (MBIA Insd)......................... 5.750 12/01/22 4,204,280 4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl Arpt Terminal 6 (MBIA Insd)......................... 5.750 12/01/25 4,178,040 ------------ 60,391,204 ------------ NORTH CAROLINA 3.6% 15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev (Embedded Cap) (MBIA Insd)................. 6.000 01/01/12 16,852,350 ------------ OHIO 3.0% 3,175 Cleveland, OH Ctfs Partn Cleveland Stad Proj (AMBAC Insd)................................... 5.250 11/15/10 3,320,828 4,945 Cleveland, OH Ctfs Partn Cleveland Stad Proj (AMBAC Insd)................................... 5.250 11/15/12 5,095,080 3,895 Mason, OH Hlthcare Fac MCV Hlthcare Fac (FHA Gtd)........................................... 7.625 02/01/40 4,187,320 1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd Partnership Proj Rfdg (AMBAC Insd)......... 6.375 04/01/29 1,101,280 ------------ 13,704,508 ------------ OKLAHOMA 0.3% 1,250 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med Cent (Prerefunded @ 06/01/03) (b).............. 7.200 06/01/17 1,444,950 ------------ OREGON 0.6% 2,500 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single Family Mtg Proj Ser B.......................... 6.875 07/01/28 2,682,850 ------------ PENNSYLVANIA 8.4% 6,460 Allegheny Cnty, PA Indl Dev Auth Rev Environmental Impt USX Corp Proj Rfdg.......... 6.100 07/15/20 6,845,985 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 1,801,502 10,000 Geisinger Auth PA Hlth Sys Ser A (Embedded Cap)........................................... 6.400 07/01/22 10,768,800
See Notes to Financial Statements 10 12 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- PENNSYLVANIA (CONTINUED) $ 1,700 Harrisburg, PA Cap Apprec Ser F Rfdg Notes (AMBAC Insd)................................... * 09/15/14 $ 734,145 2,500 Harrisburg, PA Auth Wtr Rev (FGIC Insd)........ 7.520% 06/18/15 2,818,750 5,000 Pennsylvania St Higher Edl Assistance Agy Student Ln Rev Ser B (Inverse Fltg) (MBIA Insd).......................................... 10.433 03/01/20 5,681,250 1,100 Pennsylvania St Higher Edl Fac Auth Rev Med College PA Ser A (Prerefunded @ 03/01/99)...... 8.375 03/01/11 1,177,814 1,750 Philadelphia, PA Sch Dist Cap Apprec Ser A Rfdg (AMBAC Insd)................................... * 07/01/01 1,515,658 2,000 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser A Rfdg........................................... 6.000 12/01/13 2,069,860 4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset Fin Pgm Ser C (AMBAC Insd) (b)................. 7.700 12/01/15 5,032,310 ------------ 38,446,074 ------------ RHODE ISLAND 0.2% 1,000 Providence, RI Pub Bldg Auth Genl Rev Ser B (FSA Insd) (b)................................. 7.250 12/15/10 1,099,250 ------------ SOUTH CAROLINA 0.4% 1,610 South Carolina St Hsg Fin & Dev Auth Homeowner Mtg Ser A...................................... 7.400 07/01/23 1,703,251 ------------ TENNESSEE 2.4% 10,250 Tennessee Hsg Dev Agy Mtg Fin Ser A............ 7.125 07/01/26 11,018,545 ------------ TEXAS 4.0% 7,065 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (MBIA Insd)............................. * 02/15/20 1,480,047 935 Dallas Cnty, TX Util & Reclamation Dist Cap Apprec (Prerefunded @ 02/15/00) (MBIA Insd).... * 02/15/20 200,829 2,800 Gulf Coast Wtr Auth TX Wtr Sys Contract Rev (FGIC Insd).................................... 5.000 08/15/17 2,779,084 4,820 Harris Cnty, TX Toll Road (Prerefunded @ 08/15/09) (AMBAC Insd)......................... * 08/15/18 1,492,657 1,000 Harris Cnty, TX Toll Road (Prerefunded @ 08/15/09) (AMBAC Insd)......................... * 08/15/21 251,920 3,525 Texas Muni Pwr Agy Rev Cap Apprec Rfdg (AMBAC Insd).......................................... * 09/01/07 2,264,636 8,220 Texas St Pub Ppty Fin Corp Rev Mental Hlth & Retardation Rfdg (FSA Insd) (b)................ 5.500 09/01/13 8,515,509 1,250 West Side Calhoun Cnty, TX Navig Dist Solid Waste Disp Union Carbide Chem & Plastics.................. 8.200 03/15/21 1,395,825 ------------ 18,380,507 ------------ UTAH 3.0% 5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc Proj........................................... 7.900 06/01/17 5,532,812 1,000 Salt Lake Cnty, UT College Rev Westminster College Proj................................... 5.750 10/01/27 1,019,990 6,050 Utah Cnty, UT Hosp Rev IHC Hlth Svcs Inc (MBIA Insd).......................................... 5.250 08/15/26 6,014,123 1,125 Utah St Hsg Fin Agy Single Family Mtg Ser B Class.......................................... 6.250 07/01/14 1,190,138 ------------ 13,757,063 ------------
