<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 6
Portfolio of Investments......................... 7
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 26
Dividend Reinvestment Plan....................... 27
</TABLE>
VMT ANR 8/97
<PAGE> 2
LETTER TO SHAREHOLDERS
July 29, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan [PHOTO]
Stanley Group Inc., a world leader in
asset management. On February 5,
1997, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. agreed to DENNIS J. MCDONNELL AND DON G. POWELL
merge; the merger was completed on
May 31, creating the combined company
of Morgan Stanley, Dean Witter,
Discover & Co. This preeminent global
financial services firm boasts a
market capitalization of $21 billion and leading market positions in securities,
asset management, and credit services. Additionally, I am very pleased to
announce that Philip N. Duff, formerly the chief financial officer of Morgan
Stanley, has joined Van Kampen American Capital as president and chief executive
officer. I will continue as chairman of the firm.
As the financial industry continues to witness unprecedented consolidations
and new partnerships, we believe that those firms who are leaders in all facets
of their business will be able to offer investors the greatest opportunities and
services as we move into the next century. We are confident that these changes
will continue to work to the benefit of our fund shareholders as we move into
the next century.
ECONOMIC REVIEW
Volatility dominated the bond market during the 12 months ended June 30.
Initially, prices fell as the economy grew stronger, which fueled fears of an
interest rate hike by the Federal Reserve Board. When growth slowed to a
moderate 2.1 percent rate in the third quarter of 1996 and a Democratic
president was re-elected along with a Republican Congress, bond prices resumed
their rise. The split government was seen as a restraint on spending increases
that could potentially undermine efforts to control the federal budget deficit.
Municipal bonds found additional support from a waning interest in radical tax
reform that could potentially threaten their tax-free status. The 30-year
Treasury bond's yield, which moves in the opposite direction of its price,
slipped to 6.35 percent by late November from over 7.00 percent in July and
September.
The scenario shifted again at the start of 1997. Economic growth began to
accelerate, reigniting fears of a Fed rate hike, and bond prices resumed their
retreat. Despite a temporary reversal in February on signs of moderating
inflation, the price decline continued, gaining momentum after the Fed raised
short-term interest rates a quarter percentage point in late March. The rate
hike was viewed as the first of many, imposing additional downward pressure on
bond prices. First-quarter growth soared at a 4.9 percent pace, and by
mid-April, the yield on the 30-year Treasury bond jumped to 7.17 percent. The
market reversed itself once more after signs of a slowing economy re-emerged in
May
Continued on page two
1
<PAGE> 3
and the Fed refrained from raising rates again. The price of the 30-year
Treasury rose as its yield slipped to 6.79 percent by the end of June.
During most of the 12 months ended June 30, municipal bonds outperformed
Treasuries due to strong demand by retail and institutional investors amid
limited supply. From the beginning of July 1996 to the end of June 1997, the
yield on long-term municipal bonds fell 47 basis points, while the yield on the
30-year Treasury bond fell only 27 basis points.
PORTFOLIO STRATEGY
We maintained a barbell approach to credit quality, which means we invested
in both the highest and lowest levels within the investment-grade rating
spectrum for bonds. As of June 30, 1997, 47 percent of the Trust's investments
were rated AAA, the highest credit rating assigned to bonds by the Standard &
Poor's Ratings Group, and 29 percent were rated BBB, the lowest rating in the
investment grade category.
Investing at both ends of the ratings spectrum may help to balance the
portfolio's relative volatility to changing interest rates. AAA-rated securities
typically have performed better when rates are declining, and have tended to
provide for safety of principal. Many are insured bonds, which protect against
credit risk. Insured bonds comprise about half of all new issue municipal bonds
and, as a result, are extremely liquid. Bonds rated BBB perform better when
rates are rising, and have the potential to provide additional income. Please
note that the insurance does not remove market risk.
Portfolio Composition by Credit Quality as of June 30, 1997*
<TABLE>
<S> <C>
A................. 9.6%
AA................ 8.5%
AAA............... 47.3%
Non-Rated......... 4.5%
B................. 0.2%
BB................ 1.3%
BBB............... 28.6%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as determined by Standard &
Poor's or Moody's.
In addition to a diversity among credit ratings, the Trust's portfolio
contains a mixture of discount bonds, which trade below par, and premium bonds,
which trade above par. This combination of bonds should also help to reduce the
Trust's relative volatility. Discount bonds have tended to perform better during
periods of falling interest rates, while premium bonds usually have outperformed
when rates are rising.
Continued on page three
2
<PAGE> 4
Portfolio turnover during the fiscal year focused on enhancing the call
protection of the Trust. Many of the long-term bonds that were acquired in the
portfolio at its inception were issued with the typical 10-year call protection,
and now have the potential to be redeemed by their issuers. If the bonds are
called, the Trust could be forced to reinvest those proceeds in the market's
currently lower-yielding securities. We seek to ensure that only a small portion
of the Trust's assets are callable in any one year.
To help reduce reinvestment risk, we continually sell bonds that are
potential call candidates and replace them with long-term high-quality issues
with extended call features. High-quality bonds were emphasized because the
difference between the yields of AAA-rated bonds and lower-rated bonds was
minimal. As a result, there often was not enough reward to justify the
additional credit risk of purchasing lower-rated, low-quality bonds. Long-term
securities were also favored because their yields tend to be higher than those
of short-term securities. Using these strategies, we were able to protect the
Trust against calls while reducing negative impact to the Trust's
dividend-paying ability.
