<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 8
Statement of Operations.......................... 9
Statement of Changes in Net Assets............... 10
Financial Highlights............................. 11
Notes to Financial Statements.................... 12
Report of Independent Accountants................ 16
Dividend Reinvestment Plan....................... 17
</TABLE>
VMV 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
our company at the forefront of the
financial industry's evolution. Our
latest announcement continues our [PHOTO]
forward progress. I am pleased to
announce that Philip N. Duff, formerly
the chief financial officer of Morgan DENNIS J. MCDONNELL AND DON G. POWELL
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 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 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.
Continued on page two
1
<PAGE> 3
In Massachusetts, strong economic growth led to the state government's sixth
consecutive annual operating surplus. Brisk job growth in many sectors,
including computer software, mutual funds, and medical research, resulted in a
sharp increase in state tax revenues, which exceeded expectations. At the same
time, the state government continued to restrain spending and debt issuance, and
made significant progress in reducing its unfunded pension liability. As a
result of the Commonwealth's continued economic improvement, the Standard &
Poor's Ratings Group upgraded the ratings of Massachusetts' general obligation
bonds from A+ to AA-.
PORTFOLIO COMPOSITION BY CREDIT QUALITY*
AS OF OCTOBER 31, 1997
<TABLE>
<S> <C>
AAA......................... 60.3%
AA.......................... 7.7%
A........................... 19.0%
BBB......................... 8.1%
B........................... 1.5%
Non-Rated................... 3.4%
</TABLE>
*As a percentage of Long-Term Investments
Based on the highest credit quality rating as issued by standard and Poor's or
Moody's.
TRUST STRATEGY
In managing the Trust, we used the following strategies:
We maintained a portfolio heavily weighted toward high-quality bonds. The
high concentration in AAA-rated securities in the portfolio reflects the
proliferation of insured bonds, which currently comprise well over half of new
issues in the municipal bond market. Bonds rated AAA 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, these bonds tend to outperform lower-rated
securities. Bonds rated BBB, the lowest investment-grade credit rating assigned
by Standard & Poor's, tend to perform better when rates are rising, and have the
potential to provide additional income.
Portfolio turnover during the fiscal year was minimal due to a lack of
opportunities to add value to existing holdings. Supplies of new municipal bond
issues in Massachusetts were limited and 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
most likely have reduced the Trust's dividend-paying ability.
Trading was also restrained by tight spreads between the yields of AAA-rated
bonds and lower-rated securities. These spreads have compressed to historically
narrow levels due to the increasing number of insured bonds in the municipal
market. In this environment, it was difficult to justify purchasing lower-rated
securities and assuming the additional credit risk.
Continued on page three
2
<PAGE> 4
Acquisitions focused on purchasing new high-quality issues with attractive
yields as well as the potential to appreciate quickly in price. These bonds
represented a mix of industry sectors, including preparatory schools, elder
care, and transportation. Once they had posted gains that met our price
objective, the bonds were sold. In addition to these sales, we continued to trim
the Trust's holdings in Saints Memorial Hospital bonds, which had been upgraded
previously. The Trust remains heavily invested in health-care, transportation,
student loan, and general purpose bonds. We continue to hold a positive outlook
on these sectors, although we expect that further consolidation among
health-care facilities will lead to some hospital closures in Massachusetts.
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, the duration of the portfolio
declined slightly due to the market rally, which caused some bonds to trade to
their call dates rather than their maturity dates. Duration, which is expressed
in years, is a measure of a portfolio's sensitivity to interest rate movements.
Portfolios with short durations tend to perform better when interest rates rise,
which occurred during most of the first half of the fiscal year. Conversely,
portfolios with long durations tend to perform better when rates are falling,
which characterized the second half. As of October 31, the duration of the
Trust's bond portfolio stood at 6.96 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.
TOP FIVE PORTFOLIO INDUSTRY HOLDINGS BY SECTOR AS OF OCTOBER 31, 1997*
Health Care....................... 23.2%
Transportation.................... 15.3%
Student Loans..................... 12.1%
General Purpose................... 10.7%
Multi-Family Housing............... 9.6%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Massachusetts Value Municipal Income Trust generated a total return at
market price of 23.97 percent(1). The Trust offered a tax-exempt distribution
rate of 5.38 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 $14.50, a 4.9 percent discount to its net asset value of $15.24.
Because income from the Trust is exempt from federal and Massachusetts income
taxes, this distribution rate represents a yield equivalent to a taxable
investment earning 9.56 percent(4) (for investors in the combined federal and
state income tax bracket of 43.7 percent).
