<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 16
Statement of Operations.......................... 17
Statement of Changes in Net Assets............... 18
Financial Highlights............................. 19
Notes to Financial Statements.................... 20
Report of Independent Accountants................ 26
Dividend Reinvestment Plan....................... 27
</TABLE>
VKQ ANR 10/97
<PAGE> 2
LETTER TO SHAREHOLDERS
September 25, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan Stanley
Group Inc., paving the way for the
development of a prominent global
financial services company. More [PHOTO]
recently, Morgan Stanley Group Inc. and
Dean Witter, Discover & Co. agreed to
merge. The merger was completed on May DENNIS J. MCDONNELL AND DON G. POWELL
31, 1997, creating the combined company
of Morgan Stanley, Dean Witter,
Discover & Co. This preeminent global
financial services firm boasts a market capitalization of approximately $34
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 Group Inc., has joined
Van Kampen American Capital as president and chief executive officer. I will
continue as chairman of the firm. We are confident that the partnership of Van
Kampen American Capital and Morgan Stanley, Dean Witter, Discover & Co. will
continue to work to the benefit of our fund shareholders as we move into the
next century.
ECONOMIC REVIEW
Stability and growth continued to characterize the U.S. economic environment
during the past 12 months. In the first quarter of 1997, the economy accelerated
at its fastest pace since 1987. Consumer confidence remained high, and
unemployment fell to 4.9 percent at the end of August, one of the lowest levels
since 1973.
Despite this vigorous pace of economic growth, there were few signs of
inflation. Wholesale prices fell during each of the first seven months of 1997,
while at the consumer level, prices rose by a mere 2.2 percent during the 12
months through August. The strength of the U.S. dollar also helped curb
inflation by making imported goods less costly.
MARKET REVIEW
The bond market responded positively during most of the reporting period.
The rally that began in May of 1996 continued through year end. This situation,
however, reversed in early 1997. With the economy picking up speed and
cautionary remarks by Federal Reserve Chairman Alan Greenspan about tighter
monetary policy, inflationary fears were ignited and interest rates began to
rise. When the Fed raised short-term interest rates by a modest 0.25 percent in
March, interest rates peaked and then began to decline in April as inflationary
fears abated.
During the reporting period, tax-exempt interest rates declined overall. On
August 31, 1997, 30-year AAA-rated municipal securities offered a tax-exempt
yield of 5.30 percent, compared to 5.71 percent one year ago. In comparison, the
30-year Treasury bond yielded
Continued on page two
1
<PAGE> 3
6.61 percent as of August 31, 1997 versus 7.11 percent as of August 31, 1996.
The ratio of municipal yields to Treasury yields remained at an attractive level
during the period despite a slight drop from 80.3 percent on August 31, 1996 to
80.2 percent on August 31, 1997.
The most significant trend in the municipal market has been the increasing
number of insured AAA-rated bonds that are coming to market. Credit spreads have
narrowed dramatically due to an 18.1 percent increase in new insured bond
issuance during the first eight months of 1997.
TRUST STRATEGY
We employed the following strategies to manage the portfolio during the 12-month
period:
- - We sought to "barbell" the credit quality of the portfolio with
concentrations in AAA-rated and lower-rated holdings. At the end of the
reporting period, 45.3 percent of the Trust's long-term investments were
AAA-rated, and 35.5 percent of long-term investments were BBB-rated or
non-rated (with an internal investment grade rating, as rated by our
analysts, at the time of purchase). We believe this strategy will help to
reduce the volatility associated with interest rate movements. Securities
rated AAA provide safety of principal and total return opportunities, while
lower-rated securities provide the potential for a higher degree of income
and generally exhibit less price movement when interest rates change.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of August 31, 1997*
<TABLE>
<S> <C>
AAA............ 45.3%
AA............. 9.7%
A.............. 9.5%
BBB............ 25.0%
Non-Rated...... 10.5%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard & Poor's
or Moody's.
- - We adjusted the portfolio's duration to 6.99 years on August 31, 1997, based
on our interest rate outlook. Duration, expressed in years, is a measurement
of the Trust's volatility to interest rate movements. Portfolios with
shorter durations have tended to perform better when interest rates rise,
while funds with longer durations have tended to outperform when interest
rates decline. In anticipation that the Fed would raise rates in March, we
shortened the duration. When rates declined after the March up-tick, we
lengthened the duration. Our interest rate outlook at the end of the
reporting period moved to a more neutral stance.
Continued on page three
2
<PAGE> 4
- - We utilized our municipal research capabilities to identify lower-rated
securities that we feel have strong upside potential and could boost the
dividend-paying ability of the Trust. For example, during the period we
purchased several non-rated issues such as Carol Stream, Illinois at a yield
of 7.20 percent. On the investment-grade side, the Trust has benefited from
its positions in New York City, Chicago O'Hare Airport (United Airlines),
Kenton County Kentucky Airport (Delta Airlines), and Alliance Airport Texas
(American Airlines), all of which have increased in price significantly
since our acquisition. Not all securities in the portfolio performed
positively and there is no guarantee that these issues will continue to
perform well.
[DIVIDEND HISTORY BAR GRAPH]
Twelve-month Dividend History
For the Period Ended August 31, 1997
Distribution per Common Share
<TABLE>
<CAPTION>
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
1996 1996 1996 1996 1997 1997 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $.08 $.08 $.08 $.08 $.08 $.08 $.08 $.08 $.08 $.08 $.08 $.08
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distribution.
PERFORMANCE SUMMARY
The Van Kampen American Capital Municipal Trust continued its positive
performance during the fiscal year. For the year ended August 31, 1997, the
Trust generated a total return at market price of 15.87 percent(1), including
reinvestment of income dividends totaling $0.96 per common share. The Trust
offered a tax-exempt distribution rate of 6.10 percent(3), based on the closing
common stock price of $15.75 per share on August 31, 1997. Because income from
the Trust is exempt from federal income tax, this distribution rate represents a
yield equivalent to a taxable investment earning 9.53 percent(4) (for investors
in the 36 percent federal income tax bracket). At the end of the reporting
period, the closing share price of the Trust traded at a 5.12 percent discount
to its net asset value of $16.60.