At the end of the reporting period, duration of the securities in the
portfolio stood at 6.79 years, or 10.76 years after adjusting for the leveraged
component of the Trust. This compares to the Lehman Brothers Municipal Bond
Index duration of 7.98 years. Because of the longer-term nature of the Trust,
the calculation of this index has been adjusted to eliminate bonds with
maturities of five years or less. Duration, which is expressed in years, is a
measure of the portfolio's sensitivity to interest rate changes. Portfolios with
shorter durations have tended to perform better when interest rates are rising,
while those with longer durations have tended to outperform when rates decline.
As interest rates fell over the past fiscal year, the leveraged factor helped
the Trust perform well compared to its peer group. It should be noted, however,
that a rise in short-term rates would have an unfavorable effect on the dividend
paying ability of the common shares and could also negatively impact the share
price.
During the fiscal year, we maintained the Trust's high concentrations in
health care, airport, and single-family housing bonds all high-yielding sectors
within the tax-exempt market. When selecting new securities, our research team
strives to identify those bonds that we believe will outperform within these
sectors, as well as other sectors.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR
AS OF JUNE 30, 1997*
<TABLE>
<S> <C>
Health Care..................... 18.3%
Airport......................... 10.4%
Public Building................. 9.4%
Single-Family Housing........... 8.6%
General Purpose................. 8.4%
</TABLE>
*As a Percentage of Long-Term Investments
Continued on page four
3
<PAGE> 5
PERFORMANCE SUMMARY
For the 12-month period ended June 30, 1997, the Trust generated a total
return at market price of 18.32 percent(1). This performance reflects an
increase in market price per common share on the New York Stock Exchange from
$9.875 on June 30, 1996, to $10.875 on June 30, 1997, plus reinvestment of all
dividends. The Trust offered a tax-exempt distribution rate of 6.62 percent(3),
based on the closing common stock price. Because income from the Trust is exempt
from federal income tax, this distribution rate represents a yield equivalent to
a taxable investment earning 10.34 percent(4) for investors in the 36 percent
federal income tax bracket.
BAR GRAPH
Twelve-month Dividend History
For the Period Ended June 30, 1997
<TABLE>
<CAPTION>
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
1996 1996 1996 1996 1996 1996 1996 1996 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06 $.06
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
OUTLOOK
We continue to see strength in the economy, but we do not believe that
second-quarter growth was nearly as vibrant as the 4.9 percent pace set in the
first quarter. While labor productivity and manufacturing remained strong in the
second quarter, retail sales fell, and the unemployment rate, which had slipped
below 5.0 percent in April and May, edged up to that level in June.
We are fairly optimistic for the remainder of the year, for several reasons.
Inflation appears to be held in check. Also, the days of deficit spending appear
to be over, and the U.S. deficit has been dramatically reduced. This combination
of low inflation and a declining deficit should bring about lower interest
rates, which makes for a bullish environment for the fixed-income market. As a
result, we believe that the Federal Reserve will leave rates unchanged through
the fourth quarter.
We believe the Trust is well-positioned for the second half of 1997. We do
not anticipate making major adjustments to the portfolio until market
fundamentals shift substantially, and we will monitor the economy in addition to
Fed policy in order to recognize such a shift. In addition, we will continue to
seek a balance between the Trust's
Continued on page five
4
<PAGE> 6
total return and its dividend income, and will seek to add value through
security selection. Thank you for your continued confidence in Van Kampen
American Capital and your Trust's team of managers.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page six
5
<PAGE> 7
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VMT)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............. 18.32%
One-year total return based on NAV(2)...................... 10.24%
DISTRIBUTION RATES
Distribution rate as a % of closing stock price(3)......... 6.62%
Taxable-equivalent distribution rate as a % of closing
stock price(4)........................................... 10.34%
SHARE VALUATIONS
Net asset value............................................ $ 10.01
Closing common stock price................................. $10.875
One-year high common stock price (06/30/97)................ $10.938
One-year low common stock price (07/25/96)................. $ 9.750
Preferred share (Series A) rate(5)......................... 3.789%
Preferred share (Series B) rate(5)......................... 3.830%
Preferred share (series C) rate(5)......................... 3.759%
</TABLE>
(1) Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2) Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4) The taxable-equivalent distribution rate is calculated assuming a 36%
federal tax bracket.