As a result of the Trust's improved earnings, the Board of Trustees approved
a slight increase in its monthly dividend from $0.0600 to $0.0650 per common
share, paid December 31, 1996.
Continued on page four
3
<PAGE> 5
Twelve-month Dividend History
For the Period Ended October 31, 1997
Distribution per Common Share
<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>
Capital Gains
Dividends $.0600 $.0650 $.0650 $.0650 $.0650 $.0650 $.0650 $.0650 $.0650 $.0650 $.0650 $.0650
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
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 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 MASSACHUSETTS
VALUE MUNICIPAL INCOME TRUST
(AMEX TICKER SYMBOL--VMV)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One year total return based on market price(1)............. 23.97%
One year total return based on NAV(2)...................... 10.51%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 5.38%
Taxable-equivalent distribution rate as a % of closing
common stock price(4).................................... 9.56%
SHARE VALUATIONS
Net asset value........................................... $ 15.24
Closing common stock price................................ $ 14.500
One year high common stock price (10/09/97)............... $14.8125
One year low common stock price (12/20/96)................ $ 12.125
Preferred share rate(5)................................... 3.100%
</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 43.7%
combined federal and state income tax bracket, which takes into consideration
the deductibility of individual state taxes paid.
(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 98.1%
MASSACHUSETTS 91.5%
$1,705 Boston, MA Metro Dist Rfdg....................... 6.500% 12/01/13 $ 1,911,441
2,000 Chelsea, MA Sch Proj Ln Act 1948 (AMBAC Insd).... 5.700 06/15/06 2,151,460
1,000 Chelsea, MA Sch Proj Ln Act 1948 (AMBAC Insd).... 6.500 06/15/12 1,106,400
1,325 Holyoke, MA Ser B Rfdg (FSA Insd)................ 6.000 06/15/05 1,443,044
2,400 Lowell, MA (FSA Insd)............................ 6.625 04/01/15 2,698,632
1,500 Lowell, MA (Prerefunded @ 02/15/01).............. 8.300 02/15/05 1,728,510
1,500 Massachusetts Bay Tran Auth MA Genl Tran Sys Ser
B................................................ 5.900 03/01/12 1,586,775
1,000 Massachusetts Edl Ln Auth Edl Ln Rev Issue E Ser
B (AMBAC Insd)................................... 6.250 07/01/11 1,036,420
1,245 Massachusetts Edl Ln Auth Edl Ln Rev Issue E Ser
B (AMBAC Insd)................................... 6.300 07/01/12 1,288,700
925 Massachusetts Muni Wholesale Elec Co Pwr Supply
Sys Rev Ser B (Prerefunded @ 07/01/02)........... 6.750 07/01/17 1,037,304
1,000 Massachusetts Muni Wholesale Elec Co Pwr Supply
Sys Rev Ser C (MBIA Insd)........................ 6.625 07/01/10 1,102,490
500 Massachusetts St Hlth & Edl Fac Auth Rev (FHA
Gtd)............................................. 5.950 02/15/17 517,835
1,000 Massachusetts St Hlth & Edl Fac Auth Rev (MBIA
Insd)............................................ 6.300 08/15/24 1,079,850
1,000 Massachusetts St Hlth & Edl Fac Auth Rev (MBIA
Insd)............................................ 6.750 07/01/24 1,104,180
1,500 Massachusetts St Hlth & Edl Fac Auth Rev Baystate
Med Cent Ser D Rfdg (FGIC Insd).................. 5.000 07/01/12 1,483,005
2,000 Massachusetts St Hlth & Edl Fac Auth Rev Cape Cod
Hlth Ser A3 (Embedded Swap) (Connie Lee Insd).... 5.000 11/15/11 1,946,880
2,500 Massachusetts St Hlth & Edl Fac Auth Rev Faulkner
Hosp Ser C....................................... 6.000 07/01/13 2,564,550
2,000 Massachusetts St Hlth & Edl Fac Auth Rev New
England Med Cent Hosp Ser F (FGIC Insd).......... 6.500 07/01/12 2,181,320
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Newton
Wellesley Hosp Issue Ser E (MBIA Insd)........... 5.875 07/01/15 1,050,150
2,000 Massachusetts St Hlth & Edl Fac Auth Rev North
Shore Med Cent Ser A (MBIA Insd)................. 5.625 07/01/14 2,054,320
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Saint
Mem Med Cent Ser A............................... 6.000 10/01/23 965,570
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Suffolk
Univ Ser C (Connie Lee Insd)..................... 5.750 07/01/26 1,023,130
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Vly Regl
Hlth Sys Ser C Rfdg (Connie Lee Insd)............ 7.000 07/01/10 1,196,350
2,000 Massachusetts St Hsg Fin Agy (FNMA