Continued on page four
3
<PAGE> 5
TOP FIVE INDUSTRY HOLDINGS BY SECTOR*
<TABLE>
<CAPTION>
AS OF
AUGUST 31, 1997
<S> <C>
Health Care............................................ 16.2%
Industrial Revenue..................................... 13.6%
Airport................................................ 9.1%
General Purpose........................................ 8.6%
Single-Family Housing.................................. 7.6%
</TABLE>
*As a Percentage of Long-Term Investments
OUTLOOK
We expect the pace of economic activity for the remainder of 1997 to
accelerate modestly from the relatively pedestrian rate that prevailed during
the second quarter. While we do not believe that economic growth will be rapid
enough to reignite inflation, some warning signs are present, including a tight
labor market and high consumer confidence. However, our long-term interest rate
outlook remains bullish.
We believe the Trust is positioned to perform well and do not anticipate
making major changes to the structure of the portfolio. Our portfolio management
team continues to seek a balance between the Trust's total return and its
dividend income, as well as add value through security selection. The Trust
continues to benefit from its leveraged capital structure, which provides common
shareholders with above-market levels of dividend income. It should be noted,
however, that a significant rise in short-term interest rates would have an
unfavorable effect on the dividend-paying ability of the common shares, and
would also negatively impact the price.
We encourage investors to take this opportunity to consider how their
investments are currently divided among the three major asset classes of stocks,
bonds, and cash. Uneven moves in the various markets can distort a carefully
planned investment program. We encourage you to review your portfolio with an
eye toward correcting imbalances in the way assets have grown to be allocated.
Once again, we appreciate your continued confidence in your Van Kampen
American Capital investments and the team who manages 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 AUGUST 31, 1997
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL TRUST
(NYSE TICKER SYMBOL -- VKQ)
<TABLE>
<S> <C>
COMMON SHARE TOTAL RETURNS
One-year total return based on market price(1)............. 15.87%
One-year total return based on NAV(2)...................... 11.14%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................... 6.10%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)...................................... 9.53%
SHARE VALUATIONS
Net asset value............................................ $16.60
Closing common stock price................................. $15.750
One-year high common stock price (08/29/97)................ $15.875
One-year low common stock price (01/02/97)................. $13.750
Preferred share (Series A) rate(5)......................... 3.400%
Preferred share (Series B) rate(5)......................... 3.550%
Preferred share (Series C) rate(5)......................... 3.390%
Preferred share (Series D) rate(5)......................... 3.535%
</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 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
income tax bracket.
(5)See "Notes to Financial Statements" footnote #5, 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
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
CALIFORNIA 4.2%
$ 2,000 California St Dept Wtr Res Cent Vly Proj
Rev (MBIA Insd)............................ 4.750% 12/01/29 $ 1,771,760
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg
Rev (MBIA Insd)............................ * 09/01/17 1,670,750
1,500 Davis, CA Pub Fac Fin Auth Loc Agy Rev (a). 6.600 09/01/25 1,498,095
1,210 Del Mar, CA Race Track Auth Rev Rfdg....... 5.500 08/15/98 1,225,161
2,000 Del Mar, CA Race Track Auth Rev Rfdg....... 6.000 08/15/06 2,111,500
7,560 Delano, CA Ctfs Partn Ser A................ 9.250 01/01/22 8,835,674
4,775 Los Angeles, CA Multi-Family Rev Ser G Rfdg
(FSA Insd)................................. 5.650 01/01/14 4,802,982
3,000 Los Angeles, CA Uni Sch Dist Ctfs Partn
(FSA Insd)................................. 5.500 10/01/16 2,996,310
10,000 Orange Cnty, CA Recovery Ctfs Ser A Rfdg
(MBIA Insd) (b)............................ 6.000 06/01/09 10,963,900
5,695 Sacramento, CA City Fin Auth Rev Comb Proj
B (MBIA Insd).............................. * 11/01/14 2,243,147
------------
38,119,279
------------
COLORADO 13.4%
19,500 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy
Rev E-470 Proj Ser C (Prerefunded @
08/31/05).................................. * 08/31/26 2,784,405
5,000 Boulder Cnty, CO Rev Natl Cent Atmosphere
Rfdg & Impt................................ 6.900 12/01/07 5,488,750
8,500 Boulder Cnty, CO Rev Natl Cent Atmosphere
Rfdg & Impt................................ 7.000 12/01/13 9,311,580
2,005 Colorado Hsg Fin Auth Single Family Pgm Sr
Gtd Mtg Ln D3 (FHA Gtd).................... 7.200 08/01/23 2,107,034
10,000 Denver, CO City & Cnty Arpt Rev Ser A...... 8.250 11/15/12 11,281,900
12,800 Denver, CO City & Cnty Arpt Rev Ser A...... 8.500 11/15/23 14,502,528
8,535 Denver, CO City & Cnty Arpt Rev Ser A...... 8.000 11/15/25 9,487,165
24,000 Denver, CO City & Cnty Arpt Rev Ser D (MBIA
Insd)...................................... 5.500 11/15/25 23,929,680
11,100 Denver, CO City & Cnty Arpt Rev Ser D...... 7.000 11/15/25 11,738,361
4,000 Denver, CO City & Cnty Arpt Rev Ser E (MBIA
Insd)...................................... 5.250 11/15/23 3,867,080
8,000 E-470 Pub Hwy Auth CO Rev Cap Apprec Ser B
(MBIA Insd)................................ * 09/01/22 1,979,920
22,000 Meridian Metro Dist CO Peninsular &
Oriental Steam Navig CO Rfdg (b)........... 7.500 12/01/11 24,129,600
------------
120,608,003
------------
