<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.................... 17
Report of Independent Accountants................ 22
Dividend Reinvestment Plan....................... 23
</TABLE>
VMO ANR 12/97
<PAGE> 2
LETTER TO SHAREHOLDERS
December 4, 1997
Dear Shareholder,
In the past year, we have been
participants in and witnesses to two
mergers that we believe have positioned [photo]
our company at the forefront of the
financial industry's evolution. Our
latest announcement continues our
forward progress. I am pleased to DENNIS J. MCDONNELL AND DON G. POWELL
announce that Philip N. Duff, formerly
the chief financial officer of Morgan
Stanley, has joined Van Kampen American
Capital as president and chief
executive officer. I will continue as
chairman of the firm. Together, we will continue to work to the benefit of our
fund shareholders as Van Kampen American Capital advances toward the next
century.
ECONOMIC REVIEW
The last quarter of 1996 brought renewed strength and rumblings of
inflation, which continued to feed investors' uncertainties about the direction
of interest rates. This was reflected in the volatility of taxable yields, with
the 30-year Treasury ranging from a high of 6.70 percent to a low of 6.35
percent, and ending the period at 6.64 percent.
The economy grew at a brisk 3.9 percent annual rate during the first three
quarters of 1997. At the same time, the federal budget deficit fell to its
lowest level in 23 years, while consumer prices rose less than 2.0 percent on an
annual basis and producer prices declined 1.4 percent.
The bond market advanced in price during the first 10 months of 1997, but
its ascension was not a smooth ride. Bond prices fell early in the period as
economic growth soared, fueling concerns about rising inflation and a potential
interest rate hike by the Federal Reserve Board. When the Fed did raise interest
rates by a modest 0.25 percent in late March, bond prices fell further, sending
the yield of the 30-year U.S. Treasury bond above 7.0 percent for the first time
in six months. By mid-April, however, the market's mood had changed, reflecting
few signs of price pressures despite the economy's strength. Bonds also
benefited from continued heavy purchases by foreign investors and concerns that
the stock market rally was nearing an end. The 7.0 percent slump in the Dow
Jones Industrial Average on October 27 reinforced the benefit of owning bonds
for diversification. By the end of October, the yield on the 30-year Treasury
bond was near its lowest level in 20 months, at 6.15 percent.
Throughout 1997, municipal bond prices moved in the same direction as the
Treasury bond market, but gained less when Treasury prices rallied and lost less
when Treasuries fell. Between December 31, 1996 and October 31, 1997, the yield
on the long-term municipal revenue bond index fell 36 basis points as the yield
on the 30-year Treasury
Continued on page two
1
<PAGE> 3
bond fell 48 basis points. Because yields move in the opposite direction of
prices, the smaller yield decline of municipal bonds indicates that their prices
did not rise as much as Treasuries.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
as of October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
AAA................. 52.7%
AA.................. 13.9%
A................... 13.5%
BBB................. 19.9%
</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 used the following strategies:
We slightly increased the Trust's heavy weighting in high-quality bonds and
decreased its holdings in lower-quality issues. As of October 31, 52.7 percent
of long-term investments were rated AAA, the highest credit rating assigned to
bonds by the Standard & Poor's Ratings Group. The increase in AAA-rated
securities reflects the proliferation of insured bonds, which currently comprise
well over half of new issues in the municipal bond market. AAA-rated bonds are
extremely liquid and carry minimal credit risk. When interest rates fall, as
they did for most of the second half of the fiscal year, AAA-rated bonds tend to
perform better than lower-rated securities. Of the remaining long-term
investments, 27.4 percent were rated AA or A and 19.9 percent were rated BBB,
the lowest investment-grade credit rating assigned by Standard & Poor's. Bonds
rated BBB tend to perform better when rates are rising, and have the potential
to provide additional income.
Portfolio turnover during the fiscal year was light due to market conditions
that afforded few opportunities to add value to existing holdings. The average
yield of bonds in the Trust's portfolio was higher than average market yields.
As a result, there was little incentive to replace bonds in the portfolio,
because such trades would have reduced the Trust's dividend-paying ability.
Trading was also restrained by tight spreads between yields of AAA-rated
bonds and lower-rated securities. These spreads compressed to historically
narrow levels due to the increasing number of insured bonds in the municipal
market. For example, when a new long-term California transportation issue was
sold in September, its BBB-rated portion yielded only 20 basis points more than
the AAA-rated insured component in the same maturity. As a result of the narrow
yield spreads, there was often not enough incentive for the Trust to purchase
lower-rated securities and take on the additional credit risk.