(5) See "Notes to Financial Statements" footnote #6, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 0.1%
$ 500 Alabama St Indl Dev Auth Solid Waste Disp Rev
Pine City Fiber Co............................. 6.450% 12/01/23 $ 507,460
------------
ALASKA 0.8%
3,500 North Slope Borough, AK Ser B (FSA Insd) (b)... 6.100 06/30/99 3,629,360
------------
ARKANSAS 0.2%
1,000 Conway, AR Hosp Rev Conway Regl Hosp Rfdg...... 8.375 07/01/11 1,080,780
------------
CALIFORNIA 7.2%
11,150 California Hsg Fin Agy Rev Homeowner Mtg Ser
D.............................................. * 08/01/20 1,894,385
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd).................................... * 09/01/17 1,581,250
10,000 East Bay, CA Muni Util Dist Wastewtr Treatment
Sys Rev (FGIC Insd)............................ 4.750 06/01/21 8,844,700
10,000 Los Angeles, CA Wastewtr Sys Rev Ser 1993d
(FGIC Insd).................................... 4.700 11/01/17 8,853,800
5,000 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd).............................. 5.125 12/01/23 4,606,500
6,075 Orange Cnty, CA Recovery Ctfs Ser A Rfdg (MBIA
Insd).......................................... 6.000 06/01/09 6,581,169
------------
32,361,804
------------
COLORADO 9.5%
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B............................... 6.950 08/31/20 1,128,780
1,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B............................... 7.000 08/31/26 1,698,090
19,405 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C............................... * 08/31/26 2,548,071
2,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/07 2,263,620
12,400 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.250 11/15/12 13,988,812
5,600 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/23 6,345,696
6,000 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.750 11/15/23 7,018,320
2,000 Douglas Cnty, CO Sch Dist No 1 Rev Douglas &
Elbert Cntys Impt Ser A (Prerefunded @
12/15/04) (MBIA Insd).......................... 6.400 12/15/11 2,233,280
3,000 Meridian Metro Dist CO Rfdg.................... 7.500 12/01/11 3,297,150
1,850 Montrose Cnty, CO Ctfs Partn................... 6.350 06/15/06 1,941,686
------------
42,463,505
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA 0.8%
$ 1,000 District of Columbia Ctfs Partn................ 6.875% 01/01/03 $ 1,046,680
2,775 District of Columbia Hosp Rev Medlantic
Hlthcare Ser A Rfdg (MBIA Insd)................ 5.250 08/15/12 2,729,351
------------
3,776,031
------------
FLORIDA 3.8%
3,150 Broward Cnty, FL Tourist Dev Tax Spl Rev
Convention Cent Proj (Prerefunded @ 10/01/98)
(FGIC Insd).................................... 7.750 10/01/13 3,356,829
5,000 Dunes, FL Cmnty Dev Dist Rev Wtr & Swr Proj
(Prerefunded @ 10/01/98)....................... 8.250 10/01/18 5,353,850
4,660 Florida St Brd Edl Cap Outlay Pub Edl Ser A
Rfdg (Prerefunded @ 06/01/00).................. * 06/01/15 1,426,613
1,000 Florida St Muni Pwr Agy Rev All Requirements
Pwr Supply Proj (AMBAC Insd)................... 5.100 10/01/25 926,050
5,685 Palm Beach Cnty, FL Hlth Fac Auth Rev JFK Med
Cent Inc Proj Ser 1988 Rfdg (Prerefunded @
12/01/98)...................................... 8.875 12/01/18 6,160,550
------------
17,223,892
------------
GEORGIA 3.9%
6,288 Fulton Cnty, GA Lease Rev Ctfs Partn........... 7.250 06/15/10 7,222,161
2,635 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd).......................................... 6.500 01/01/20 2,993,123
2,300 Georgia Muni Elec Auth Pwr Rev Ser O (Crossover
Refunding @ 01/01/98).......................... 8.125 01/01/17 2,390,965
5,000 Georgia Muni Elec Auth Pwr Rev Ser Z (MBIA
Insd).......................................... 5.500 01/01/20 5,003,200
------------
17,609,449
------------
IDAHO 1.0%
4,390 Boise, ID Urban Renewal Agy Pkg Rev Ser A
(b)............................................ 8.125 09/01/15 4,621,660
------------
ILLINOIS 11.2%
2,500 Alton, IL Hosp Fac Rev Saint Anthony's Hlth
Cent Proj (Prerefunded @ 09/01/99)............. 8.375 09/01/14 2,725,925
1,000 Chicago, IL Ser B Rfdg (AMBAC Insd) (b)........ 5.125 01/01/15 970,760
14,270 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84A......................... 8.850 05/01/18 15,954,288
2,700 Chicago, IL O'Hare Intl Arpt Spl Fac Rev United
Airls Inc Proj Ser 84B......................... 8.850 05/01/18 3,057,102
4,895 Chicago, IL Pub Bldg Comm Bldg Rev Ser A (MBIA
Insd).......................................... * 01/01/07 3,041,753
2,000 Illinois Edl Fac Auth Rev Lewis Univ........... 6.125 10/01/26 2,015,940
1,575 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D.......................................... 9.500 11/15/15 1,854,704
1,275 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser D (Prerefunded @ 11/15/00)................. 9.500 11/15/15 1,500,764
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 625 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser E.......................................... 9.500% 11/15/19 $ 738,175
1,310 Illinois Hlth Fac Auth Rev Glenoaks Med Cent
Ser E (Prerefunded @ 11/15/00)................. 9.500 11/15/19 1,541,962
1,000 Illinois Hlth Fac Auth Rev Lutheran Social Svcs
Proj Ser A (Prerefunded @ 08/01/00)............ 7.650 08/01/20 1,112,260
3,205 Illinois Hlth Fac Auth Rev OSF Hlthcare Sys
Rfdg........................................... 6.000 11/15/23 3,237,274
2,000 Illinois Hlth Fac Auth Rev Servantcor Ser A
(Prerefunded @ 08/15/01)....................... 8.000 08/15/21 2,291,140
2,000 Illinois Hlth Fac Auth Rev Servantcor Ser B
(Prerefunded @ 08/15/99)....................... 7.875 08/15/19 2,180,980