CONNECTICUT 1.7%
7,140 Connecticut St Hlth & Edl Fac Auth Rev
Nursing Home Proj AHF/Hartford............. 7.125 11/01/24 8,084,408
7,000 Mashantucket Western Pequot Tribe CT Spl
Rev Ser A.................................. 6.400 09/01/11 7,437,710
------------
15,522,118
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DELAWARE 0.5%
$ 2,000 Delaware St Econ Dev Auth Rev Exempt Fac
Delmarva Pwr & Lt Co....................... 7.500% 10/01/17 $ 2,123,080
2,460 Delaware St Hsg Auth Rev Sr Home Mtg Ser B
Subser B2.................................. 7.200 12/01/21 2,592,127
------------
4,715,207
------------
DISTRICT OF COLUMBIA 0.3%
1,000 District of Columbia Hosp Rev Medlantic
Hlthcare Group A Rfdg (MBIA Insd).......... 5.875 08/15/19 1,027,220
2,000 District of Columbia Rev Carnegie
Endowment.................................. 5.750 11/15/26 2,006,780
------------
3,034,000
------------
FLORIDA 2.5%
2,600 Brevard Cnty, FL Sch Brd Ctfs Partn Ser A
(AMBAC Insd)............................... 5.400 07/01/10 2,714,036
8,000 Florida St Brd Of Educ Cap Outlay Pub Educ
Ser D...................................... 5.200 06/01/12 8,004,720
1,000 Florida St Correctional Privatization Comm
Ctfs Partn (AMBAC Insd).................... 5.000 08/01/17 953,850
1,000 Hillsborough Cnty, FL Indl Dev Auth Indl
Dev Rev Univ Cmnty Hosp (MBIA Insd)........ 5.750 08/15/14 1,031,750
7,690 Sarasota Cnty, FL Hlth Fac Auth Rev
Hlthcare Kobernick/Meadow Pk (Prerefunded @
07/01/02).................................. 10.000 07/01/22 9,503,610
------------
22,207,966
------------
GEORGIA 1.4%
8,950 Atlanta, GA Wtr & Swr Rev (FGIC Insd)...... 4.750 01/01/23 7,981,520
4,000 Muni Elec Auth GA Proj One Subser A (AMBAC
Insd)...................................... 6.250 01/01/14 4,317,880
------------
12,299,400
------------
ILLINOIS 12.0%
4,920 Bedford Park, IL Tax Increment Rev Sr Lien
Bedford City Sq Proj....................... 9.250 02/01/12 5,631,333
3,650 Carol Stream, IL First Mtg Rev 1st Mtg
Windsor Pk Mnr Proj........................ 7.000 12/01/13 3,706,794
2,500 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
American Airls Inc Proj Rfdg............... 8.200 12/01/24 2,994,925
7,475 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc........................... 8.400 05/01/04 8,130,034
10,600 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc (b)....................... 8.500 05/01/18 11,645,796
4,470 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser A..................... 8.400 05/01/18 4,826,929
4,505 Chicago, IL O'Hare Intl Arpt Spl Fac Rev
United Airls Inc Ser B..................... 8.950 05/01/18 5,107,499
1,200 Hodgkins, IL Tax Increment................. 9.500 12/01/09 1,405,356
3,500 Hodgkins, IL Tax Increment (Prerefunded @
12/01/01).................................. 9.500 12/01/09 4,252,990
4,000 Hodgkins, IL Tax Increment Rev Ser A
Rfdg....................................... 7.625 12/01/13 4,258,440
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,500 Illinois Dev Fin Auth Rev Catholic
Charities Hsg Dev.......................... 6.350% 01/01/25 $ 2,555,625
1,740 Illinois Edl Fac Auth Rev Lewis Univ....... 5.900 10/01/14 1,738,034
4,000 Illinois Edl Fac Auth Rev Lewis Univ....... 6.000 10/01/24 4,005,280
2,500 Illinois Hlth Fac Auth Rev Evangelical Hosp
Ser C Rfdg (FSA Insd)...................... 6.750 04/15/12 2,813,475
7,750 Illinois Hlth Fac Auth Rev Fairview Oblig
Group Proj A (Prerefunded @ 10/01/02)...... 9.500 10/01/22 9,574,040
4,665 Illinois Hlth Fac Auth Rev Hinsdale Hosp
Ser B Rfdg................................. 9.000 11/15/15 5,439,390
1,500 Illinois Hlth Fac Auth Rev Sarah Bush
Lincoln Hlth Cent (Prerefunded @
5/15/02)................................... 7.250 05/15/12 1,701,315
10,000 Illinois Hlth Fac Auth Rev Servantcor Ser A
(Prerefunded @ 08/15/01) (b)............... 8.000 08/15/21 11,438,100
1,780 Illinois Hsg Dev Auth Rev Homeowner Mtg
Subser A2 (FHA Gtd)........................ 7.125 08/01/26 1,898,673
1,510 Roselle, IL Multi-Family Hsg Rev Waterbury
Apts Ser A Rfdg (GNMA Collateralized)...... 7.000 01/01/25 1,625,455
3,800 Winnebago & Boone Cntys, IL Sch Dist No 205
(FSA Insd)................................. 7.125 02/01/01 4,140,480
4,125 Winnebago & Boone Cntys, IL Sch Dist No 205
(FSA Insd)................................. 7.200 02/01/02 4,579,987
4,475 Winnebago & Boone Cntys, IL Sch Dist No 205
(FSA Insd)................................. 7.300 02/01/03 5,070,578
------------
108,540,528
------------
INDIANA 0.9%
2,500 Indiana Bond Bank Spl Pgm Ser F............ 7.150 08/01/15 2,729,925
3,000 Indiana St Dev Fin Auth Indl Dev Rev Rohn
Inc Proj................................... 7.500 03/01/11 3,130,890
2,000 Plymouth, IN Multi Sch Bldg Corp First Mtg
(Prerefunded @ 01/01/02) (AMBAC Insd)...... 6.750 01/01/13 2,210,500
------------
8,071,315
------------
KANSAS 2.4%
20,000 Burlington, KS Pollutn Ctl Rev KS Gas &
Elec Co Proj Rfdg (MBIA Insd) (b).......... 7.000 06/01/31 21,917,600
------------
KENTUCKY 1.9%
2,000 Ashland, KY Solid Waste Rev Ashland Oil Inc
Proj....................................... 7.200 10/01/20 2,181,040
4,000 Elsmere, KY Indl Dev Rev Rfdg.............. 6.750 04/01/10 4,219,360
10,000 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac
Delta Airls Proj Ser A..................... 7.125 02/01/21 10,879,500
------------
17,279,900
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LOUISIANA 0.9%
$ 800 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Pur Ser A Rfdg (GNMA
Collateralized)............................ 7.100% 10/01/24 $ 844,584
6,520 East Baton Rouge, LA Mtg Fin Auth Single
Family Mtg Pur Ser C Rfdg (GNMA
Collateralized)............................ 7.000 04/01/32 6,837,589
2,000 New Orleans, LA Rfdg (AMBAC Insd).......... * 09/01/16 709,220