Continued on page three
2
<PAGE> 4
Our acquisitions emphasized single-family housing and airport bonds, which
have relatively high yields, as well as health-care bonds, which continue to
benefit from industry consolidation. Sales included the Trust's $13 million
position in an electric utility issue that was experiencing credit problems.
When searching for new securities for the Trust's portfolio, we try to
identify bonds that we believe will outperform within a particular sector and
that can be purchased at an attractive price. We believe this "bottom-up"
approach, supported by our research, provides significant added value to the
portfolio.
During the second half of the fiscal year, we lengthened the Trust's
duration in order to enhance its price appreciation potential. Duration, which
is expressed in years, is a measure of a portfolio's sensitivity to interest
rate movements. Portfolios with long durations tend to perform better when rates
are declining. Portfolios with short durations tend to do better when rates are
rising. As of October 31, the duration of the Trust's bond portfolio stood at
7.75 years, compared to 7.34 years for the Lehman Brothers Municipal Bond Index.
Because of the longer-term nature of the Trust, the calculation of this index's
duration has been adjusted to eliminate bonds with maturities of five years or
less. We expect to reduce the Trust's duration in the near future in order to
bring it closer to the benchmark.
Top Five Portfolio Industry Holdings by Sector as of October 31, 1997*
General Purpose................... 17.4%
Single-Family Housing............. 13.2%
Wholesale Electric................ 12.4%
Airport............................ 9.0%
Health Care........................ 8.6%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Municipal Opportunity Trust generated a total return at market price of
16.54 percent(1). The Trust offered a tax-exempt distribution rate of 5.98
percent(3), based on the closing common stock price on October 31, 1997. At the
end of the reporting period, the closing share price of the Trust traded at
$15.0625, an 11.2 percent discount to its net asset value of $16.96. Because
income from the Trust is exempt from federal income taxes, this distribution
rate represents a yield equivalent to a taxable investment earning 9.34
percent(4) (for investors in the federal income tax bracket of 36 percent).
Continued on page four
3
<PAGE> 5
[BAR CHART]
Twelve-month Dividend History
For the Period Ended October 31, 1997
<TABLE>
<CAPTION>
Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
1996 1996 1997 1997 1997 1997 1997 1997 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution per Common Share $0.075 $0.075 $0.075 $0.075 $0.075 $0.075 $0.075 $0.075 $0.075 $0.075 $0.075 $0.075
The dividend history represents past performance of the Trust and does not predict the Trust's future distributions.
</TABLE>
OUTLOOK
We expect the economy to remain strong in the coming months, although the
growth rate might slow to a more moderate pace. The weakness in the Far East,
which was the impetus for the recent volatility in world stock markets, will
most likely reduce U.S. exports to the region. In turn, this could trim U.S.
economic growth as well as the earnings of many U.S. companies. As a result, we
believe there is little chance that the Fed will raise interest rates in the
coming months. A rate hike reemerges as a possibility if inflation picks up, or
if growth continues at its current brisk pace.
As a result of this outlook, we expect that the yield on the 30-year
Treasury bond will trade within a range of 5.75 percent and 6.50 percent for the
next six months, possibly falling further in mid-1998. A decline in rates would
not only boost the prices of long-term investments in the portfolio, but could
also positively affect the Trust as a result of its leveraged structure. That
structure, which involves borrowing short-term funds to purchase long-term
municipal bonds, provides common shareholders with above-market levels of
dividend income. It should be noted, however, that if short-term rates rise,
borrowing costs would increase; this would negatively impact the income and
performance of common shares.
We will continue to seek a balance between the Trust's total return and its
dividend income, and to add value through our investment strategies and bond
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's portfolio manager.