45,775 Illinois Hsg Dev Auth Multi-Family Hsg Ser A... * 07/01/27 4,645,705
1,745 Illinois Hsg Dev Auth Multi-Family Hsg Ser C... 7.400 07/01/23 1,824,677
1,250 Sangamon Cnty, IL Ctls Partn................... 10.000 12/01/06 1,716,575
------------
50,409,984
------------
INDIANA 0.8%
1,370 Indiana Hlth Fac Fin Auth Hosp Rev Bartholomew
Cnty Hosp Proj (Prerefunded @ 08/15/00) (FSA
Insd).......................................... 7.750 08/15/20 1,530,509
1,650 Indiana St Edl Fac Auth Rev Univ Evansville
Proj (Prerefunded @ 11/01/00).................. 8.125 11/01/10 1,872,849
------------
3,403,358
------------
KENTUCKY 1.1%
1,465 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl
Arpt Ser A Rfdg (MBIA Insd) (a)................ 5.750 03/01/02 1,506,064
1,100 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl
Arpt Ser A Rfdg (MBIA Insd) (a)................ 5.800 03/01/03 1,135,475
2,190 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl
Arpt Ser A Rfdg (MBIA Insd) (a)................ 6.250 03/01/09 2,329,218
------------
4,970,757
------------
LOUISIANA 1.9%
1,567 Lafayette, LA Pub Fin Auth Single Family Mtg
Rev
Ser A Rfdg..................................... 8.500 11/15/12 1,667,954
5,003 Louisiana Pub Fac Auth Rev Multi-Family Hsg
Pontchartn
Arpts Ser B (GNMA Collateralized).............. 8.375 07/20/23 5,315,880
1,250 New Orleans, LA Hsg Dev Corp Multi-Family Rev
Hsg
Southwood Patio Ser A (FNMA Collateralized).... 7.700 02/01/22 1,332,450
------------
8,316,284
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAINE 0.2%
$ 840 Maine St Hsg Auth Ser C........................ 8.300% 11/15/20 $ 873,289
------------
MARYLAND 0.5%
4,650 Baltimore, MD Cap Apprec Cons Pub Impt Ser A
Rfdg (FGIC Insd)............................... * 10/15/09 2,399,400
------------
MASSACHUSETTS 1.5%
2,700 Massachusetts Muni Whsl Elec Co Pwr Supply Sys
Rev Ser A Rfdg (AMBAC Insd).................... 5.000 07/01/10 2,617,191
2,695 Massachusetts St Hlth & Edl Fac Auth Rev
Farmingham Union Hosp Ser B (Prerefunded @
07/01/00)...................................... 8.500 07/01/10 3,022,685
1,000 Massachusetts St Indl Fin Agy Rev Higher Edl
Hampshire College Proj......................... 5.625 10/01/12 974,940
------------
6,614,816
------------
MICHIGAN 2.2%
4,450 Michigan St Hosp Fin Auth Rev Hosp Battle Creek
Hosp Ser G Rfdg................................ 9.500 11/15/15 5,221,051
2,000 Michigan St Hosp Fin Auth Rev Hosp Bay Med Cent
Ser A Rfdg (Crossover Refunding @ 07/01/00).... 8.250 07/01/12 2,234,460
2,300 Muskegon, MI Hosp Fin Auth Rev Hackley Hosp Ser
A Rfdg......................................... 8.000 02/01/08 2,387,239
------------
9,842,750
------------
MINNESOTA 1.3%
5,000 Duluth, MN Econ Dev Auth Hlthcare Fac Rev
Benedictine Hlth Saint Mary's Proj (Prerefunded
@ 02/15/00).................................... 8.375 02/15/20 5,593,450
------------
MISSISSIPPI 0.4%
1,500 Mississippi Hosp Equip & Fac MS Baptist Med
Cent Rfdg (MBIA Insd).......................... 6.000 05/01/13 1,562,040
------------
MISSOURI 1.1%
3,000 Missouri St Hsg Dev Cmnty Mtg Rev Ser B Rfdg
(FHA Gtd)...................................... 7.000 09/01/10 3,167,160
1,500 Phelps Cnty, MO Hosp Rev Phelps Cnty Regl Med
Cent (Prerefunded @ 03/01/00).................. 8.300 03/01/20 1,675,980
------------
4,843,140
------------
NEBRASKA 1.6%
6,535 Nebraska Invt Fin Single Family Mtg Rev Pgm B
(Inverse Fltg) (GNMA Collateralized)........... 10.886 03/15/22 7,180,331
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK 13.8%
$ 2,000 Metropolitan Tran Auth New York Tran Fac Rev
Ser A (MBIA Insd).............................. 5.750% 07/01/21 $ 2,019,860
2,250 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev Ser C (Prerefunded @ 06/15/01)............. 7.750 06/15/20 2,556,045
7,000 New York City Ser A Rfdg....................... 7.000 08/01/04 7,769,090
4,500 New York City Ser B (AMBAC Insd)............... 7.250 08/15/07 5,296,410
3,480 New York City Ser C............................ 7.000 08/15/08 3,679,856
320 New York City Ser C (Prerefunded @ 08/15/01)... 7.000 08/15/08 351,242
5,000 New York City Tran Auth Tran Fac Livingston
Plaza Proj Rfdg (FSA Insd)..................... 5.400 01/01/18 4,972,400
8,625 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 8,529,607
2,500 New York St Dorm Auth Rev City Univ Ser F...... 5.000 07/01/20 2,228,825
4,615 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg........................................... 7.000 05/15/16 4,929,420
415 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A............................ 7.750 08/15/11 463,348
695 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser A (Prerefunded @ 02/15/01)... 7.750 08/15/11 786,177
5,000 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg..................................... 5.750 04/01/08 5,169,750
2,500 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser A...................................... 5.250 01/01/21 2,314,225
2,635 New York St Urban Dev Corp Rev Youth Fac....... 5.875 04/01/08 2,734,155
4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd)............... 5.750 12/01/22 4,005,040
4,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd)............... 5.750 12/01/25 4,001,320
------------
61,806,770
------------
NORTH CAROLINA 3.6%
15,000 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev (MBIA Insd)................................ 6.000 01/01/12 16,187,700
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO 3.2%
$ 3,175 Cleveland, OH Ctfs Partn Cleveland Stad Proj
(AMBAC Insd)................................... 5.250% 11/15/10 $ 3,176,238