------------
8,391,393
------------
MAINE 0.1%
1,000 Maine Vets Homes ME Rev.................... 7.750 10/01/20 1,078,000
------------
MARYLAND 1.9%
2,300 Baltimore, MD Cap Apprec Cons Pub Impt Rfdg
(FGIC Insd)................................ * 10/15/06 1,475,404
3,920 Baltimore, MD Cap Apprec Cons Pub Impt Rfdg
(FGIC Insd)................................ * 10/15/07 2,359,722
139,445 Maryland St Cmnty Dev Admin Dept Hsg &
Cmnty Dev Single Family Rev Pgm 6.......... * 04/01/30 13,013,008
------------
16,848,134
------------
MASSACHUSETTS 1.3%
5,100 Massachusetts Bay Tran Auth MA Gen Tran Sys
Ser C...................................... 5.000 03/01/24 4,759,830
2,600 Massachusetts St Hlth & Edl Fac Auth Rev
Med Cent of Central MA..................... 7.100 07/01/21 2,802,930
3,000 Massachusetts St Hlth & Edl Fac Auth Rev
New England Med Cent Hosp Ser G (Embedded
Swap) (MBIA Insd) (c)...................... 3.100/5.000 07/01/13 2,710,680
1,375 Massachusetts St Hlth & Edl Fac Auth Rev
Winchester Hosp Ser D Rfdg (Connie Lee
Insd)...................................... 5.750 07/01/14 1,410,296
------------
11,683,736
------------
MICHIGAN 1.2%
2,000 Detroit, MI Wtr Supply Sys Rev Sr Lien Ser
A (MBIA Insd).............................. 5.000 07/01/27 1,859,580
2,000 Michigan Muni Bond Auth Rev Loc Govt Ln Ser
C-A (FSA Insd)............................. * 06/15/13 859,400
1,800 Michigan St Hosp Fin Auth Rev Saratoga
Cmnty Hosp Rfdg............................ 8.750 06/01/10 2,029,554
5,000 Portage Lake, MI Wtr & Swr Auth Ser II
(Prerefunded @ 10/01/02)................... 7.625 10/01/20 5,801,700
------------
10,550,234
------------
MISSISSIPPI 0.7%
3,750 Claiborne Cnty, MS Pollutn Ctl Rev Sys
Energy Res Inc Rfdg........................ 7.300 05/01/25 3,965,512
2,000 Mississippi Home Corp Single Family Rev Mtg
Ser F (GNMA Collateralized)................ 7.550 12/01/27 2,254,020
------------
6,219,532
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MISSOURI 1.9%
$ 1,740 Good Shepherd Nursing Home Dist MO Nursing
Home Fac Rev............................... 7.625% 08/15/15 $ 1,823,224
2,730 Good Shepherd Nursing Home Dist MO Nursing
Home Fac Rev............................... 7.750 08/15/25 2,897,895
3,750 Hannibal, MO Indl Dev Auth Hlth Fac Rev
Hannibal Regl Hlthcare Sys Inc (Prerefunded
@ 09/01/01)................................ 9.500 03/01/22 4,604,438
4,000 Saint Louis, MO Arpt Rev Lambert Saint
Louis Intl Ser B (FGIC Insd) (a)........... 5.250 07/01/22 3,838,960
2,000 Saint Louis, MO Arpt Rev Lambert Saint
Louis Intl Ser B (FGIC Insd) (a)........... 5.250 07/01/27 1,910,040
2,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd)..... 5.000 06/01/11 1,984,140
------------
17,058,697
------------
MONTANA 0.5%
3,900 Montana St Coal Severance Tax Broadwater
Pwr Proj Ser A Rfdg........................ 6.875 12/01/17 4,175,262
------------
NEBRASKA 0.1%
1,000 Nebraska Invt Fin Auth Single Family Hsg
Rev Ser D (FHA Insd) (a)................... 5.850 09/01/28 1,002,560
------------
NEVADA 1.0%
955 Henderson, NV Loc Impt Dist No T-4 Ser A... 8.500 11/01/12 999,894
1,750 Nevada St Rfdg............................. 4.375 08/01/03 1,735,090
6,075 Washoe Cnty, NV Gas & Wtr Fac Rev Sierra
Pacific (AMBAC Insd)....................... 6.300 12/01/14 6,572,968
------------
9,307,952
------------
NEW HAMPSHIRE 0.2%
2,000 New Hampshire Higher Edl & Hlth Fac Auth
Rev Riverwoods At Exeter Ser A............. 6.500 03/01/23 2,012,860
------------
NEW JERSEY 5.4%
4,000 Camden Cnty, NJ Impt Auth Lease Rev Kaighn
Pt Marine Terminal A....................... 8.000 06/01/27 4,089,120
1,515 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/99 1,423,933
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/00 899,770
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/02 819,760
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/03 780,180
1,000 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/04 741,050
1,460 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/05 1,029,446
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,465 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/06 $ 981,902
1,615 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/07 1,027,915
1,555 Eastern Camden Cnty, NJ Regl Sch Dist Rfdg
(FGIC Insd)................................ * 03/01/08 934,151
5,000 New Jersey Econ Dev Auth Wtr Fac Rev (FGIC
Insd)...................................... 6.500% 04/01/22 5,377,200
25,000 New Jersey Econ Dev Auth St Contract Econ
Rec (Embedded Cap) (MBIA Insd)............. 5.900 03/15/21 26,827,750
3,500 New Jersey St Turnpike Auth Turnpike Rev
Ser C (FSA Insd)........................... 6.500 01/01/16 4,019,820
------------
48,951,997
------------
NEW MEXICO 0.1%
767 Santa Fe, NM Single Family Mtg Rev Rfdg.... 8.450 12/01/11 822,936
------------
NEW YORK 12.8%
4,000 Herkimer Cnty, NY Indl Dev Agy Indl Dev Rev
Burrows Paper Corp Recycling............... 8.000 01/01/09 4,027,280
5,550 Metro Tran Auth NY Svcs Contract Commuter
Fac Ser N Rfdg............................. 6.000 07/01/11 5,703,902
4,000 Metro Tran Auth NY Svcs Contract Tran Fac.. 7.000 07/01/09 4,340,640
1,900 Metro Tran Auth NY Svcs Contract Tran Fac
Ser N Rfdg................................. 6.000 07/01/11 1,952,687
2,000 New York City Hlth & Hosp Corp Rev Ser A
Rfdg (AMBAC Insd).......................... 5.750 02/15/22 2,027,760
2,000 New York City Muni Wtr Fin Auth Wtr & Swr
Sys Rev.................................... 5.125 06/15/21 1,885,800
7,000 New York City Ser A........................ 6.250 08/01/08 7,569,800
90 New York City Ser A........................ 7.750 08/15/12 100,660
1,410 New York City Ser A (Prerefunded @
08/15/01).................................. 7.750 08/15/12 1,604,665
7,000 New York City Ser B........................ 7.500 02/01/05 7,791,280