See Notes to Financial Statements 11 13 PORTFOLIO OF INVESTMENTS (CONTINUED) December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------------- VIRGINIA 0.5% $ 1,200 Blue Ridge Regl Jail Auth VA Regl Jail Fac Rev (MBIA Insd).................................... 5.200% 12/01/17 $ 1,205,244 1,000 Blue Ridge Regl Jail Auth VA Regl Jail Fac Rev (MBIA Insd).................................... 5.200 12/01/21 995,890 ------------ 2,201,134 ------------ WEST VIRGINIA 0.9% 2,480 South Charleston, WV Indl Dev Rev Union Carbide Chem & Plastics Ser A.......................... 8.000 08/01/20 2,686,485 1,600 West Virginia St Hsg Dev Hsg Fin Ser A (b)..... 7.400 11/01/11 1,635,840 ------------ 4,322,325 ------------ WISCONSIN 0.9% 2,835 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/11 1,434,793 1,495 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/12 715,343 1,565 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/13 707,302 1,670 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/14 712,188 1,000 Southeast WI Professional Baseball Pk Dist Lease Ctfs Partn (MBIA Insd)................... * 12/15/16 379,310 ------------ 3,948,936 ------------ PUERTO RICO 0.1% 365 Puerto Rico Elec Pwr Auth Pwr Ser N............ 7.000 07/01/07 384,798 ------------ TOTAL LONG-TERM INVESTMENTS 101.1% (Cost $424,692,645)....................................................... 463,825,988 LIABILITIES IN EXCESS OF OTHER ASSETS (1.1%)............................... (5,013,907) ------------ NET ASSETS 100.0%.......................................................... $458,812,081 ============
*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, open option and open futures transactions. See Notes to Financial Statements 12 14 STATEMENT OF ASSETS AND LIABILITIES December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- ASSETS: Total Investments (Cost $424,692,645)....................... $463,825,988 Receivables: Investments Sold.......................................... 7,566,000 Interest.................................................. 7,397,692 Variation Margin on Futures............................... 78,969 Other....................................................... 15,036 ------------ Total Assets............................................ 478,883,685 ------------ LIABILITIES: Payables: Custodian Bank............................................ 14,418,574 Investments Purchased..................................... 4,881,700 Income Distributions -- Common and Preferred Shares....... 289,521 Investment Advisory Fee................................... 232,806 Affiliates................................................ 22,579 Accrued Expenses............................................ 143,047 Trustees' Deferred Compensation and Retirement Plans........ 83,377 ------------ Total Liabilities....................................... 20,071,604 ------------ NET ASSETS.................................................. $458,812,081 ============ NET ASSETS CONSIST OF: Preferred Shares ($.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, 28,397,898 shares issued and outstanding).............................................. 283,979 Paid in Surplus............................................. 262,873,677 Net Unrealized Appreciation................................. 39,265,270 Accumulated Undistributed Net Investment Income............. 1,154,671 Accumulated Net Realized Loss............................... (9,765,516) ------------ Net Assets Applicable to Common Shares.................. 293,812,081 ------------ NET ASSETS.................................................. $458,812,081 ============ NET ASSET VALUE PER COMMON SHARE ($293,812,081 divided by 28,397,898 shares outstanding)............................ $ 10.35 ============
