<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Glossary of Terms................................ 5
Performance Results.............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 18
Dividend Reinvestment Plan....................... 22
</TABLE>
VMO SAR 6/98
<PAGE> 2
LETTER TO SHAREHOLDERS
May 22, 1998
Dear Shareholder,
The Taxpayer Relief Act of 1997,
signed into law by President Clinton
last year, was created to fill the need
for a broad variety of tax-advantaged
investments to promote asset growth. We
are pleased that you selected our Trust
as a vehicle to provide the potential [PHOTO]
for tax-free income within your
investment portfolio. As you are aware,
dividends distributed by the Trust are
generally free from federal income DENNIS J. MCDONNELL AND DON G. POWELL
taxes, and often from state and local
taxes as well. At Van Kampen American Capital, we strive not only for a high
level of current income, but total return performance as well.
ECONOMIC REVIEW
After nearly seven years of continuous growth, the economy remained buoyant
with few signs of accelerating inflation. Wholesale prices in the first quarter
plummeted at an annual rate of 4.2 percent, while consumer prices inched up 0.2
percent and employment costs rose just 0.7 percent. However, inflationary
pressures were eased by factors such as lower oil prices, increasing
productivity, and a pending budget surplus. The Asian financial crisis led to a
stronger dollar and a decline in the prices of Asian imports, which in turn has
discouraged price increases on competing U.S. goods.
To date, Asia's slowdown has had a modest impact on U.S. economic growth. In
the first quarter, the U.S. economy grew at a 4.2 percent annual rate, its
fastest pace in the past year. Strong consumer spending and inventory buildup by
manufacturers offset a decrease in exports to Asia. Despite the economy's
strength, the Federal Reserve Board refrained from raising interest rates, given
the lack of domestic inflationary pressure and concerns about Asia's economic
future.
MARKET OVERVIEW
Against the backdrop of benign inflation and no action by the Fed, U.S. bond
prices rose during the past six months, although they ended the reporting period
below the highs reached in early January.
The yield of the 30-year Treasury bond, which moves in the opposite
direction of its price, fell from 6.15 percent on October 31 to 5.95 percent on
April 30. Bond prices hit a record high as yields reached 5.69 percent in early
January amidst expectations that the Fed would cut interest rates, but the yield
went back to 6.00 percent in early March after the Fed chose not to act. Yields
were volatile for the rest of the reporting period, as
Continued on page two
1
<PAGE> 3
foreign investors sold U.S. Treasury holdings and investors began to fear that
the Fed was leaning toward a rate hike.
Municipal bond yields generally moved in unison with Treasuries but did not
gain nearly as much in price. By the end of the reporting period, the average
yield of AAA-rated, 30-year generic general obligation bonds was 5.14 percent,
two basis points above the yield posted on October 31 of last year. The
underperformance of municipal bonds can be attributed in part to heavy supply
that outpaced demand. Supply increased as state and local governments took
advantage of low interest rates by issuing bonds to refinance outstanding issues
with higher interest rates, as well as to fund new projects. In the first
quarter, long-term municipal issuance totaled $71 billion, up from $40 billion a
year earlier.
More than half of the new issue volume was AAA-rated and insured, which
significantly diminished the amount of uninsured, higher-yielding securities
available in the marketplace. The dominance of insured volume and the high
demand for uninsured paper created an imbalance that compressed the yields
between higher-quality and lower-quality bonds.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1998*
<TABLE>
<S> <C>
AAA................ 56.0%
AA................. 14.3%
A.................. 15.0%
BBB................ 14.7%
</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
We used the following strategies to manage the Trust during the period:
We maintained a portfolio consisting primarily of high-quality bonds with a
heavy emphasis on AAA-rated securities. Under current market conditions, we
believe the yield spread between higher-rated and lower-rated securities does
not adequately compensate the investor for the additional credit risk of the
lower-rated security. Also, high-quality bonds generally have performed better
than lower-quality holdings when interest rates are falling, which was the case
for most of the reporting period. We decreased our holdings of BBB-rated bonds
in favor of higher-quality securities, given the relative attractiveness of high
quality paper when yield spreads are tight.
Overall, new acquisitions were limited because current market yields were
below the average yield of bonds in the Trust, and the portfolio was already
well protected against imminent calls and reinvestment risk. In addition, the
duration of the Trust, which is a
Continued on page three
2
<PAGE> 4
measure of its sensitivity to changing interest rates, matched the duration of
its benchmark index. As of April 30, the duration of the Trust was 7.75 years
compared with 7.76 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.