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 OCTOBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
(NYSE TICKER SYMBOL--VMO)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)........... 16.54%
One-year total return based on NAV(2).................... 11.11%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.98%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.34%
SHARE VALUATIONS
Net asset value.......................................... $ 16.96
Closing common stock price............................... $15.0625
One-year high common stock price (07/31/97).............. $ 15.500
One-year low common stock price (12/17/96)............... $ 13.250
Preferred share (Series A) rate(5)....................... 3.600%
Preferred share (Series B) rate(5)....................... 3.520%
</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
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
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 102.7%
ALABAMA 0.5%
$ 2,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg................. 6.950% 01/01/20 $ 2,195,520
------------
CALIFORNIA 5.9%
1,545 California Hsg Fin Agy Rev Home Mtg Ser B1...... 6.300 08/01/08 1,627,580
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (AMBAC Insd).............. 6.000 07/01/27 2,068,540
1,110 California Rural Home Mtg Fin Mtg Backed Secs Pg
Ser C (GNMA Collateralized)..................... 7.800 02/01/28 1,254,589
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd)..................................... * 09/01/17 1,729,450
4,000 Foothill/Eastern Tran Agy Conv Cap Apprec Sr
Lien Ser A (c).................................. 0/7.050 01/01/10 2,943,160
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)........................................... 6.000 07/01/06 5,517,900
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)........................................... 6.000 07/01/08 5,575,600
3,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)........................................... 6.000 06/01/08 3,343,350
------------
24,060,169
------------
COLORADO 7.2%
2,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05)....... 7.000 08/31/26 2,371,400
1,000 Castle Rock, CO Multi-Family Rev Hsg Pines at
Castle Rock Ser A (FSA Insd).................... 6.100 12/01/16 1,039,630
1,500 Colorado Hsg Fin Auth Multi-Family Hsg Ins Mtg
Ser B2.......................................... 5.800 10/01/28 1,509,150
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A2.............................................. 7.250 05/01/27 1,678,350
1,405 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A3.............................................. 7.000 11/01/24 1,490,368
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
C1.............................................. 7.550 11/01/27 1,693,620
3,200 Denver, CO City & Cnty Arpt Rev Ser A........... 8.500 11/15/07 3,609,184
300 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)........................ 8.500 11/15/07 342,141
5,145 Denver, CO City & Cnty Arpt Rev Ser A........... 8.875 11/15/12 5,985,637
1,855 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)........................ 8.875 11/15/12 2,199,603
1,750 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)........................................... 6.250 11/15/06 1,944,443
1,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)........................................... 6.250 11/15/07 1,116,530
2,500 E-470 Pub Hwy Auth CO Rev Sr Ser A (MBIA
Insd)........................................... 5.000 09/01/17 2,444,450
1,005 Greeley, CO Multi-Family Rev Hsg Mtg Creek Stone
(FHA Gtd)....................................... 5.950 07/01/28 1,022,959
1,000 Highlands Ranch Metro Dist No 2 CO Rfdg (FSA
Insd)........................................... 6.500 06/15/11 1,154,350
------------
29,601,815
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONNECTICUT 1.0%
$ 1,700 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A Private Placement (d)................... 6.500% 09/01/06 $ 1,895,568
2,000 Mashantucket Western Pequot Tribe CT Spl Rev Ser
A, 144A Private Placement (d)................... 6.400 09/01/11 2,213,200
------------
4,108,768
------------
DISTRICT OF COLUMBIA 0.5%
2,000 Metropolitan Washington, DC Arpt Auth Genl Arpt
Rev Ser A (FGIC Insd)........................... 7.250 10/01/10 2,174,600
------------
FLORIDA 0.8%
3,000 Florida St Brd Edl Cap Outlay Pub Edl Ser A..... 5.875 06/01/16 3,136,890
------------
GEORGIA 2.8%
3,027 Fulton Cnty, GA Lease Rev, 144A Private
Placement (d)................................... 7.250 06/15/10 3,522,937
7,000 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd)........................................... 6.500 01/01/20 8,142,680
------------
11,665,617
------------
HAWAII 1.3%
5,000 Hawaii St Arpt Sys Rev Ser 2.................... 7.000 07/01/18 5,442,350
------------
IDAHO 0.3%
1,075 Idaho Hsg & Fin Assn Single Family Mtg Mezz Ser
E 2............................................. 5.950 07/01/14 1,102,240
------------
ILLINOIS 5.7%