5,945 Cleveland, OH Ctfs Partn Cleveland Stad Proj
(AMBAC Insd)................................... 5.250 11/15/12 5,898,213
3,900 Mason, OH Hlthcare Fac MCV Hlthcare Fac (FHA
Gtd)........................................... 7.625 02/01/40 4,107,246
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding
Ltd Partnership Proj Rfdg (AMBAC Insd)......... 6.375 04/01/29 1,054,160
------------
14,235,857
------------
OKLAHOMA 0.3%
1,250 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med
Cent (Prerefunded @ 06/01/03).................. 7.200 06/01/17 1,438,250
------------
OREGON 0.6%
2,500 Oregon St Hsg & Cmnty Svcs Dept Mtg Rev Single
Family Mtg Proj Ser B.......................... 6.875 07/01/28 2,658,425
------------
PENNSYLVANIA 6.2%
1,750 Emmaus, PA Genl Auth Rev Var Loc Govt Bond Pool
Pgm Ser B Var Rate Cpn (BIGI Insd)............. 8.000 05/15/18 1,831,148
10,000 Geisinger Auth PA Hlth Sys Ser A............... 6.400 07/01/22 10,520,200
5,000 Pennsylvania St Higher Edl Assistance Agy
Student Ln Rev Ser B (Inverse Fltg) (MBIA Insd). 10.749 03/01/20 5,725,000
1,100 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/99)...... 8.375 03/01/11 1,194,303
1,750 Philadelphia, PA Sch Dist Cap Apprec Ser A Rfdg
(AMBAC Insd)................................... * 07/01/01 1,455,895
2,000 Ridley Park, PA Hosp Auth Rev Hosp Auth Rev Ser
1993 A......................................... 6.000 12/01/13 1,980,540
4,745 Sayre, PA Hlthcare Fac Auth Rev VHA Cap Asset
Fin Pgm Ser C (AMBAC Insd) (b)................. 7.700 12/01/15 5,096,889
------------
27,803,975
------------
RHODE ISLAND 0.2%
1,000 Providence, RI Pub Bldg Auth Genl Rev Ser B
(FSA Insd)..................................... 7.250 12/15/10 1,099,040
------------
SOUTH CAROLINA 0.4%
1,610 South Carolina St Hsg Fin & Dev Auth Homeowner
Mtg Ser A...................................... 7.400 07/01/23 1,694,928
------------
TENNESSEE 2.7%
11,470 Tennessee Hsg Dev Agy Mtg Fin Ser A............ 7.125 07/01/26 12,155,677
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS 6.2%
$ 7,065 Dallas Cnty, TX Util & Reclamation Dist Cap
Apprec (MBIA Insd)............................. * 02/15/20 $ 1,426,070
935 Dallas Cnty, TX Util & Reclamation Dist Cap
Apprec (Prerefunded @ 02/15/00) (MBIA Insd).... * 02/15/20 194,667
4,820 Harris Cnty, TX Toll Road (Prerefunded @
08/15/09) (AMBAC Insd)......................... * 08/15/18 1,389,220
1,000 Harris Cnty, TX Toll Road (Prerefunded @
08/15/09) (AMBAC Insd)......................... * 08/15/21 233,080
3,585 Houston, TX Arpt Sys Rev Spl Fac People Mover
Ser A (FSA Insd)............................... 5.375% 07/15/09 3,573,887
2,000 Houston, TX Arpt Sys Rev Spl Fac People Mover
Ser A (FSA Insd)............................... 5.375 07/15/10 1,975,060
3,300 Houston, TX Arpt Sys Rev Spl Fac People Mover
Ser A (FSA Insd)............................... 5.375 07/15/11 3,237,795
3,525 Texas Muni Pwr Agy Rev Cap Apprec Rfdg (AMBAC
Insd).......................................... * 09/01/07 2,105,941
8,220 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation Rfdg (Cap Guar Insd)............... 5.500 09/01/13 8,230,028
1,860 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation (Prerefunded @ 01/01/98) (BIGI
Insd).......................................... 7.875 01/01/08 1,897,553
2,000 Texas St Pub Ppty Fin Corp Rev Mental Hlth &
Retardation (Prerefunded @ 01/01/98) (BIGI
Insd).......................................... 7.875 01/01/09 2,015,660
1,250 West Side Calhoun Cnty, TX Navig Dist Solid
Waste Disp Union Carbide Chem & Plastics....... 8.200 03/15/21 1,392,063
------------
27,671,024
------------
UTAH 2.2%
5,210 Salt Lake City, UT Arpt Rev Delta Airls Inc
Proj........................................... 7.900 06/01/17 5,523,278
3,300 Salt Lake City, UT Hosp Rev IHC Hosp Inc Rfdg
(Embedded Cap)................................. 5.500 02/15/17 3,222,417
1,125 Utah St Hsg Fin Agy Single Family Mtg Ser B
Class 2........................................ 6.250 07/01/14 1,152,821
------------
9,898,516
------------
WASHINGTON 2.3%
10,000 King Cnty, WA Ser B............................ 5.800 12/01/12 10,262,400
------------
WEST VIRGINIA 1.0%
2,480 South Charleston, WV Indl Dev Rev Union Carbide
Chem & Plastics Ser A.......................... 8.000 08/01/20 2,674,482
1,600 West Virginia St Hsg Dev Hsg Fin Ser A (b)..... 7.400 11/01/11 1,646,096
------------
4,320,578
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO 0.1%
$ 365 Puerto Rico Elec Pwr Auth Pwr Ser N............ 7.000% 07/01/07 $ 390,678
------------
TOTAL LONG-TERM INVESTMENTS 93.9%
(Cost $389,534,198)....................................................... 420,907,358
------------
SHORT-TERM INVESTMENTS 5.6%
Burke Cnty, GA Dev Auth Pollutn Ctl Rev Georgia Pwr Co Plant Vogtle
($2,000,000 par, yielding 4.000%, 07/01/97 maturity)........................ 2,000,000
Delaware St Econ Dev Auth Rev Var Delmarva Pwr & Lt Co Proj ($1,500,000 par,
yielding 4.200%, 07/01/97 maturity)......................................... 1,500,000
Indiana and Purdue Univ's Rev - Student Fees Ser E ($3,500,000 par, yielding
4.150%, 07/01/97 maturity).................................................. 3,500,000
New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Adj Ser A ($3,100,000 par,
yielding 5.500%, 07/01/97 maturity)......................................... 3,100,000
New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Adj Ser C ($2,300,000 par,
yielding 4.150%, 07/01/97 maturity)......................................... 2,300,000
New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev Adj Ser G ($1,500,000 par,