In making purchases, we emphasized current coupon par bonds, priced at their
face value. These purchases helped maintain the Trust's dividend. We favored
housing bonds because of their high yields and potential to appreciate. In
addition, we bought some zero coupon bonds priced at deep discounts, and then
sold the bonds after they posted price gains.
TOP FIVE PORTFOLIO INDUSTRY SECTORS AS OF APRIL 30, 1998*
General Purpose................... 17.0%
Single-Family Housing............. 12.6%
Wholesale Electric................ 12.5%
Health Care....................... 10.2%
Airport............................ 9.1%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the six-month period ended April 30, 1998, the Trust generated a total
return of 6.73 percent(1). This reflects a gain in market price per common share
from $15.0625 on October 31, 1997, to $15.6250 on April 30, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
5.76 percent(3), based on the closing price of its common shares. Because income
from the Trust is exempt from federal income taxes, this distribution rate is
equivalent to a yield of 9.00 percent(4) on a taxable investment for investors
in the 36 percent federal income tax bracket. Please refer to the chart on page
seven for additional performance numbers.
Continued on page four
3
<PAGE> 5
[DIVIDEND HISTORY GRAPH]
Six-month Dividend History
For the Period Ended April 30, 1998
<TABLE>
<CAPTION>
Distribution per Common Share
<S> <C>
Nov 1997............................ $.075
Dec 1997............................ $.075
Jan 1998............................ $.075
Feb 1998............................ $.075
Mar 1998............................ $.075
Apr 1998............................ $.075
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
ECONOMIC OUTLOOK
We expect the economy to slow from its brisk first-quarter pace, although
the extent of the slowdown depends on the continued effects of Asia's crisis and
on Fed policy. We believe the Fed is biased toward raising rates, given concerns
about the economy's increasing strength. If economic strength ignites
inflationary pressures, then we believe the Fed will raise interest rates later
this year. As a result, the yield of the 30-year Treasury bond could top 6.25
percent.
We will continue to track market developments and their effects on the
Trust. When appropriate, we will make adjustments to the portfolio. As we
mentioned earlier, our goal remains a high level of current income for
investors, plus gains in total return. Thank you for your continued support and
confidence in Van Kampen American Capital and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page seven
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to one percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bond holder for loss of income and ownership, the call price is usually
higher than the face value of the bond. Bonds are usually called when interest
rates drop so significantly that the issuer can save money by issuing new bonds
at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because it
is assumed that the issuer will redeem the bond at its call date, rather than at
maturity.
COUPON RATE: The stated rate of interest a bond pays until maturity, expressed
as a percentage of its face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investor Services are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D; Moody's ratings range from a high of Aaa to a low of D.
CREDIT SPREAD: The difference in yield between higher-quality issues and
lower-quality issues. Normally, lower-quality issues provide higher yields than
higher-quality issues in order to compensate investors for the additional credit
risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected
one-percent change in the price of the bond for every one-percent change in
interest rates. The longer a fund's duration, the greater the effect of interest
rate movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): A group that meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 7
INFLATION: An economic situation in which money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most municipal bonds are AAA-rated. Insurance on the bonds does not
relate to mutual fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's NAV, the fund is trading at a
discount. When the price is more than the NAV, the fund is trading at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
governmental entity to finance capital expenditures such as the construction of
highways or public works.
NET ASSET VALUE (NAV): The value of a fund share, calculated by deducting a
fund's liabilities from its total assets and dividing this amount by the number
of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond.
YIELD SPREAD: The difference between the yields of distinct bonds, due to
variant credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities are
narrow, there is less incentive to own the bond with the longer maturity. In
both cases, the investor is not being compensated for the additional risk.
ZERO COUPON BONDS: A corporate or municipal debt security that trades at a deep
discount to face value and pays no interest. It may be redeemed at maturity for
full face value.
6
<PAGE> 8
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1998
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
(NYSE TICKER SYMBOL--VMO)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
Six-month total return based on market price(1).......... 6.73%
Six-month total return based on NAV(2)................... 3.00%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.76%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.00%
SHARE VALUATIONS
Net asset value.......................................... $ 17.02
Closing common stock price............................... $ 15.625
Six-month high common stock price (03/02/98)............. $16.1875
Six-month low common stock price (11/17/98).............. $ 15.000
Preferred share (Series A) rate(5)....................... 3.750%
Preferred share (Series B) rate(5)....................... 3.580%
</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.