1,065 New York City Ser C........................ 7.100 08/15/10 1,147,612
435 New York City Ser C (Prerefunded @
08/15/01).................................. 7.100 08/15/10 479,335
2,585 New York City Ser F........................ 8.250 11/15/02 2,947,003
5,000 New York City Subser A1 (Embedded Swap).... 6.410 08/01/12 5,085,450
5,000 New York St Dorm Auth Rev City Univ Ser F.. 5.500 07/01/12 5,005,900
6,800 New York St Dorm Auth Rev Cons City Univ
Sys Ser A.................................. 5.625 07/01/16 6,946,540
4,250 New York St Energy Resh & Dev Auth Fac Rev
Cons Edison Co Proj Ser B Rfdg (MBIA
Insd)...................................... 5.250 08/15/20 4,090,838
3,000 New York St Energy Resh & Dev Auth St Svc
Contract Rev Westn NY Nuclear Svc Cent
Proj....................................... 5.400 04/01/98 3,023,850
3,000 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fd Ser B.......... 5.200 05/15/14 2,973,990
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW YORK (CONTINUED)
$ 7,375 New York St Environmental Fac Corp Pollutn
Ctl Rev St Wtr Revolving Fd Ser E.......... 6.700% 06/15/10 $ 8,304,471
2,920 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser D........................ 7.400 02/15/18 3,266,312
7,725 New York St Med Care Fac Fin Agy Rev Mental
Hlth Svcs Fac Ser D (Prerefunded @
02/15/02).................................. 7.400 02/15/18 8,756,287
6,150 New York St Urban Dev Corp Rev Correctional
Cap Fac Ser A Rfdg (FSA Insd).............. 5.250 01/01/14 6,193,234
9,000 New York St Urban Dev Corp Rev St Fac
(Prerefunded @ 04/01/01)................... 7.500 04/01/11 10,120,950
3,000 Onondaga Cnty, NY Indl Dev Agy Swr Fac Rev
Bristol-Meyers Squibb Co Proj.............. 5.750 03/01/24 3,151,440
6,650 Plainedge, NY Union Free Sch Dist #2063.... 6.000 06/01/12 6,793,241
------------
115,290,927
------------
NORTH CAROLINA 1.6%
13,300 North Carolina Muni Pwr Agy No 1 Catawba
Elec Rev (MBIA Insd)....................... 6.000 01/01/12 14,584,248
------------
OHIO 3.5%
8,530 Cleveland, OH Ctfs Partn Cleveland Stadium
Proj (AMBAC Insd).......................... 5.250 11/15/11 8,575,124
7,130 Cleveland, OH Ctfs Partn Cleveland Stadium
Proj (AMBAC Insd).......................... 5.250 11/15/13 7,098,628
5,375 Franklin Cnty, OH Hosp Rev Holy Cross Hlth
Sys Ser B Rfdg (MBIA Insd)................. 5.250 06/01/10 5,427,137
2,000 Montgomery Cnty, OH Hosp Rev Dayton
Osteopathic Hosp Proj Rfdg................. 6.000 12/01/12 2,004,260
2,270 Montgomery Cnty, OH Hosp Rev Kettering Med
Cent Rfdg & Impt (MBIA Insd)............... 6.250 04/01/20 2,542,264
1,000 Ohio St Air Quality Dev Auth Rev JMG
Funding Ltd Partn Proj Rfdg (AMBAC Insd)... 6.375 04/01/29 1,067,770
5,000 Reynoldsburg, OH Hlth Care Fac Rev Wesley
Ridge Proj (GNMA Collateralized)........... 6.150 10/20/38 5,172,950
------------
31,888,133
------------
OKLAHOMA 2.3%
3,390 Cleveland Cnty, OK Home Ln Auth Single
Family Mtg Rev Rfdg........................ 8.000 08/01/12 3,624,554
1,240 Kay Cnty, OK Home Fin Auth Rev Single
Family Mtg Ser A Rfdg (AMBAC Insd)......... 7.000 11/01/11 1,353,125
9,170 Oklahoma Hsg Fin Agy Single Family Rev Mtg
Class B (GNMA Collateralized).............. 7.997 08/01/18 10,343,210
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OKLAHOMA (CONTINUED)
$ 3,000 Tulsa, OK Indl Auth Hosp Rev Tulsa Regl Med
Cent (Prerefunded @ 06/01/03).............. 7.200% 06/01/17 $ 3,448,740
1,500 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc........................................ 7.600 12/01/30 1,643,685
------------
20,413,314
------------
PENNSYLVANIA 1.9%
2,150 Butler Cnty, PA Hosp Auth Hosp Rev Butler
Mem Hosp Ser A (FSA Insd).................. 5.250 07/01/12 2,128,006
2,165 Clarion Cnty, PA Hosp Auth Hosp Rev Clarion
Hosp Proj.................................. 8.500 07/01/21 2,439,197
10,000 Geisinger Auth PA Hlth Sys Ser A........... 6.400 07/01/22 10,605,300
2,000 Montgomery Cnty, PA Indl Dev Auth
Retirement Cmnty Rev Adult Cmntys Total
Svcs Ser B................................. 5.625 11/15/12 2,003,940
------------
17,176,443
------------
RHODE ISLAND 1.2%
2,450 Providence, RI Redev Agy Ctfs Partn Ser A.. 8.000 09/01/24 2,668,858
4,750 Rhode Island Hsg & Mtg Fin Corp Ser 8
(Inverse Fltg)............................. 10.266 04/01/24 5,331,875
2,000 Rhode Island St Hlth & Edl Bldg Corp Rev
Higher Edl Fac Roger Williams (Prerefunded
@ 11/15/04) (Connie Lee Insd).............. 7.250 11/15/24 2,351,440
------------
10,352,173
------------
SOUTH DAKOTA 0.5%
4,000 South Dakota Hsg Dev Auth Homeownership Mtg
Ser F...................................... 5.800 05/01/28 3,982,560
------------
TENNESSEE 0.5%
4,208 Shelby Cnty, TN Hlth Edl & Hsg Fac Brd Rev
Multi-Family Mtg Rock Creek Plaza Rfdg
(GNMA Collateralized)...................... 7.375 01/20/27 4,504,676
------------
TEXAS 7.0%
6,500 Alliance Arpt Auth Inc TX Spl Fac Rev
American Airls Inc Proj.................... 7.500 12/01/29 7,043,140
6,000 Brazos River Auth TX Pollutn Ctl Rev Coll
TX Util Elec Co Proj A (AMBAC Insd)........ 6.750 04/01/22 6,527,100
450 Brazos, TX Higher Edl Auth Inc Student Ln
Rev Subser C2 Rfdg......................... 7.100 11/01/04 486,481
2,500 Coastal Bend Hlth Fac Dev TX Newly Linked
Arns Ser C (Inverse Fltg) (AMBAC Insd)..... 5.929 11/15/13 2,589,850
2,500 Coastal Bend Hlth Fac Dev TX Yield Curve
Note Ser C2 (AMBAC Insd)................... 5.929 11/15/13 2,589,850
15,000 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev American Airls Inc................ 7.500 11/01/25 16,231,050
3,600 Dallas-Fort Worth, TX Intl Arpt Fac Impt
Corp Rev Delta Airls Inc................... 7.625 11/01/21 3,977,820
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,832 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs........................................ 7.250% 08/01/11 $ 1,868,687