yielding 4.050%, 07/01/97 maturity)......................................... 1,500,000
New York City Ser B ($900,000 par, yielding 5.500%, 07/01/97 maturity)...... 900,000
New York St Energy Resh & Dev Auth Pollutn Ctl Rev Niagara Pwr Corp Proj B
($6,000,000 par, yielding 5.500%, 07/01/97 maturity)........................ 6,000,000
New York St Energy Resh & Dev Auth Pollutn Ctl Rev NY St Elec & Gas Ser C
Rfdg ($900,000 par, yielding 3.250%, 07/01/97 maturity)..................... 900,000
Phenix Cnty, AL Indl Dev Brd Environmental Impt Rev Mead Coated Brd Proj Ser
A ($1,000,000 par, yielding 4.150%, 07/01/97 maturity)...................... 1,000,000
Uinta Cnty, WY Pollutn Ctl Rev Chevron USA Inc Proj Rfdg ($2,500,000 par,
yielding 4.000%, 07/01/97 maturity)......................................... 2,500,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $25,200,000)........................................................ 25,200,000
------------
TOTAL INVESTMENTS 99.5%
(Cost $414,734,198)....................................................... 446,107,358
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%................................. 2,140,065
------------
NET ASSETS 100.0%.......................................................... $448,247,423
-----------
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open option and futures transactions.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $414,734,198)....................... $446,107,358
Cash........................................................ 175,249
Receivables:
Interest.................................................. 6,923,751
Investments Sold.......................................... 1,077,048
Other....................................................... 13,114
------------
Total Assets............................................ 454,296,520
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,881,700
Investment Advisory Fee................................... 221,437
Income Distributions -- Common and Preferred Shares....... 176,064
Variation Margin on Futures............................... 118,750
Affiliates................................................ 11,823
Options at Market Value (Net premiums received of
$308,208)................................................. 425,782
Accrued Expenses............................................ 149,333
Deferred Compensation and Retirement Plans.................. 64,208
------------
Total Liabilities....................................... 6,049,097
------------
NET ASSETS.................................................. $448,247,423
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 1,000,000
shares, 330 issued with liquidation preference of $500,000
per share)................................................ $165,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 28,286,058 shares issued and
outstanding).............................................. 282,861
Paid in Surplus............................................. 261,704,481
Net Unrealized Appreciation................................. 31,305,431
Accumulated Undistributed Net Investment Income............. 1,537,747
Accumulated Net Realized Loss............................... (11,583,097)
------------
Net Assets Applicable to Common Shares.................. 283,247,423
------------
NET ASSETS.................................................. $448,247,423
============
NET ASSET VALUE PER COMMON SHARE ($283,247,423 divided by
28,286,058 shares outstanding)............................ $ 10.01
============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $29,394,521
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,665,199
Preferred Share Maintenance................................. 450,944
Custody..................................................... 42,376
Trustees Fees and Expenses.................................. 29,387
Legal....................................................... 27,018
Other....................................................... 355,511
-----------
Total Expenses.......................................... 3,570,435
-----------
NET INVESTMENT INCOME....................................... $25,824,086
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 2,657,615
Options................................................... (114,598)
Futures................................................... 219,081
-----------
Net Realized Gain........................................... 2,762,098
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,683,519
-----------
End of the Period:
Investments............................................. 31,373,160
Options................................................. (117,574)
Futures................................................. 49,845
-----------
31,305,431
-----------
Net Unrealized Appreciation During the Period............... 4,621,912
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 7,384,010
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $33,208,096
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................... $25,824,086 $ 26,234,758
Net Realized Gain.......................................... 2,762,098 4,390,254
Net Unrealized Appreciation/Depreciation During the
Period................................................... 4,621,912 (3,167,431)
------------- -------------
Change in Net Assets from Operations....................... 33,208,096 27,457,581
------------- -------------
Distributions from Net Investment Income:
Common Shares............................................ (20,273,120) (21,482,382)
Preferred Shares......................................... (5,768,834) (6,131,780)
------------- -------------