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 100.7%
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 $ 2,219,760
------------
CALIFORNIA 5.9%
1,510 California Hsg Fin Agy Rev Home Mtg Ser B1..... 6.300 08/01/08 1,605,583
2,000 California Pollutn Ctl Fin Auth Pollutn Ctl Rev
Southern CA Edison Co (AMBAC Insd)............. 6.000 07/01/27 2,099,500
1,110 California Rural Home Mtg Fin Auth Single
Family Mtg Rev Ser C (GNMA Collateralized)..... 7.800 02/01/28 1,257,908
5,000 Contra Costa, CA Home Mtg Fin Auth Home Mtg Rev
(MBIA Insd).................................... * 09/01/17 1,815,700
4,000 Foothill/Eastern Tran Agy Conv Cap Apprec Lien
Ser A (c)...................................... 0/7.050 01/01/10 3,035,320
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd).......................................... 6.000 07/01/06 5,479,000
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd).......................................... 6.000 07/01/08 5,539,500
3,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd).......................................... 6.000 06/01/08 3,300,150
------------
24,132,661
------------
COLORADO 6.6%
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 2,355,960
1,000 Castle Rock, CO Multi-Family Rev Hsg Pines at
Castle Rock Ser A (FSA Insd)................... 6.100 12/01/16 1,042,670
1,500 Colorado Hsg Fin Auth Multi-Family Hsg Ins Mtg
Ser B2......................................... 5.800 10/01/28 1,533,615
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A2............................................. 7.250 05/01/27 1,687,605
1,325 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
A3............................................. 7.000 11/01/24 1,408,011
1,500 Colorado Hsg Fin Auth Single Family Pgm Sr Ser
C1............................................. 7.550 11/01/27 1,694,340
3,200 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.500 11/15/07 3,548,960
300 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)....................... 8.500 11/15/07 336,591
1,855 Denver, CO City & Cnty Arpt Rev Ser A.......... 8.875 11/15/12 2,289,240
5,145 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)....................... 8.875 11/15/12 5,830,850
1,750 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd).......................................... 6.250 11/15/06 1,933,155
1,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd).......................................... 6.250 11/15/07 1,108,720
1,005 Greeley, CO Multi-Family Rev AMT Hsg Mtg Creek
Stone (FHA Gtd)................................ 5.950 07/01/28 1,035,321
1,000 Highlands Ranch Metro Dist No 2 CO Rfdg (FSA
Insd).......................................... 6.500 06/15/11 1,156,110
------------
26,961,148
------------
CONNECTICUT 1.0%
860 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A -- Private Placement (d)........... 6.500 09/01/06 952,553
840 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A -- Private Placement (Escrowed to
Maturity) (d).................................. 6.500 09/01/06 947,243
1,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A -- Private Placement (d)........... 6.400 09/01/11 1,103,680
1,000 Mashantucket Western Pequot Tribe CT Spl Rev
Ser A, 144A -- Private Placement (Prerefunded @
09/01/07) (d).................................. 6.400 09/01/11 1,134,900
------------
4,138,376
------------
DISTRICT OF COLUMBIA 0.5%
2,000 Metropolitan Washington, DC Arpt Auth Genl Arpt
Rev Ser A (FGIC Insd).......................... 7.250 10/01/10 2,155,540
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FLORIDA 0.8%
$ 3,000 Florida St Brd Edl Cap Outlay Pub Edl Ser A.... 5.875% 06/01/16 $ 3,165,840
------------
GEORGIA 3.3%
3,027 Fulton Cnty, GA Lease Rev, 144A Private
Placement (d).................................. 7.250 06/15/10 3,517,882
2,000 George L Smith II GA World Congress Cntr Auth
Rev (MBIA Insd) (a)............................ 6.000 07/01/09 2,078,980
7,000 Georgia Muni Elec Auth Pwr Rev Ser A (MBIA
Insd).......................................... 6.500 01/01/20 8,199,240
------------
13,796,102
------------
HAWAII 1.3%
5,000 Hawaii St Arpt Sys Rev Ser 2................... 7.000 07/01/18 5,393,150
------------
IDAHO 0.3%
1,075 Idaho Hsg & Fin Assn Single Family Mortgage
Mezz Series E 2................................ 5.950 07/01/14 1,120,612
------------
ILLINOIS 6.2%
5,000 Chicago, IL O'Hare Intl Arpt Rev Genl Arpt