5,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt
Second Lien Ser A Rfdg (MBIA Insd) (b).......... 6.375 01/01/12 5,486,900
6,400 Chicago, IL Sch Fin Auth Ser A (MBIA Insd)...... 5.000 06/01/09 6,410,176
970 Chicago, IL Single Family Mtg Rev Ser A (GNMA
Collateralized)................................. 7.000 09/01/27 1,076,836
1,125 Chicago, IL Single Family Mtg Rev Ser B (GNMA
Collateralized)................................. 7.625 09/01/27 1,272,848
3,285 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj.................................. 8.125 11/15/19 3,726,274
1,475 Regional Tran Auth IL Ser A (AMBAC Insd)........ 6.500 06/01/15 1,616,718
1,410 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5 (FGIC
Insd)........................................... 6.400 12/01/03 1,559,812
1,865 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5 (FGIC
Insd)........................................... 6.500 12/01/05 2,107,245
------------
23,256,809
------------
INDIANA 0.7%
2,500 Purdue Univ, IN Univ Rev Student Fee Ser B...... 6.750 07/01/09 2,832,750
------------
KENTUCKY 1.2%
1,000 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)......... 5.750 03/01/02 1,049,630
1,475 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl Arpt Ser A Rfdg (MBIA Insd) (a)......... 6.200 03/01/08 1,627,648
1,000 Kentucky Econ Dev Fin Auth Hosp Sys Rev
Appalachian Regl Rfdg & Impt (a)................ 5.600 10/01/08 1,000,000
1,350 Kentucky Hsg Corp Hsg Rev Ser B................. 6.250 07/01/28 1,416,919
------------
5,094,197
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MAINE 0.9%
$ 2,305 Maine Edl Ln Auth Rev Supplemental Pgm Ser A1... 7.000% 12/01/16 $ 2,491,359
1,265 Maine Edl Ln Auth Rev Supplemental Pgm Ser A2... 7.150 12/01/16 1,372,652
------------
3,864,011
------------
MARYLAND 1.7%
3,500 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Seventh Ser............... 7.250 04/01/19 3,748,815
3,005 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Seventh Ser............... 7.300 04/01/25 3,214,899
------------
6,963,714
------------
MASSACHUSETTS 1.3%
2,000 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd)..................................... 3.100 07/01/13 1,849,820
3,000 Plymouth Cnty, MA Ctfs Partn Ser A.............. 7.000 04/01/22 3,368,490
------------
5,218,310
------------
MICHIGAN 1.2%
4,500 Monroe Cnty, MI Pollutn Ctl Rev Coll Detroit
Edison Monroe Ser 1 (MBIA Insd)................. 6.875 09/01/22 4,949,190
------------
MISSISSIPPI 1.6%
3,750 Mississippi Home Corp Single Family Rev Mtg Ser
C (GNMA Collateralized)......................... 7.600 06/01/29 4,245,225
2,000 Mississippi Home Corp Single Family Rev Mtg Ser
F (GNMA Collateralized)......................... 7.550 12/01/27 2,267,160
------------
6,512,385
------------
MISSOURI 1.4%
1,485 Saint Charles Cnty, MO Indl Dev Auth Indl Rev
Dev Westchester Vlg Apts Ser A Rfdg (FNMA
Collateralized)................................. 6.150 02/01/27 1,544,370
865 Saint Louis Cnty, MO Single Family Mtg Rev (MBIA
Insd)........................................... 6.900 04/01/16 923,111
3,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd) (b)...... 6.200 06/01/10 3,388,260
------------
5,855,741
------------
NEVADA 1.1%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser A
(FGIC Insd)..................................... 6.700 06/01/22 4,351,080
------------
NEW HAMPSHIRE 0.5%
2,000 New Hampshire St Hsg Fin Auth Single Family Rev
Mtg Acquisition Ser B Rfdg...................... 6.100 07/01/28 2,069,040
------------
NEW JERSEY 5.7%
20,000 New Jersey Econ Dev Auth St Contract Econ
Recovery (MBIA Insd)............................ 5.900 03/15/21 21,937,200
1,395 New Jersey Hlthcare Fac Fin Auth Rev Christ Hosp
Group Issue (Connie Lee Insd)................... 7.000 07/01/04 1,590,384
------------
23,527,584
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW MEXICO 2.1%
$ 835 Hobbs, NM Single Family Mtg Rev Rfdg............ 8.750% 07/01/11 $ 935,709
5,195 New Mexico Mtg Fin Auth Single Family Mtg Pgm
Ser G (GNMA Collateralized)..................... 7.250 07/01/26 5,548,676
2,000 University of NM Technology Dev Corp Lease Rev
Univ Cent Resh Pk Proj Ser A (MBIA Insd)........ 6.450 08/15/18 2,216,840
------------
8,701,225
------------
NEW YORK 21.3%
3,000 Metropolitan Tran Auth NY Svcs Contract Tran Fac
Ser 5 Rfdg...................................... 7.000 07/01/12 3,271,770
2,000 Metropolitan Trans Auth NY Commuter Facs Rev
(a)............................................. 5.500 07/01/14 1,951,580
1,440 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj............................. 6.100 01/01/09 1,533,110
3,000 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj............................. 6.000 01/01/15 3,133,440
5,000 New York City Muni Wtr Fin Auth Ser B........... 5.750 06/15/29 5,135,650
10,000 New York City Ser A............................. 7.000 08/01/07 11,476,700
5,000 New York City Ser A Rfdg........................ 7.000 08/01/05 5,676,700
635 New York City Ser D (b)......................... 7.500 02/01/19 711,314
