<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
VMT SAR 2/98
<PAGE> 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
<PAGE> 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
<TABLE>
<S> <C>
AAA............... 49.7%
AA................ 7.1%
A................. 9.6%
BBB............... 28.2%
BB................ 1.2%
B................. 0.2%
Non-Rated......... 4.0%
</TABLE>
* 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
<PAGE> 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
<PAGE> 5
[DIVIDEND HISTORY GRAPH]
SIX-MONTH DIVIDEND HISTORY
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Distribution per Common Share
<S> <C>
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.
</TABLE>
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
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VMT)
<TABLE>
<S> <C>
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%
</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.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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
============
</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, open option and open futures transactions.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1997
and the Year Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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
============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended -----------------------------------------
December 31, 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
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%
</TABLE>
*** 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
<PAGE> 18
- --------------------------------------------------------------------------------
<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%***
8.41% 8.41% 7.88% 7.11% 6.15%***
45% 27% 69% 116% 90%*
.80% .84% .89% .87% N/A
</TABLE>
See Notes to Financial Statements
17
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
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-
======= =========
</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 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:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997.............................. 600
Futures Opened............................................ 2,908
Futures Closed............................................ (3,375)
------
Outstanding at December 31, 1997.......................... 133
======
</TABLE>
21
<PAGE> 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:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--US Treasury Bond
Futures Mar 1998 (Current notional
value of $120,469 per contract).... 133 $131,927
</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 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> MUNICIPAL INCOME
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 424,692,645
<INVESTMENTS-AT-VALUE> 463,825,988
<RECEIVABLES> 15,042,661
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 15,036
<TOTAL-ASSETS> 478,883,685
<PAYABLE-FOR-SECURITIES> 4,881,700
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,189,904
<TOTAL-LIABILITIES> 20,071,604
<SENIOR-EQUITY> 165,000,000
<PAID-IN-CAPITAL-COMMON> 263,157,656
<SHARES-COMMON-STOCK> 28,397,898
<SHARES-COMMON-PRIOR> 28,286,058
<ACCUMULATED-NII-CURRENT> 1,154,671
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9,765,516)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,265,270
<NET-ASSETS> 458,812,081
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,530,110
<OTHER-INCOME> 0
<EXPENSES-NET> (1,795,899)
<NET-INVESTMENT-INCOME> 12,734,211
<REALIZED-GAINS-CURRENT> 1,817,581
<APPREC-INCREASE-CURRENT> 7,959,839
<NET-CHANGE-FROM-OPS> 22,511,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,117,287)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 111,840
<NET-CHANGE-IN-ASSETS> 9,394,344
<ACCUMULATED-NII-PRIOR> 1,537,747
<ACCUMULATED-GAINS-PRIOR> (11,583,097)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,371,289
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,795,899
<AVERAGE-NET-ASSETS> 453,353,817
<PER-SHARE-NAV-BEGIN> 10.014
<PER-SHARE-NII> 0.450
<PER-SHARE-GAIN-APPREC> 0.345
<PER-SHARE-DIVIDEND> (0.463)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.346
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