Second Lien Ser A Rfdg (MBIA Insd) (b)......... 6.375 01/01/12 5,475,900
6,400 Chicago, IL Sch Fin Auth Ser A (MBIA Insd)..... 5.000 06/01/09 6,450,176
970 Chicago, IL Single Family Mtg Rev Ser A (GNMA
Collateralized)................................ 7.000 09/01/27 1,076,040
1,125 Chicago, IL Single Family Mtg Rev Ser B (GNMA
Collateralized)................................ 7.625 09/01/27 1,280,228
1,000 Illinois Dev Fin Auth Pollutn Ctl Rev IL Pwr Co
Proj Ser A Rfdg (MBIA Insd).................... 5.400 03/01/28 993,470
3,285 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj................................. 8.125 11/15/19 3,988,746
1,000 Illinois Hlth Fac Auth Rev Midwest Physician
Group Ltd Proj Rfdg............................ 5.375 11/15/08 988,500
1,475 Regional Tran Auth IL Ser A (AMBAC Insd)....... 6.500 06/01/15 1,595,271
1,410 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5
(FGIC Insd).................................... 6.400 12/01/03 1,546,798
1,865 Sangamon Cnty, IL Cmnty Unit Sch Dist No 5
(FGIC Insd).................................... 6.500 12/01/05 2,092,213
------------
25,487,342
------------
INDIANA 1.0%
1,410 Indiana Univ Rev Student Fee Ser L (a)......... 5.000 08/01/15 1,367,094
2,500 Purdue Univ, IN Univ Rev Student Fee Ser B
(Prerefunded @ 01/01/05)....................... 6.750 07/01/09 2,872,625
------------
4,239,719
------------
IOWA 0.3%
1,500 Des Moines, IA Aviation Sys Rev Ser B (FSA
Insd) (a)...................................... 5.125 07/01/28 1,425,975
------------
KENTUCKY 1.0%
1,475 Kenton Cnty, KY Arpt Brd Rev Cincinnati/Northn
KY Intl Arpt Ser A Rfdg (MBIA Insd)............ 6.200 03/01/08 1,632,840
1,000 Kentucky Econ Dev Fin Auth Hosp Sys Rev
Appalachian Regl Rfdg & Impt................... 5.600 10/01/08 1,022,930
1,350 Kentucky Hsg Corp Hsg Rev Ser B................ 6.250 07/01/28 1,429,677
------------
4,085,447
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAINE 0.9%
$ 2,190 Maine Edl Ln Auth Rev Supplemental Pgm Ser
A1............................................. 7.000% 12/01/16 $ 2,355,564
1,200 Maine Edl Ln Auth Rev Supplemental Pgm Ser
A2............................................. 7.150 12/01/16 1,295,400
------------
3,650,964
------------
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 3,757,145
3,005 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty
Dev Rev Single Family Pgm Seventh Ser.......... 7.300 04/01/25 3,217,634
------------
6,974,779
------------
MASSACHUSETTS 1.3%
2,000 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser G (Embedded Swap)
(MBIA Insd) (c)................................ 3.10/5.00 07/01/13 1,898,780
3,000 Plymouth Cnty, MA Ctfs Partn Ser A............. 7.000 04/01/22 3,345,420
------------
5,244,200
------------
MICHIGAN 2.2%
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg....................................... 5.375 10/01/13 989,120
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd)............................ 5.500 10/01/18 1,002,470
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd)............................ 5.500 10/01/27 1,994,120
4,500 Monroe Cnty, MI Pollutn Ctl Rev Coll Detroit
Edison Monroe Ser 1 (MBIA Insd)................ 6.875 09/01/22 4,928,940
------------
8,914,650
------------
MISSISSIPPI 1.6%
3,730 Mississippi Home Corp Single Family Rev Mtg Ser
C (GNMA Collateralized)........................ 7.600 06/01/29 4,216,541
2,000 Mississippi Home Corp Single Family Rev Mtg Ser
F (GNMA Collateralized)........................ 7.600 12/01/27 2,264,520
------------
6,481,061
------------
MISSOURI 1.4%
1,485 Saint Charles Cnty, MO Indl Dev Auth Indl Rev
Dev Westchester Vlg Apts Ser A Rfdg............ 6.150 02/01/27 1,560,393
790 Saint Louis Cnty, MO Single Family Mtg Rev
(MBIA Insd).................................... 6.900 04/01/16 845,537
3,000 Sikeston, MO Elec Rev Rfdg (MBIA Insd) (b)..... 6.200 06/01/10 3,394,890
------------
5,800,820
------------
NEVADA 1.0%
4,000 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser
A (FGIC Insd).................................. 6.700 06/01/22 4,324,480
------------
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 2,083,700
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY 5.7%
$20,000 New Jersey Econ Dev Auth St Contract Econ Recov
(MBIA Insd).................................... 5.900% 03/15/21 $ 21,972,400
1,395 New Jersey Hlthcare Fac Fin Auth Rev Christ
Hosp Group Issue (Connie Lee Insd)............. 7.000 07/01/04 1,575,332