7,365 New York City Ser D (Prerefunded @ 02/01/02)
(b)............................................. 7.500 02/01/19 8,395,437
6,060 New York St Dorm Auth Rev City Univ Ser F....... 5.500 07/01/12 6,112,298
1,500 New York St Dorm Auth Rev Dept Ed St of NY Issue
Ser A........................................... 5.800 07/01/22 1,530,465
1,500 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A........................................... 5.750 08/15/12 1,558,605
2,070 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser B........................................... 5.750 08/15/10 2,179,669
3,750 New York St Dorm Auth Rev St Univ Edl Fac....... 5.000 05/15/17 3,585,450
5,000 New York St Dorm Auth Rev St Univ Edl Fac....... 5.125 05/15/21 4,792,200
1,365 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................ 5.250 05/15/09 1,400,040
1,900 New York St Mtg Agy Rev Homeowner Mtg Ser 58.... 6.400 04/01/27 2,027,585
6,400 New York St Thruway Auth Svc Contract Rev
Loc Hwy & Brdg.................................. 5.750 04/01/09 6,711,552
1,100 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 4....................................... 5.375 01/01/23 1,076,889
3,000 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 7....................................... 5.700 01/01/27 3,034,320
3,500 Port Auth NY & NJ Cons 97th Ser (FGIC Insd)..... 6.650 01/15/23 3,832,220
2,500 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd)................ 6.000 12/01/07 2,755,350
5,400 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd)................ 5.750 12/01/22 5,570,694
------------
87,453,038
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH CAROLINA 3.0%
$11,000 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev (MBIA Insd)................................. 6.000% 01/01/12 $ 12,147,520
------------
OHIO 1.9%
1,000 Akron, OH Ctfs Partn Akron Muni Baseball Stadium
Proj (c)........................................ 0/6.500 12/01/07 849,690
1,325 Lorain Cnty, OH Hosp Rev Catholic Hlthcare
Partners Rfdg Ser B (MBIA Insd)................. 5.625 09/01/15 1,370,646
3,000 Lucas Cnty, OH Hosp Rev Promedica Hlthcare Oblig
(MBIA Insd)..................................... 6.000 11/15/07 3,319,320
1,000 Ohio Hsg Fin Agy Mtg Rev Residential Ser A1
(GNMA Collateralized)........................... 6.150 03/01/29 1,050,570
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding Ltd
Partnership Proj Rfdg (AMBAC Insd).............. 6.375 04/01/29 1,079,680
------------
7,669,906
------------
OKLAHOMA 2.2%
2,000 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd)..................... 6.125 06/01/05 2,172,640
3,140 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd)..................... 6.250 06/01/08 3,482,543
3,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc............................................. 7.600 12/01/30 3,311,430
------------
8,966,613
------------
OREGON 0.5%
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp..... 6.350 08/01/25 2,108,340
------------
PENNSYLVANIA 8.8%
2,000 Allegheny Cnty, PA Arpt Rev Rfdg Pittsburgh Intl
Arpt A (MBIA Insd).............................. 5.750 01/01/10 2,144,780
5,000 Beaver Cnty, PA (MBIA Insd) (a)................. 5.150 10/01/17 4,964,700
6,655 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B............................... 6.875 10/01/17 7,168,633
8,500 Geisinger Auth PA Hlth Sys Ser A................ 6.400 07/01/22 9,087,605
1,000 Indiana Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Metro Edison Co Proj A (AMBAC Insd)............. 5.950 05/01/27 1,040,570
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
60A Rfdg........................................ 5.850 10/01/27 2,543,625
1,000 Pennsylvania Intergvtl Co-op Auth Spl Tax Rev
City of Philadelphia (Prerefunded @ 06/15/02)... 6.800 06/15/22 1,106,150
3,200 Philadelphia, PA Wtr & Wstwtr Ser A (AMBAC Insd)
(a)............................................. 5.000 08/01/16 3,105,024
5,055 Philadelphia, PA Wtr & Wstwtr Ser A (AMBAC Insd)
(a)............................................. 5.000 08/01/17 4,900,367
------------
36,061,454
------------
TENNESSEE 0.6%
1,365 Metropolitan Govt Nashville & Davidson Cnty TN H
& E Facs Brd Rev (a)............................ 5.500 05/01/05 1,436,308
945 Metropolitan Govt Nashville & Davidson Cnty TN H
& E Facs Brd Rev (a)............................ 5.500 05/01/06 993,743
------------
2,430,051
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS 4.6%
$ 1,000 Austin, TX Util Sys Rev Rfdg (AMBAC Insd) (a)... 6.500% 11/15/05 $ 1,110,650
4,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc (b)......................... 7.000 11/01/01 4,856,445
2,525 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc............................. 7.625 11/01/21 2,799,215
5,000 Ector Cnty, TX Hosp Dist Hosp Rev Med Cent Hosp
(Prerefunded 04/15/02) (b)...................... 7.300 04/15/12 5,686,050
1,820 Texas Genl Svcs Comm Partn Int Lease Purch Ctfs,
144A Private Placement (d)...................... 7.250 08/15/11 1,857,954
2,500 Texas St Dept Hsg & Community Affairs Single