21,270 Texas St Pub Ppty Fin Corp Rev Mental Hlth
& Retardation Rfdg (FSA Insd)............... 5.250 09/01/08 21,631,165
------------
62,945,143
------------
UTAH 3.3%
3,930 Bountiful, UT Hosp Rev South Davis Cmnty
Hosp Proj................................... 9.500 12/15/18 4,528,382
14,855 Murray City, UT Hosp Rev Inc Hlth Svc Inc
Rfdg (MBIA Insd)............................ 4.750 05/15/20 13,259,721
3,000 Salt Lake City, UT Hosp Rev IHC Hosp Inc
Rfdg........................................ 5.500 02/15/17 2,982,210
8,055 Utah Cnty, UT Hosp Rev IHC Hlth Svcs Inc
(MBIA Insd)................................. 5.250 08/15/26 7,697,439
1,455 Utah St Hsg Fin Agy Single Family Mtg Insd
Ser E2 (FHA Gtd)............................ 7.150 07/01/24 1,530,267
------------
29,998,019
------------
VIRGINIA 2.2%
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac
Lease Rev Henrico Cnty Regl Jail Proj....... 6.500 08/01/10 1,662,780
1,500 Henrico Cnty, VA Indl Dev Auth Pub Fac
Lease Rev Henrico Cnty Regl Jail Proj....... 7.125 08/01/21 1,722,345
2,000 Henrico Cnty, VA Indl Dev Auth Rev Solid
Waste Browning Ser A........................ 5.875 03/01/17 2,027,380
5,000 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke
Mem Hosp Carilion Hlth Sys Ser B Rfdg (MBIA
Insd) (c)................................... 4.700/6.250 07/01/20 5,063,600
1,050 Virginia St Hsg Dev Auth Comwlth Mtg Ser A
Subser A1 (FHA Gtd)......................... * 07/01/29 95,519
8,995 Virginia St Pub Bldg Auth Pub Fac Rev Ser A. 5.500 08/01/17 9,120,300
------------
19,691,924
------------
WASHINGTON 1.5%
5,000 Bellevue, WA Convention Cent Auth Spl Oblig
Rev Rfdg (MBIA Insd)........................ * 02/01/24 1,131,050
1,750 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser A Rfdg (MBIA Insd)........ 5.750 07/01/12 1,814,155
10,495 Washington St Pub Pwr Supply Sys Nuclear
Proj No 1 Rev Ser B Rfdg (MBIA Insd)........ 5.600 07/01/15 10,570,879
------------
13,516,084
------------
WEST VIRGINIA 0.8%
6,550 Harrison Cnty, WV Cnty Cmnty Solid Waste
Disp Rev Potomac Edison Co Ser A............ 6.875 04/15/22 7,045,573
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN 1.5%
$ 1,000 Madison, WI Indl Dev Rev Madison Gas & Elec
Co Proj A.................................. 6.750% 04/01/27 $ 1,072,360
5,250 Wisconsin Hsg & Econ Dev Auth Hsg Rev Ser
B.......................................... 7.050 11/01/22 5,576,182
7,280 Wisconsin St Hlth & Edl Fac Auth Rev
Children's Hosp (Embedded Cap) (FGIC
Insd)...................................... 5.000 08/15/10 7,202,905
------------
13,851,447
------------
WYOMING 1.0%
4,000 Wyoming Cmnty Dev Auth Single Family Ser G
(FHA Gtd).................................. 7.250 06/01/21 4,259,000
4,000 Wyoming Cmnty Dev Auth Single Family Ser H
(FHA Gtd).................................. 7.100 06/01/12 4,308,080
------------
8,567,080
------------
PUERTO RICO 0.5%
2,523 Puerto Rico Comwlth Dept of Hlth Lease Pur
Ctfs....................................... 7.250 04/07/01 2,530,575
2,000 Puerto Rico Elec Pwr Auth Pwr Rev Ser P
(Prerefunded @ 07/01/01)................... 7.000 07/01/21 2,232,480
------------
4,763,055
------------
TOTAL LONG-TERM INVESTMENTS 98.6%
(Cost $827,416,105)........................................................... $888,989,408
------------
SHORT-TERM INVESTMENTS 0.7%
(Cost $6,900,000)............................................................. 6,900,000
------------
TOTAL INVESTMENTS 99.3%
(Cost $834,316,105)........................................................... 895,889,408
OTHER ASSETS IN EXCESS OF LIABILITIES 0.7%..................................... 6,039,891
------------
NET ASSETS 100.0%.............................................................. $901,929,299
============
</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.
(c) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, (Cost $834,316,105).......................................... $895,889,408
Cash............................................................................ 55,935
Receivables:
Interest...................................................................... 13,366,529
Investments Sold.............................................................. 2,726,910
Other........................................................................... 6,125
------------
Total Assets.............................................................. 912,044,907
------------
LIABILITIES:
Payables:
Investments Purchased.......................................................... 8,270,120
Income Distributions - Common and Preferred Shares............................. 560,210
Investment Advisory Fee........................................................ 538,098
Administrative Fee............................................................. 153,742
Variation Margin on Futures.................................................... 42,688
Affiliates..................................................................... 39,400
Accrued Expenses................................................................. 231,391
Options at Market Value (Net premiums received of
$158,071)...................................................................... 211,656
Deferred Compensation and Retirement Plans....................................... 68,303
------------
Total Liabilities.......................................................... 10,115,608
------------
NET ASSETS............................... ....................................... $901,929,299
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 6,000 issued with liquidation preference of $50,000 per share)......... $300,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 36,270,469 shares issued and outstanding)................... 362,705