Total Distributions........................................ (26,041,954) (27,614,162)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........ 7,166,142 (156,581)
FROM CAPITAL TRANSACTIONS:
Value of Common Shares Issued Through Dividend
Reinvestment............................................. 2,382,543 2,765,783
------------- -------------
TOTAL INCREASE IN NET ASSETS............................... 9,548,685 2,609,202
NET ASSETS:
Beginning of the Period.................................... 438,698,738 436,089,536
------------- -------------
End of the Period (Including accumulated undistributed net
investment income of $1,537,747 and $1,755,615,
respectively)............................................ $ 448,247,423 $ 438,698,738
============= =============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period (a).............................. $ 9.758 $9.760 $ 9.924 $11.133
------ ----- ------ ------
Net Investment Income..................... .916 .940 .964 1.000
Net Realized and Unrealized Gain/Loss..... .264 .048 (.065) (1.214)
------ ----- ------ ------
Total from Investment Operations.......... 1.180 .988 .899 (.214)
------ ----- ------ ------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders........... .720 .770 .840 .840
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders........................ .204 .220 .223 .155
Distributions from and in Excess of Net
Realized Gain Paid to Common
Shareholders.......................... -0- -0- -0- -0-
------ ----- ------ ------
Total Distributions....................... .924 .990 1.063 .995
------ ----- ------ ------
Net Asset Value, End of the Period........ $10.014 $9.758 $ 9.760 $ 9.924
======= ====== ======= =======
Market Price Per Share at End of the
Period.................................. $10.875 $9.875 $11.125 $11.125
Total Investment Return at Market
Price (b)............................... 18.32% (4.27%) 8.59% (0.05%)
Total Return at Net Asset Value (c)....... 10.24% 8.02% 7.24% (3.63%)
Net Assets at End of the Period (In
millions)............................... $448.2 $438.7 $436.1 $437.7
Ratio of Expenses to Average Net Assets
Applicable to Common Shares............. 1.28% 1.31% 1.33% 1.28%
Ratio of Expenses to Average Net Assets... .80% .82% .83% .82%
Ratio of Net Investment Income to Average
Net Assets Applicable to Common
Shares (d).............................. 7.18% 7.26% 7.56% 7.86%
Portfolio Turnover........................ 53% 29% 38% 45%
</TABLE>
* Non-Annualized
** If certain expenses had not been assumed by the Adviser for the period ended
June 30, 1989, the Ratio of Expenses to Average Net Assets Applicable to
Common Shares would have been 1.07% and the Ratio of Net Investment Income to
Average Net Assets Applicable to Common Shares would have been 5.99%.
(a) Net Asset Value at August 26, 1988, is adjusted for common and preferred
share offering costs of $.120 per share.
(b) Total Investment Return at Market Price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(c) Total Return at Net Asset Value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net Investment Income is adjusted for common share equivalent of
distributions paid to preferred shareholders.
N/A = Not Applicable
18
<PAGE> 20
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 26, 1988
(Commencement
Year Ended June 30, of Investment
- ------------------------------------------ Operations) to
1993 1992 1991 1990 June 30, 1989
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------
$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%*
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Municipal Income Trust (the "Trust") is registered
as a diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Trust's investment objective is to provide
a high level of current income exempt from federal income taxes with safety of
principal through investment in a diversified portfolio of investment grade
tax-exempt municipal securities. The Trust commenced investment operations on
August 26, 1988.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Trust may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Trust will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. FEDERAL INCOME TAXES--It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of its taxable income to its
shareholders. Therefore, no provision for federal income taxes is required.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
The Trust intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1997, the Trust had an accumulated capital loss carryforward
for tax purposes of $11,650,826 which will expire on June 30, 2004. Net realized
gains or losses may differ for financial and tax reporting purposes primarily as
a result of post October 31 losses which are not recognized for tax purposes
until the first day of the following fiscal year and as a result of gains or
losses recognized for tax purposes or the mark-to-market of open option and
futures at June 30, 1997.
At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $414,734,198; the aggregate gross unrealized
appreciation is $31,491,910 and the aggregate gross unrealized depreciation is
$118,750, resulting in net unrealized appreciation on investments of
$31,373,160.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually to common shareholders. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
For the year ended June 30, 1997, 99.99% of the income distributions made by
the Trust were exempt from federal income taxes. In January, 1998, the Trust
will provide tax information to shareholders for the 1997 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .60% of the average net assets of the Trust.