------------
23,547,732
------------
NEW MEXICO 2.1%
770 Hobbs, NM Single Family Mtg Rev Rfdg........... 8.750 07/01/11 857,249
5,105 New Mexico Mtg Fin Auth Single Family Mtg Pgm
Ser G (GNMA Collateralized).................... 7.250 07/01/26 5,447,290
2,000 University of NM Technology Dev Corp Lease Rev
Univ Cent Resh Pk Proj Ser A (MBIA Insd)....... 6.450 08/15/18 2,214,940
------------
8,519,479
------------
NEW YORK 21.3%
2,000 Metropolitan Tran Auth NY Commuter Facs Rev
Contract....................................... 5.500 07/01/14 2,019,280
2,500 Metropolitan Tran Auth NY Dedicated Tax Fund
Ser A (FGIC Insd).............................. 4.750 04/01/28 2,280,750
3,000 Metropolitan Tran Auth NY Svcs Contract Tran
Fac Ser 5 Rfdg................................. 7.000 07/01/12 3,257,160
1,440 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj............................ 6.100 01/01/09 1,539,014
3,000 New York City Indl Dev Agy Spl Fac Rev Terminal
One Group Assn Proj............................ 6.000 01/01/15 3,140,310
5,000 New York City Muni Wtr Fin Auth Ser B.......... 5.750 06/15/29 5,162,350
10,000 New York City Ser A............................ 7.000 08/01/07 11,474,300
5,000 New York City Ser A Rfdg....................... 7.000 08/01/05 5,653,500
635 New York City Ser D (b)........................ 7.500 02/01/19 700,456
7,365 New York City Ser D (Prerefunded @ 02/01/02)
(b)............................................ 7.500 02/01/19 8,274,872
1,000 New York City Transitional Fin Auth Rev Future
Tax Ser C (a).................................. 4.750 05/01/23 917,810
1,500 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser A.......................................... 5.750 08/15/12 1,564,200
2,070 New York St Dorm Auth Rev Mental Hlth Svcs Fac
Ser B.......................................... 5.750 08/15/10 2,179,545
6,060 New York St Dorm Auth Rev City Univ Ser F...... 5.500 07/01/12 6,116,660
1,500 New York St Dorm Auth Rev Dept Edl St of NY
Issue Ser A.................................... 5.800 07/01/22 1,535,790
1,365 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg........................................... 5.250 05/15/09 1,401,227
5,000 New York St Dorm Auth Rev St Univ Edl Facs..... 5.125 05/15/21 4,826,200
1,895 New York St Mtg Agy Rev Homeowner Mtg Ser 58... 6.400 04/01/27 2,050,674
6,400 New York St Thruway Auth Svc Contract Rev Loc
Hwy & Brdg..................................... 5.750 04/01/09 6,740,800
3,475 New York St Urban Dev Corp Rev Correctional Cap
Fac Rfdg....................................... 5.000 01/01/20 3,252,148
1,100 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 4...................................... 5.375 01/01/23 1,078,561
3,000 New York St Urban Dev Corp Rev Correctional Cap
Fac Ser 7...................................... 5.700 01/01/27 3,038,010
3,500 Port Auth NY & NJ Cons 97th Ser (FGIC Insd).... 6.650 01/15/23 3,804,640
5,400 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK
Intl Arpt Terminal 6 (MBIA Insd)............... 5.750 12/01/22 5,584,464
------------
87,592,721
------------
NORTH CAROLINA 2.9%
11,000 North Carolina Muni Pwr Agy No 1 Catawba Elec
Rev (MBIA Insd)................................ 6.000 01/01/12 12,136,520
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO 1.9%
$ 1,000 Akron, OH Ctfs Partn Akron Muni Baseball
Stadium Proj (c)............................... 0/6.500% 12/01/07 $ 894,400
1,325 Lorain Cnty, OH Hosp Rev Catholic Hlthcare
Partners Rfdg Ser B (MBIA Insd)................ 5.625 09/01/15 1,381,909
3,000 Lucas Cnty, OH Hosp Rev Promedica Hlthcare
Oblig (MBIA Insd).............................. 6.000 11/15/07 3,297,030
1,000 Ohio Hsg Fin Agy Mtg Rev Residential Ser A1
(GNMA Collateralized).......................... 6.150 03/01/29 1,053,340
1,000 Ohio St Air Quality Dev Auth Rev JMG Funding
Ltd Partn Proj Rfdg (AMBAC Insd)............... 6.375 04/01/29 1,078,910
------------
7,705,589
------------
OKLAHOMA 2.2%
2,000 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd).................... 6.125 06/01/05 2,171,860
3,140 Tulsa, OK Indl Auth Hosp Rev Hillcrest Med Cent
Proj Rfdg (Connie Lee Insd).................... 6.250 06/01/08 3,475,352
3,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc............................................ 7.600 12/01/30 3,279,510
------------
8,926,722
------------
OREGON 0.5%
2,000 Oregon St Econ Dev Rev Georgia Pacific Corp.... 6.350 08/01/25 2,121,200