Paid in Surplus.................................................................. 536,860,572
Net Unrealized Appreciation...................................................... 62,025,039
Accumulated Undistributed Net Investment Income.................................. 3,444,060
Accumulated Net Realized Loss.................................................... (763,077)
------------
Net Assets Applicable to Common Shares..................................... 601,929,299
------------
NET ASSETS....................................................................... $901,929,299
============
NET ASSET VALUE PER COMMON SHARE ($601,929,299 divided
by 36,270,469 shares outstanding).............................................. $ 16.60
============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $55,729,305
-----------
EXPENSES:
Investment Advisory Fee..................................... 6,222,428
Administrative Fee.......................................... 1,777,836
Preferred Share Maintenance................................. 810,659
Custody..................................................... 85,403
Legal....................................................... 45,314
Trustees Fees and Expenses.................................. 27,333
Amortization of Organizational Costs........................ 707
Other....................................................... 506,617
-----------
Total Expenses.......................................... 9,476,297
-----------
NET INVESTMENT INCOME....................................... $46,253,008
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 6,611,168
Futures................................................... 1,247,552
Options................................................... (48,317)
-----------
Net Realized Gain........................................... 7,810,403
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 43,230,522
-----------
End of the Period:
Investments............................................. 61,573,303
Futures................................................. 505,321
Options................................................. (53,585)
-----------
62,025,039
-----------
Net Unrealized Appreciation During the Period............... 18,794,517
-----------
NET REALIZED AND UNREALIZED GAIN............................ $26,604,920
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $72,857,928
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1997 August 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 46,253,008 $ 46,970,003
Net Realized Gain/Loss................................... 7,810,403 (766,198)
Net Unrealized Appreciation During the Period............ 18,794,517 4,555,031
------------ ------------
Change in Net Assets from Operations..................... 72,857,928 50,758,836
------------ ------------
Distributions from Net Investment Income:
Common Shares.......................................... (34,818,328) (35,906,819)
Preferred Shares....................................... (10,696,162) (10,943,347)
------------ ------------
Total Distributions...................................... (45,514,490) (46,850,166)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 27,343,438 3,908,670
NET ASSETS:
Beginning of the Period.................................. 874,585,861 870,677,191
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $3,444,060 and $2,705,542,
respectively).......................................... $901,929,299 $874,585,861
============ ============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share
of the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, 1991
(Commencement
Year Ended August 31 of Investment
------------------------------------------------ Operations) to
1997 1996 1995 1994 1993 August 31, 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period
(a)....................... $15.842 $15.734 $15.562 $17.035 $16.328 $14.808
------- ------- ------- ------- ------- -------
Net Investment Income....... 1.275 1.295 1.311 1.347 1.410 1.166
Net Realized and Unrealized
Gain/Loss................. .734 .105 .266 (1.424) .780 1.370
------- ------- ------- ------- ------- -------
Total from Investment
Operations.................. 2.009 1.400 1.577 (.077) 2.190 2.536
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............ .960 .990 1.084 1.116 1.100 .811
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ .295 .302 .321 .280 .246 .205
Distributions from Net
Realized Gain:
Paid to Common
Shareholders............ -0- -0- -0- -0- .111 -0-
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ -0- -0- -0- -0- .026 -0-
------- ------- ------- ------- ------- -------
Total Distributions........... 1.255 1.292 1.405 1.396 1.483 1.016
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $16.596 $15.842 $15.734 $15.562 $17.035 $16.328
======= ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period............... $15.750 $14.500 $14.250 $15.000 $16.750 $16.125
Total Investment Return at
Market Price (b)............ 15.87% 8.98% 2.39% (3.94%) 11.90% 13.24%*
Total Return at Net Asset
Value (c)................... 11.14% 7.09% 8.55% (2.22%) 12.31% 14.64%*
Net Assets at End of the
Period (In millions)........ $901.9 $874.6 $870.7 $864.4 $917.9 $891.7
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares............... 1.61% 1.61% 1.65% 1.64% 1.59% 1.49%
Ratio of Expenses to Average
Net Assets.................. 1.07% 1.06% 1.07% 1.09% 1.06% 1.03%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common
Shares (d).................. 6.04% 6.20% 6.48% 6.52% 7.08% 6.85%
Portfolio Turnover............ 54% 36% 49% 47% 48% 100%*
</TABLE>
(a) Net Asset Value at September 27, 1991, is adjusted for common and preferred
share offering costs of $.192 per common 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.