Family Rev Teams Mtg Ser A Class 3 (MBIA
Insd)........................................... 5.800 09/01/29 2,526,025
------------
18,836,339
------------
UTAH 1.9%
1,500 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)................................ 5.750 07/01/19 1,558,050
1,500 Intermountain Pwr Agy UT Rev Ser E Rfdg (FSA
Insd)........................................... 6.000 07/01/06 1,648,590
2,250 Utah St Hsg Fin Agy Single Family Ser C 2....... 6.000 07/01/15 2,312,482
2,260 Utah St Hsg Fin Agy Single Family Mtg Sr Issue
B3.............................................. 7.100 07/01/24 2,389,611
------------
7,908,733
------------
VIRGINIA 2.0%
8,200 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem
Hosp Carilion Hlth Sys Ser B Rfdg (Prerefunded @
01/01/00) (MBIA Insd)........................... 4.700 01/01/20 8,422,466
------------
WASHINGTON 6.8%
9,850 Bellevue, WA Convention Cent Comp Int Rfdg (MBIA
Insd)........................................... * 02/01/25 2,227,775
10,975 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev Ser A Rfdg (MBIA Insd).................... 5.700 07/01/17 11,162,672
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev Ser B Rfdg (MBIA Insd).................... 5.600 07/01/15 10,134,600
2,000 Washington St Pub Pwr Supply Sys Nuclear Proj No
2 Rev Ser A Rfdg (AMBAC Insd)................... 6.000 07/01/08 2,193,120
5,125 Washington St Pub Pwr Supply Sys Nuclear Proj No
3 Rev Ser C Rfdg (MBIA Insd).................... * 07/01/14 2,101,865
------------
27,820,032
------------
WEST VIRGINIA 2.1%
8,000 Harrison Cnty, WV Cmnty Solid Waste Disp Rev
West Penn Pwr Co Proj Ser A (b)................. 6.875 04/15/22 8,643,920
------------
WISCONSIN 1.2%
1,000 Madison, WI Indl Dev Rev Madison Gas & Elec Co
Proj Ser A...................................... 6.750 04/01/27 1,077,170
3,500 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser C........................................... 6.250 09/01/17 3,679,690
------------
4,756,860
------------
WYOMING 0.4%
1,500 Wyoming Cmnty Dev Auth Hsg Rev Ser 2............ 6.350 06/01/29 1,580,445
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL LONG-TERM INVESTMENTS 102.7%
(Cost $386,936,247)......................................................... 421,489,722
SHORT-TERM INVESTMENTS AT AMORTIZED COST 1.0%................................. 4,200,000
------------
TOTAL INVESTMENTS 103.7%
(Cost $391,136,247)......................................................... 425,689,722
------------
LIABILITIES IN EXCESS OF OTHER ASSETS (3.7%)................................. (15,377,116)
------------
NET ASSETS 100.0%............................................................ $410,312,606
-----------
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open futures transactions.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $391,136,247)....................... $425,689,722
Cash........................................................ 54,077
Receivables:
Interest.................................................. 7,030,164
Investments Sold.......................................... 86,312
Other....................................................... 2,579
------------
Total Assets.......................................... 432,862,854
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 21,738,488
Investment Advisory Fee................................... 225,818
Income Distributions--Common and Preferred Shares......... 171,939
Administrative Fee........................................ 69,482
Variation Margin on Futures............................... 46,875
Affiliates................................................ 14,647
Accrued Expenses............................................ 210,577
Trustees' Deferred Compensation and Retirement Plans........ 72,422
------------
Total Liabilities..................................... 22,550,248
------------
NET ASSETS.................................................. $410,312,606
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 3,000 issued with liquidation preference of
$50,000 per share)........................................ $150,000,000
------------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 15,352,891 shares issued and
outstanding).............................................. 153,529
Paid in Surplus............................................. 226,719,758
Net Unrealized Appreciation................................. 34,074,139
Accumulated Undistributed Net Investment Income............. 1,307,038
Accumulated Net Realized Loss............................... (1,941,858
------------
Net Assets Applicable to Common Shares................ 260,312,606
------------
NET ASSETS.................................................. $410,312,606
============
NET ASSET VALUE PER COMMON SHARE ($260,312,606 divided
by 15,352,891 shares outstanding)......................... $ 16.96
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $23,385,433
-----------
EXPENSES:
Investment Advisory Fee..................................... 2,612,031
Administrative Fee.......................................... 803,702