See Notes to Financial Statements 13 15 STATEMENT OF OPERATIONS For the Six Months Ended December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME: Interest.................................................... $14,530,110 ----------- EXPENSES: Investment Advisory Fee..................................... 1,371,289 Preferred Share Maintenance................................. 227,288 Trustees' Fees and Expenses................................. 13,728 Custody..................................................... 12,276 Legal....................................................... 1,616 Other....................................................... 169,702 ----------- Total Expenses.......................................... 1,795,899 ----------- NET INVESTMENT INCOME....................................... $12,734,211 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 2,240,652 Options................................................... 752,196 Futures................................................... (1,175,267) ----------- Net Realized Gain........................................... 1,817,581 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 31,305,431 ----------- End of the Period: Investments............................................. 39,133,343 Futures................................................. 131,927 ----------- 39,265,270 ----------- Net Unrealized Appreciation During the Period............... 7,959,839 ----------- NET REALIZED AND UNREALIZED GAIN............................ $ 9,777,420 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $22,511,631 ===========
See Notes to Financial Statements 14 16 STATEMENT OF CHANGES IN NET ASSETS For the Six Months Ended December 31, 1997 and the Year Ended June 30, 1997 (Unaudited) - --------------------------------------------------------------------------------
Six Months Ended Year Ended December 31, 1997 June 30, 1997 - ------------------------------------------------------------------------------------------ FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income.................................. $ 12,734,211 $ 25,824,086 Net Realized Gain...................................... 1,817,581 2,762,098 Net Unrealized Appreciation During the Period.......... 7,959,839 4,621,912 ------------ ------------ Change in Net Assets from Operations................... 22,511,631 33,208,096 ------------ ------------ Distributions from Net Investment Income: Common Shares........................................ (10,086,047) (20,273,120) Preferred Shares..................................... (3,031,240) (5,768,834) ------------ ------------ Total Distributions.................................... (13,117,287) (26,041,954) ------------ ------------ NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 9,394,344 7,166,142 FROM CAPITAL TRANSACTIONS: Value of Common Shares Issued Through Dividend Reinvestment......................................... 1,170,314 2,382,543 ------------ ------------ TOTAL INCREASE IN NET ASSETS........................... 10,564,658 9,548,685 NET ASSETS: Beginning of the Period................................ 448,247,423 438,698,738 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $1,154,671 and $1,537,747, respectively)........................................ $458,812,081 $448,247,423 ============ ============
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, 1997 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------- Net Asset Value, Beginning of the Period (a)......... $10.014 $9.758 $9.760 $ 9.924 $11.133 ------ ------ ----- ------ ------ Net Investment Income....... .450 .916 .940 .964 1.000 Net Realized and Unrealized Gain/Loss................. .345 .264 .048 (.065) (1.214) ------ ------ ----- ------ ------ Total from Investment Operations................ .795 1.180 .988 .899 (.214) ------ ------ ----- ------ ------ Less: Distributions from Net Investment Income: Paid to Common Shareholders.......... .356 .720 .770 .840 .840 Common Share Equivalent of Distributions Paid to Preferred Shareholders.......... .107 .204 .220 .223 .155 Distributions from and in Excess of Net Realized Gain Paid to Common Shareholders............ -0- -0- -0- -0- -0- ------ ------ ----- ------ ------ Total Distributions......... .463 .924 .990 1.063 .995 ------ ------ ----- ------ ------ Net Asset Value, End of the Period.................... $10.346 $10.014 $9.758 $ 9.760 $ 9.924 ======= ======= ====== ======= ======= Market Price Per Share at End of the Period......... $10.8125 $10.875 $9.875 $11.125 $11.125 Total Investment Return at Market Price (b).......... 2.85%* 18.32% (4.27%) 8.59% (0.05%) Total Return at Net Asset Value (c)................. 7.05%* 10.24% 8.02% 7.24% (3.63%) Net Assets at End of the Period (In millions)...... $458.8 $448.2 $438.7 $436.1 $437.7 Ratio of Expenses to Average Net Assets Applicable to Common Shares**........... 1.24% 1.28% 1.31% 1.33% 1.28% Ratio of Net Investment Income to Average Net Assets Applicable to Common Shares (d)......... 8.76% 7.18% 7.26% 7.56% 7.86% Portfolio Turnover.......... 47%* 53% 29% 38% 45% * Non-Annualized ** Ratio of Expenses to Average Net Assets Including Preferred Shares.................. .79% .80% .82% .83% .82%