* Non-Annualized
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
August 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Municipal 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 tax, consistent with
preservation of capital. The Trust will invest in a portfolio consisting
substantially of municipal obligations rated investment grade at the time of
investment, but may invest up to 20% of its assets in unrated securities which
are believed to be of comparable quality to those rated investment grade. The
Trust commenced investment operations on September 27, 1991.
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 those 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.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL COSTS--The Trust reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $50,000. These costs
were amortized on a straight line basis over the 60 month period ended September
26, 1996.
E. 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.
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 August 31, 1997, the Trust had an accumulated capital loss
carryforward for tax purposes of $282,165 which will expire on August 31, 2004.
Net realized loss differs for financial and tax reporting purposes primarily as
a result of gains or losses recognized for tax purposes on the mark to market of
open option and futures positions at August 31, 1997.
At August 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $834,316,105; the aggregate gross unrealized
appreciation is $62,089,656 and the aggregate gross unrealized depreciation is
$516,353 resulting in net unrealized appreciation on investments of $61,573,303.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
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 August 31, 1997, 99.69% 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 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 Corp. (the "Adviser") will provide investment advice
and facilities to the Trust for an annual fee payable monthly of .70% of the
average net assets of the Trust. In addition, the Trust will pay a monthly
administrative fee to VKAC, the Trust's Administrator, at an annual rate of .20%
of the average net assets of the Trust. The administrative
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
For the year ended August 31, 1997, the Trust recognized expenses of
approximately $28,200 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 August 31, 1997, the Trust recognized expenses of
approximately $210,600 representing VKAC's cost of providing accounting and
legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of VKAC. The Trust does not compensate its officers or trustees who are officers
of VKAC.
The Trust 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 trustees' annual retainer fee, which is
currently $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $470,529,401 and $472,570,070,
respectively.
4. 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.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended August 31, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at August 31, 1996..................... 500 $ (86,068)
Options Written and Purchased (Net)................ 20,150 (93,407)
Options Terminated in Closing Transactions (Net)... (10,645) 49,352
Options Expired (Net).............................. (7,400) 288,194
------- ---------
Outstanding at August 31, 1997..................... 2,605 $ 158,071
======= =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
August 31, 1997, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
EXPIRATION MARKET
MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG CONTRACTS:
Dec. 1997 US Long Bond
Future Call........................ 1,563 Nov/118 $ 439,594
SHORT CONTRACTS:
Dec. 1997 US Long Bond
Future Call........................ 1,042 Nov/116 (651,250)
------- ---------
2,605 $(211,656)
======= =========
</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).
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended August 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at August 31, 1996............................. 2,000
Futures Opened............................................. 2,256
Futures Closed............................................. (3,800)
------
Outstanding at August 31, 1997............................. 456
======
</TABLE>
The futures contracts outstanding as of August 31, 1997, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------------
<S> <C> <C>
Long Contracts -- Sep. 1997 US Treasury Bond
Future (Current notional value of $113,125
per contract)................................ 250 $ 706,108
Short Contracts -- Sep. 1997 Municipal Bond
Future (Current notional value of $119,500
per contract)................................ 206 (200,787)
=== =========
456 $ 505,321
=== =========
</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.
An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index. As the floating rate
rises, the coupon is reduced. Conversely, as the floating rate declines, the
coupon is increased. 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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1997
- --------------------------------------------------------------------------------
5. PREFERRED SHARES
The Trust has outstanding 6,000 Auction Preferred Shares ("APS") in four series
of 1,500 shares each. Dividends are cumulative and the dividend rate is
periodically reset through an auction process. The dividend periods for Series A
and Series C are 7 days, while Series B and Series D are 28 days. The average
rate in effect on August 31, 1997, was 3.47%. During the year ended August 31,
1997, the rates ranged from 3.10% to 5.20%.
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 APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests, and the APS 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 Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Municipal Trust (the "Trust"), including the portfolio
of investments, as of August 31, 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
August 31, 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 Trust as of August 31, 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
October 8, 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
changes 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
prorata 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 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 May 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, 30,592,365 shares voted for the
proposal, 482,368 shares voted against, 705,500 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, 4,274 shares voted
in his favor and 46 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 and 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 F. 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, 31,211,841 shares voted in favor of the proposal, 132,562 shares voted
against, 435,829 shares abstained and 0 shares represented broker non-votes.
29