Preferred Share Maintenance................................. 379,659
Custody..................................................... 41,632
Trustees' Fees and Expenses................................. 26,876
Legal....................................................... 17,958
Amortization of Organizational Costs........................ 3,788
Other....................................................... 256,730
-----------
Total Expenses.......................................... 4,142,376
-----------
NET INVESTMENT INCOME....................................... $19,243,057
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,453,914
Futures................................................... (2,025,146)
-----------
Net Realized Loss........................................... (571,232)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... 20,761,700
-----------
End of the Period:
Investments............................................... 34,553,475
Futures................................................... (479,336)
-----------
34,074,139
-----------
Net Unrealized Appreciation During the Period............... 13,312,439
-----------
NET REALIZED AND UNREALIZED GAIN............................ $12,741,207
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $31,984,264
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1997 October 31, 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 19,243,057 $ 19,513,539
Net Realized Gain/Loss.................................. (571,232) 4,500,707
Net Unrealized Appreciation/Depreciation During the
Period................................................ 13,312,439 (423,449)
------------ ------------
Change in Net Assets from Operations.................... 31,984,264 23,590,797
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (13,817,017) (13,909,348)
Preferred Shares...................................... (5,359,157) (5,459,584)
------------ ------------
Total Distributions..................................... (19,176,174) (19,368,932)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 12,808,090 4,221,865
NET ASSETS:
Beginning of the Period................................. 397,504,516 393,282,651
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,307,038 and $1,240,155,
respectively)......................................... $410,312,606 $397,504,516
============ ============
</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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 24, 1992
(Commencement
Year Ended October 31 of Investment
-------------------------------------------------- Operations) to
1997 1996 1995 1994 1993 October 31, 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period (a).... $ 16.121 $15.846 $14.389 $17.297 $14.990 $14.771
-------- ------- ------- ------- ------- ------
Net Investment Income.......... 1.253 1.271 1.275 1.303 1.354 .611
Net Realized and Unrealized
Gain/Loss.................... .830 .266 1.584 (2.918) 2.332 .083
-------- ------- ------- ------- ------- ------
Total from Investment
Operations..................... 2.083 1.537 2.859 (1.615) 3.686 .694
-------- ------- ------- ------- ------- ------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............... .900 .906 1.012 1.020 1.020 .340
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders..... .349 .356 .390 .273 .282 .135
Distributions from Net Realized
Gain on Securities:
Paid to Common
Shareholders............... -0- -0- -0- -0- .057 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders..... -0- -0- -0- -0- .020 -0-
-------- ------- ------- ------- ------- ------
Total Distributions............. 1.249 1.262 1.402 1.293 1.379 .475
-------- ------- ------- ------- ------- ------
Net Asset Value, End of the
Period......................... $ 16.955 $16.121 $15.846 $14.389 $17.297 $14.990
============ ======== ======== ======== ======== ===========
Market Price Per Share at End of
the Period..................... $15.0625 $13.750 $13.625 $13.000 $16.375 $14.500
Total Investment Return at
Market Price (b)............... 16.54% 7.72% 12.70% (14.96%) 20.85% (1.16%)*
Total Return at Net Asset Value
(c)............................ 11.11% 7.61% 17.74% (11.30%) 23.17% 2.10%*
Net Assets at End of the Period
(In millions).................. $ 410.3 $ 397.5 $ 393.3 $ 370.9 $ 415.6 $ 380.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares......................... 1.64% 1.66% 1.75% 1.69% 1.62% 1.54%
Ratio of Expenses to Average Net
Assets......................... 1.03% 1.03% 1.06% 1.05% 1.02% 1.04%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d)............................ 5.51% 5.73% 5.87% 6.43% 6.51% 5.82%
Portfolio Turnover.............. 49% 85% 70% 76% 52% 53%*
</TABLE>
(a) Net Asset Value at April 24, 1992, is adjusted for common and preferred
share offering costs of $.229 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 the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Municipal Opportunity 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. The Trust commenced investment operations on April 24, 1992.