For the year ended June 30, 1997, the Trust recognized expenses of
approximately $17,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended June 30, 1997, the Trust recognized expenses of
approximately $92,500 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
The Trust provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to the trustee's annual retainer fee, which is
currently $2,500.
3. CAPITAL TRANSACTIONS
At June 30, 1997 and June 30, 1996, common share paid in surplus aggregated
$261,704,481 and $259,324,321, respectively.
Transactions in common shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Beginning Shares............................... 28,047,767 27,775,981
Shares Issued Through Dividend Reinvestment.... 238,291 271,786
---------- ----------
Ending Shares.................................. 28,286,058 28,047,767
========== ==========
</TABLE>
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments
excluding short-term investments, were $232,385,810 and $251,176,102,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except when exercising an option contract or taking
delivery of a security underlying a futures contract. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the option or futures contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
Transactions in options, each with a par value of $100,000, for the year
ended June 30, 1997, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1996.................... -0- $ -0-
Options Written and Purchased (Net)............. 8,025 (782,168)
Options Terminated in Closing Transactions
(Net)......................................... (4,800) 551,067
Options Expired (Net)........................... (1,725) 539,309
------ ---------
Outstanding at June 30, 1997.................... 1,500 $ 308,208
====== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
June 30, 1997, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
MUNICIPAL BOND FUTURES
Aug 1997--Purchased Call......... 250 Aug/120 $ 62,500
Aug 1997--Written Put............ 250 Aug/115 (183,594)
Sep 1997--Written Put............ 250 Sep/114 (183,594)
Sep 1997--Written Put............ 250 Sep/115 (257,813)
US TREASURY BOND FUTURES
Sep 1997--Purchased Put.......... 250 Aug/110 226,563
Sep 1997--Written Call........... 250 Aug/114 (89,844)
------ ---------
1,500 $(425,782)
====== =========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Trust maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
made to the broker based upon changes in the value of the contract (the
variation margin).
Transactions in futures contracts for the year ended June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1996.............................. 0
Futures Opened............................................ 1,900
Futures Closed............................................ (1,300)
------
Outstanding at June 30, 1997.............................. 600
======
</TABLE>
The futures contracts outstanding as of June 30, 1997, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION/DEPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--US Treasury Bond
Futures
Sep 1997
(Current notional value of $111,063
per contract)...................... 350 $(182,512)
Short Contracts--Municipal Bond
Futures
Sep 1997
(Current notional value of $116,500
per contract)...................... 250 232,357
--- ---------
600 $ 49,845
=== =========
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Trust to enhance the yield of the portfolio.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short term interest rates which it
pays on its preferred shares.
6. PREFERRED SHARES
The Trust has outstanding 330 shares of rate adjusted tax-exempt preferred
shares ("Rates") in three series of 110 shares each. Dividends are cumulative
and the rate on each series is currently reset every 28 days through an auction
process. The average rate
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
in effect on June 30, 1997, was 3.793%. During the year ended June 30, 1997, the
rates ranged from 3.346% to 3.830%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The Rates are redeemable at the option of the Trust in whole or in part at a
price of $500,000 per share plus accumulated and unpaid dividends. The Trust is
subject to certain asset coverage tests, and the Rates are subject to mandatory
redemption if the tests are not met.
25
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Municipal Income Trust (the "Trust"), including the
portfolio of investments, as of June 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Municipal Income Trust as of June 30, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
July 31, 1997
26
<PAGE> 28
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. No other charges will be made to participants for reinvesting
dividends or capital gains distributions, except for certain brokerage
commissions, as described above.
TAX IMPLICATIONS
You will receive tax information annually for your personal records and to help
you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gains distributions does not relieve you of any income tax
which may be payable on dividends or distributions.
RIGHT TO WITHDRAW
Plan participants may withdraw at any time by calling 1-800-341-2929 or by
writing State Street Bank and Trust Company, P.O. Box 8200, Boston, MA 02266-
8200. If you withdraw, you will receive, without charge, a share certificate
issued in your name for all full Common Shares credited to your account under
the Plan and a cash payment will be made for any fractional Common Share
credited to your account under the Plan. You may again elect to participate in
the Plan at any time by calling 1-800-341-2929 or writing to the Trust at:
Van Kampen American Capital
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
27
<PAGE> 29
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley retail funds.
28
<PAGE> 30
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL* - Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on June 28, 1997, where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the selection of independent public accountants. With regard to the
approval of a new investment advisory agreement between Van Kampen American
Capital Investment Advisory Corp. and the Trust, 30,588,285 shares voted for the
proposal, 482,351 shares voted against, 705,471 shares abstained and 0 shares
represented broker non-votes. With regard to the election of Rod Dammeyer as
elected trustee by the preferred shareholders of the Trust, 194 shares voted in
his favor, 0 shares withheld. With regard to the election of Wayne W. Whalen as
elected trustee by the common shareholders of the Trust, 31,204,991 shares voted
in his favor, 570,921 shares withheld. The other trustees of the Trust whose
terms did not expire in 1997 are Dennis J. McDonnell, Theodore A. Myers, Hugo
Sonnenschein, David C. Arch and Howard J Kerr. With regard to the ratification
of KPMG Peat Marwick LLP as independent public accountants for the Trust,
31,207,766 shares voted in favor of the proposal, 132,517 shares voted against,
435,823 shares abstained and 0 shares represented broker non-votes.
29