------------
PENNSYLVANIA 6.1%
2,000 Allegheny Cnty, PA Arpt Rev Rfdg Pittsburgh
Intl Arpt A (MBIA Insd)........................ 5.750 01/01/10 2,128,520
6,655 Berks Cnty, PA Muni Auth Rev Highlands at
Wyomissing Proj B.............................. 6.875 10/01/17 7,182,209
8,500 Geisinger Auth PA Hlth Sys Ser A............... 6.400 07/01/22 9,137,330
1,440 Harrisburg, PA Cap Apprec Rfdg Nts Ser F (AMBAC
Insd).......................................... * 03/15/15 589,810
1,865 Harrisburg, PA Cap Apprec Rfdg Ser D (AMBAC
Insd).......................................... * 09/15/15 743,948
1,865 Harrisburg, PA Cap Apprec Rfdg Ser D (AMBAC
Insd).......................................... * 03/15/16 723,266
1,000 Indiana Cnty, PA Indl Dev Auth Pollutn Ctl Rev
Metro Edison Co Proj A (AMBAC Insd)............ 5.950 05/01/27 1,049,410
2,500 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
60A Rfdg....................................... 5.850 10/01/27 2,573,050
1,000 Pennsylvania Intergvtl Co-op Auth Spl Tax Rev
City of Philadelphia (Prerefunded @
06/15/02)...................................... 6.800 06/15/22 1,092,920
------------
25,220,463
------------
SOUTH DAKOTA 0.3%
1,285 South Dakota St Hlth & Edl Fac Auth Vocational
Edl Pgm Ser A (AMBAC Insd) (a)................. 5.400 08/01/13 1,301,666
------------
TEXAS 3.9%
1,000 Austin, TX Util Sys Rev Rfdg (AMBAC Insd)
(a)............................................ 6.500 11/15/05 1,109,580
4,500 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc (b)........................ 7.000 11/01/01 4,832,955
2,525 Dallas-Fort Worth, TX Intl Arpt Fac Impt Corp
Rev Delta Airls Inc............................ 7.625 11/01/21 2,789,216
5,000 Ector Cnty, TX Hosp Dist Hosp Rev Med Cent Hosp
(Prerefunded @ 04/15/02) (b)................... 7.300 04/15/12 5,613,700
1,781 Texas Genl Svcs Comm Partn Int Lease Purch
Ctfs, 144A Private Placement (d)............... 7.250 08/15/11 1,818,475
------------
16,163,926
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTAH 1.9%
$ 1,500 Intermountain Pwr Agy UT Pwr Supply Rev Ser B
Rfdg (MBIA Insd)............................... 5.750% 07/01/19 $ 1,566,525
1,500 Intermountain Pwr Agy UT Rev Ser E Rfdg (FSA
Insd).......................................... 6.000 07/01/06 1,637,295
2,020 Utah St Hsg Fin Agy Single Family Mtg Sr Issue
B3............................................. 7.100 07/01/24 2,131,464
2,250 Utah St Hsg Fin Agy Single Family Ser C2....... 6.000 07/01/15 2,332,327
------------
7,667,611
------------
VIRGINIA 2.1%
8,200 Roanoke, VA Indl Dev Auth Hosp Rev Roanoke Mem
Hosp Carilion Hlth Sys Ser B Rfdg (MBIA Insd)
(c)............................................ 4.70/6.25 07/01/20 8,529,640
------------
WASHINGTON 6.8%
9,850 Bellevue, WA Convention Cent Comp Int Rfdg
(MBIA Insd).................................... * 02/01/25 2,315,440
10,975 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser A Rfdg (MBIA Insd)................ 5.700 07/01/17 11,228,522
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 1 Rev Ser B Rfdg (MBIA Insd)................ 5.600 07/01/15 10,202,500
2,000 Washington St Pub Pwr Supply Sys Nuclear Proj
No 2 Rev Ser A Rfdg (AMBAC Insd)............... 6.000 07/01/08 2,186,960
5,125 Washington St Pub Pwr Supply Sys Nuclear Proj
No 3 Rev Ser C Rfdg (MBIA Insd)................ * 07/01/14 2,148,349
------------
28,081,771
------------
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 8,662,480
------------
WISCONSIN 1.2%
1,000 Madison, WI Indl Dev Rev Madison Gas & Elec Co
Proj Ser A..................................... 6.750 04/01/27 1,069,520
3,500 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser C.......................................... 6.250 09/01/17 3,698,905
------------
4,768,425
------------
WYOMING 0.4%
1,495 Wyoming Cmnty Dev Auth Hsg Rev Ser 2........... 6.350 06/01/29 1,584,057
------------
TOTAL INVESTMENTS 100.7%
(Cost $379,684,098).......................................................... 414,326,328
LIABILITIES IN EXCESS OF OTHER ASSETS (0.7%).................................. (3,047,719)
------------
NET ASSETS 100.0%............................................................. $411,278,609
-----------
</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.
(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
13
<PAGE> 15
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $379,684,098)....................... $414,326,328
Receivables:
Interest.................................................. 6,774,935
Investments Sold.......................................... 1,978,485
Other....................................................... 6,726
------------
Total Assets.......................................... 423,086,474
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 8,152,750
Custodian Bank............................................ 2,691,413
Income Distributions--Common and Preferred Shares......... 371,310
Investment Advisory Fee................................... 221,434
Administrative Fee........................................ 68,133
Affiliates................................................ 15,323
Accrued Expenses............................................ 203,619
Trustees' Deferred Compensation and Retirement Plans........ 83,883
------------
Total Liabilities..................................... 11,807,865
------------
NET ASSETS.................................................. $411,278,609
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 34,642,230
Accumulated Undistributed Net Investment Income............. 1,360,882
Accumulated Net Realized Loss............................... (1,597,790)
------------
Net Assets Applicable to Common Shares................ 261,278,609
------------
NET ASSETS.................................................. $411,278,609
============
NET ASSET VALUE PER COMMON SHARE ($261,278,609 divided
by 15,352,891 shares outstanding)......................... $ 17.02
============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $11,727,019
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,337,783
Administrative Fee.......................................... 411,625
Preferred Share Maintenance................................. 193,483
Custody..................................................... 15,027
Trustees' Fees and Expenses................................. 13,781
Legal....................................................... 7,743
Other....................................................... 117,041
-----------
Total Expenses.......................................... 2,096,483
-----------
NET INVESTMENT INCOME....................................... $ 9,630,536
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 833,989
Futures................................................... (489,921)
-----------
Net Realized Gain........................................... 344,068
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... 34,074,139
End of the Period........................................... 34,642,230
-----------
Net Unrealized Appreciation During the Period............... 568,091
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 912,159
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $10,542,695
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1998 and
the Year Ended October 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 9,630,536 $ 19,243,057
Net Realized Gain/Loss.................................. 344,068 (571,232)
Net Unrealized Appreciation During the Period........... 568,091 13,312,439
------------ ------------
Change in Net Assets from Operations.................... 10,542,695 31,984,264
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (6,908,527) (13,817,017)
Preferred Shares...................................... (2,668,165) (5,359,157)
------------ ------------
Total Distributions..................................... (9,576,692) (19,176,174)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 966,003 12,808,090
NET ASSETS:
Beginning of the Period................................. 410,312,606 397,504,516
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,360,882 and $1,307,038,
respectively)......................................... $411,278,609 $410,312,606
============ ============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 24, 1992
Six Months (Commencement
Ended Year Ended October 31 of Investment
April 30, ------------------------------------------------ Operations) to
1998 1997 1996 1995 1994 1993 October 31, 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period
(a)........................ $ 16.955 $ 16.121 $15.846 $14.389 $17.297 $14.990 $14.771
-------- -------- ------- ------- ------- ------- -------
Net Investment Income...... .627 1.253 1.271 1.275 1.303 1.354 .611
Net Realized and Unrealized
Gain/Loss................ .060 .830 .266 1.584 (2.918) 2.332 .083
-------- -------- ------- ------- ------- ------- -------