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.
D. ORGANIZATIONAL COSTS--The Trust reimbursed Van Kampen American Capital
Distributors Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
the Trust's organization in the amount of $40,000. These costs were amortized on
a straight line basis over the 60 month period ended April 23, 1997.
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 October 31, 1997, the Trust had an accumulated capital loss
carryforward for tax purposes of $2,421,194 which will expire between October
31, 2003 and October 31, 2005. Net realized gains or losses differ for financial
reporting and tax purposes primarily as a result of gains or losses recognized
for tax purposes on open futures positions at October 31, 1997.
At October 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $391,136,247; the aggregate gross unrealized
appreciation is $34,647,049 and the aggregate gross unrealized depreciation is
$93,574 resulting in net unrealized appreciation of $34,553,475.
F. 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 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 October 31, 1997, 99.6% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1998, the Trust
will provide tax information to shareholders for the 1997 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% 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
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.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $9,500 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 October 31, 1997, the Trust recognized expenses of
approximately $107,000 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 $206,765,016 and $195,688,584,
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 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 futures contract.
Summarized below are the types of derivative financial instruments used by
the Trust.
A. 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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
closes the contracts 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).
Transactions in futures contracts for the year ended October 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996.......................... 200
Futures Opened........................................... 1,551
Futures Closed........................................... (1,601)
------
Outstanding at October 31, 1997.......................... 150
======
</TABLE>
The futures contracts outstanding as of October 31, 1997, and the
description and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Long Bond Future, Short Contracts
December 1997 - (Current Notional Value of
$118,469 per contract)..................... 150 $479,336
=== ========
</TABLE>
B. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. Their price may be more volatile than the price of a comparable
fixed rate security.
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 securities fixed swap rate and the floating swap index. 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.
5. PREFERRED SHARES
The Trust has outstanding 3,000 Auction Preferred Shares ("APS") in two series
of 1,500 shares each. Dividends are cumulative and the dividend rate on each
series is currently reset every 28 days through an auction process. The average
rate in effect on October 31, 1997 was 3.560%. During the year ended October 31,
1997, the rates ranged from 3.350% to 3.947%.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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.
21
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Municipal Opportunity Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Municipal Opportunity Trust (the "Trust"), including the
portfolio of investments, as of October 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
October 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 Opportunity Trust as of October 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
December 4, 1997
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, of 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
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
26
<PAGE> 25
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY 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.
27
<PAGE> 26
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 whose terms expired in 1997 and independent public accountants.
1) With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Trust,
13,011,081 shares voted for the proposal, 186,132 shares voted against, 235,999
shares abstained and 0 shares represented broker non-votes.
2) With regard to the election of Rod Dammeyer as elected trustee by the
preferred shareholders of the Trust, 2,185 shares voted in his favor, 0 shares
withheld.
3) With regard to the election of Wayne W. Whalen as elected trustee by the
common shareholders of the Trust, 13,215,611 shares voted in his favor, 215,416
shares withheld.
4) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for its current fiscal year 13,202,193 shares voted for the
proposal, 76,413 shares voted against, 154,593 shares abstained and 0 shares
represented broker non-votes.
28
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
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<TOTAL-LIABILITIES> 22,550,248
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<INTEREST-INCOME> 23,385,433
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<NET-INVESTMENT-INCOME> 19,243,057
<REALIZED-GAINS-CURRENT> (571,232)
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<NET-CHANGE-FROM-OPS> 31,984,264
<EQUALIZATION> 0
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<GROSS-EXPENSE> 4,142,376
<AVERAGE-NET-ASSETS> 251,869,746
<PER-SHARE-NAV-BEGIN> 16.121
<PER-SHARE-NII> 1.253
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