*** 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%*** 8.41% 8.41% 7.88% 7.11% 6.15%*** 45% 27% 69% 116% 90%* .80% .84% .89% .87% N/A
See Notes to Financial Statements 17 19 NOTES TO FINANCIAL STATEMENTS December 31, 1997 (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, 1997 (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, 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 December 31, 1997, for federal income tax purposes, cost of long- and short-term investments is $424,692,645; the aggregate gross unrealized appreciation is $39,133,343 and the aggregate gross unrealized depreciation is $0, resulting in net unrealized appreciation on investments of $39,133,343. 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. For the six months ended December 31, 1997, the Trust recognized expenses of approximately $700 representing legal services provided by Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust is an affiliated person. For the six months ended December 31, 1997, the Trust recognized expenses of approximately $55,800 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. 19 21 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- 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 December 31, 1997 and June 30, 1997, common share paid in surplus aggregated $262,873,677 and $261,704,481 respectively. Transactions in common shares were as follows:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 1997 JUNE 30, 1997 - ------------------------------------------------------------------------------ Beginning Shares........................... 28,286,058 28,047,767 Shares Issued Through Dividend Reinvestment............................. 111,840 238,291 ---------- ---------- Ending Shares.............................. 28,397,898 28,286,058 ========== ==========
4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments excluding short-term investments, were $250,334,508 and $214,586,486, 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. 20 22 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the obligation to buy (call) or sell (put) an underlying item at a fixed exercise price during a specified period. These contracts are generally used by the Trust to manage the portfolio's effective maturity and duration. Transactions in options, each with a par value of $100,000, for the six months ended December 31, 1997, were as follows:
CONTRACTS PREMIUM - -------------------------------------------------------------------------- Outstanding at June 30, 1997.................... 1,500 $ 308,208 Options Written and Purchased (Net)............. 10,600 776,958 Options Terminated in Closing Transactions (Net)......................................... (6,308) (342,813) Options Expired (Net)........................... (5,792) (742,353) ------- --------- Outstanding at December 31, 1997................ -0- $ -0- ======= =========
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond Index and typically closes the contract prior to the delivery date. These contracts are generally used to manage the portfolio's effective maturity and duration. Upon entering into futures contracts, the Trust maintains, in a segregated account with its custodian, securities with a value equal to its obligation under the futures contracts. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the Statement of Assets and Liabilities. Transactions in futures contracts for the six months ended December 31, 1997, were as follows:
CONTRACTS - ----------------------------------------------------------------------- Outstanding at June 30, 1997.............................. 600 Futures Opened............................................ 2,908 Futures Closed............................................ (3,375) ------ Outstanding at December 31, 1997.......................... 133 ======
21 23 NOTES TO FINANCIAL STATEMENTS (CONTINUED) December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- The futures contracts outstanding as of December 31, 1997, and the descriptions and unrealized appreciation are as follows:
UNREALIZED CONTRACTS APPRECIATION - ------------------------------------------------------------------------------- Long Contracts--US Treasury Bond Futures Mar 1998 (Current notional value of $120,469 per contract).... 133 $131,927
C. INDEXED SECURITIES--These instruments are identified in the portfolio of investments. The price of these securities may be more volatile than the price of a comparable fixed rate security. An Inverse Floating security is one where the coupon is inversely indexed to a short-term floating interest rate multiplied by a specified factor. As the floating rate rises, the coupon is reduced. Conversely, as the floating rate declines, the coupon is increased. These instruments are typically used by the Trust to enhance the yield of the portfolio. An Embedded Cap security includes a cap strike level such that the coupon payment may be supplemented by cap payments if the floating rate index upon which the cap is based rises above the strike level. The Trust invests in these instruments as a hedge against a rise in the short term interest rates which it pays on its preferred shares. 6. PREFERRED SHARES The Trust has outstanding 330 shares of rate adjusted tax-exempt preferred shares ("Rates") in three series of 110 shares each. Dividends are cumulative and the rate on each series is currently reset every 28 days through an auction process. The average rate in effect on December 31, 1997, was 3.813%. During the six months ended December 31, 1997, the rates ranged from 3.518% to 3.890%. 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. 22 24 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 23 25 FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL EQUITY FUNDS Domestic MS Aggressive Equity VKAC Aggressive Growth MS American Value VKAC Comstock VKAC Emerging Growth VKAC Enterprise VKAC Equity Income VKAC Growth VKAC Growth and Income VKAC Harbor VKAC Pace VKAC Real Estate Securities MS U.S. Real Estate VKAC Utility MS Value International/Global MS Asian Growth MS Emerging Markets MS Global Equity VKAC Global Equity MS Global Equity Allocation VKAC Global Managed Assets MS International Magnum MS Latin American FIXED-INCOME FUNDS Income VKAC Corporate Bond MS Global Fixed Income VKAC Global Government Securities VKAC Government Securities VKAC High Income Corporate Bond MS High Yield VKAC High Yield VKAC Short-Term Global Income VKAC Strategic Income VKAC U.S. Government VKAC U.S. Government Trust for Income MS Worldwide High Income Tax Exempt Income VKAC California Insured Tax Free VKAC Florida Insured Tax Free Income VKAC High Yield Municipal VKAC Insured Tax Free Income VKAC Intermediate Term Municipal Income VKAC Municipal Income VKAC New York Tax Free Income VKAC Pennsylvania Tax Free Income VKAC Tax Free High Income Capital Preservation VKAC Limited Maturity Government VKAC Prime Rate Income Trust VKAC Reserve VKAC Senior Floating Rate VKAC Tax Free Money To find out more about any of these funds, ask your financial adviser for a prospectus, which contains more complete information, including sales charges, risks, and expenses. Please read it carefully before you invest or send money. To view a current Van Kampen American Capital or Morgan Stanley fund prospectus or to receive additional fund information, choose from one of the following: - visit our web site at WWW.VKAC.COM -- to view prospectuses, select Investors' Place, then Download a Prospectus - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time (Telecommunications Device for the Deaf users, call 1-800-421-2833) - e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place 24 26 VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST BOARD OF TRUSTEES DAVID C. ARCH ROD DAMMEYER HOWARD J KERR DENNIS J. MCDONNELL* - Chairman STEVEN MULLER 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., 1998 All rights reserved. (SM) denotes a service mark of Van Kampen American Capital Distributors, Inc. 25 EX-27 2 FDS
6 011 MUNICIPAL INCOME 1 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 424,692,645 463,825,988 15,042,661 0 15,036 478,883,685 4,881,700 0 15,189,904 20,071,604 165,000,000 263,157,656 28,397,898 28,286,058 1,154,671 0 (9,765,516) 0 39,265,270 458,812,081 0 14,530,110 0 (1,795,899) 12,734,211 1,817,581 7,959,839 22,511,631 0 (13,117,287) 0 0 0 0 111,840 9,394,344 1,537,747 (11,583,097) 0 0 1,371,289 0 1,795,899 453,353,817 10.014 0.450 0.345 (0.463) 0.000 0.000 10.346 0.79 0 0
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