Total from Investment
Operations................. .687 2.083 1.537 2.859 (1.615) 3.686 .694
-------- -------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders........... .450 .900 .906 1.012 1.020 1.020 .340
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders........... .174 .349 .356 .390 .273 .282 .135
Distributions from Net
Realized Gains:
Paid to Common
Shareholders........... -0- -0- -0- -0- -0- .057 -0-
Common Share Equivalent
of Distributions Paid
to Preferred
Shareholders........... -0- -0- -0- -0- -0- .020 -0-
-------- -------- ------- ------- ------- ------- -------
Total Distributions......... .624 1.249 1.262 1.402 1.293 1.379 .475
-------- -------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 17.018 $ 16.955 $16.121 $15.846 $14.389 $17.297 $14.990
========= ======== ======= ======= ======= ======= ===========
Market Price Per Share at
End of the Period.......... $ 15.625 $15.0625 $13.750 $13.625 $13.000 $16.375 $14.500
Total Investment Return at
Market Price (b)........... 6.73%* 16.54% 7.72% 12.70% (14.96%) 20.85% (1.16%)*
Total Return at Net Asset
Value (c).................. 3.00%* 11.11% 7.61% 17.74% (11.30%) 23.17% 2.10%*
Net Assets at End of the
Period (In millions)....... $ 411.3 $ 410.3 $ 397.5 $ 393.3 $ 370.9 $ 415.6 $ 380.1
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares**............ 1.59% 1.64% 1.66% 1.75% 1.69% 1.62% 1.54%
Ratio of Net Investment
Income to Average Net
Assets Applicable to Common
Shares (d)................. 5.30% 5.51% 5.73% 5.87% 6.43% 6.51% 5.82%
Portfolio Turnover.......... 14%* 49% 85% 70% 76% 52% 53%*
*Non-Annualized
**Ratio of Expenses to
Average Net Assets
Including Preferred
Shares..................... 1.02% 1.03% 1.03% 1.06% 1.05% 1.02% 1.04%
</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.
See Notes to Financial Statements
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. 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
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 April 30, 1998, for federal income tax purposes, cost of long-term
investments is $379,684,098; the aggregate gross unrealized appreciation is
$34,870,327 and the aggregate gross unrealized depreciation is $228,097
resulting in net unrealized appreciation of $34,642,230.
E. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually 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.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
American Capital Investment Advisory Corp. (the "Adviser") will provide
investment advice and facilities to the Trust for an annual fee payable monthly
of .65% of the average net assets of the Trust. In addition, the Trust will pay
a monthly administrative fee to Van Kampen American Capital Distributors, Inc.
or its affiliates (collectively "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.
For the six months ended April 30, 1998, the Trust recognized expenses of
approximately $4,000 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.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended April 30, 1998, the Trust recognized expenses of
approximately $38,500 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 per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $58,869,486 and $67,081,392,
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 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 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
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended April 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1997.......................... 150
Futures Opened........................................... -0-
Futures Closed........................................... (150)
------
Outstanding at April 30, 1998............................ -0-
======
</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 April 30, 1998 was 3.665%. During the six months ended April
30, 1998, the rates ranged from 3.400% to 3.900%.
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
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
22
<PAGE> 24
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
- visit our web site at WWW.VKAC.COM -- to view prospectuses, select
Investors' Place, then Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place
23
<PAGE> 25
VAN KAMPEN AMERICAN CAPITAL MUNICIPAL OPPORTUNITY TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
24
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