Collateralized).................................. 6.800 11/15/12 2,151,120
750 Massachusetts St Hsg Fin Agy Rental Mtg Ser D
(AMBAC Insd)..................................... 6.200 07/01/15 793,500
2,500 Massachusetts St Hsg Fin Agy Hsg Rev Insd Rental
Ser A Rfdg (AMBAC Insd).......................... 6.600 07/01/14 2,674,875
</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>
MASSACHUSETTS (CONTINUED)
$1,500 Massachusetts St Indl Fin Agy Rev Edl Dexter Sch
Proj Rfdg (MBIA Insd)............................ 5.550% 05/01/27 $ 1,521,660
500 Massachusetts St Indl Fin Agy Rev First Mtg
Loomis House & Vlg Proj.......................... 7.500 07/01/17 559,395
1,500 Massachusetts St Indl Fin Agy Rev Whitehead Inst
Biomedical Research.............................. 5.125 07/01/26 1,457,115
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.900 12/01/29 1,091,610
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.950 12/01/35 1,089,640
1,000 Massachusetts St Spl Oblig Rev Ser A............. 5.700 06/01/10 1,052,360
3,000 Massachusetts St Tpk Auth Rev Ser A Rfdg......... 5.000 01/01/13 3,004,530
1,500 Massachusetts St Wtr Res Auth Ser A (Prerefunded
@ 12/01/01)...................................... 6.500 12/01/19 1,655,565
1,185 Massachusetts St Wtr Res Auth Ser C Rfdg......... 5.100 12/01/04 1,225,491
2,550 New England Edl Ln Mktg Corp MA Student Ln Rev
Sub Issue G...................................... 6.000 03/01/02 2,641,520
2,500 New England Edl Ln Mktg Corp MA Student Ln Rev
Sub Issue H...................................... 6.900 11/01/09 2,788,175
1,000 South Essex, MA Sewage Dist Ser A Rfdg (MBIA
Insd)............................................ 5.250 06/15/24 987,230
825 Taunton, MA Elec................................. 8.000 02/01/04 970,629
------------
59,922,731
------------
GUAM 1.5%
1,000 Guam Govt Ser A.................................. 5.750 09/01/04 1,012,180
------------
PUERTO RICO 5.1%
2,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser Y
Rfdg (Embedded Cap) (FSA Insd)................... 5.730 07/01/21 2,297,400
365 Puerto Rico Elec Pwr Auth Pwr Rev Ser N.......... 7.000 07/01/07 387,524
635 Puerto Rico Elec Pwr Auth Pwr Rev Ser N
(Prerefunded @ 07/01/99)......................... 7.000 07/01/07 675,088
------------
3,360,012
------------
TOTAL LONG-TERM INVESTMENTS 98.1%
(Cost $59,951,633).......................................................... 64,294,923
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.3%................................ 200,000
------------
TOTAL INVESTMENTS 98.4%
(Cost $60,151,633).......................................................... 64,494,923
------------
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%................................... 1,021,230
------------
NET ASSETS 100.0%............................................................ $65,516,153
============
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $60,151,633)........................ $64,494,923
Cash........................................................ 21,934
Interest Receivable......................................... 1,258,047
Unamortized Organizational Costs............................ 2,466
Other....................................................... 219
-----------
Total Assets.......................................... 65,777,589
-----------
LIABILITIES:
Payables:
Investment Advisory Fee................................... 36,035
Income Distributions--Common and Preferred Shares......... 20,732
Administrative Fee........................................ 11,088
Affiliates................................................ 8,977
Accrued Expenses............................................ 114,212
Trustees' Deferred Compensation and Retirement Plans........ 70,392
-----------
Total Liabilities..................................... 261,436
-----------
NET ASSETS.................................................. $65,516,153
===========
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 500 issued with liquidation preference of $50,000
per share)................................................ $25,000,000
-----------
Common Shares ($.01 par value with an unlimited number of
shares authorized, 2,658,295 shares issued and
outstanding).............................................. 26,583
Paid in Surplus............................................. 38,866,724
Net Unrealized Appreciation................................. 4,343,290
Accumulated Undistributed Net Investment Income............. 366,358
Accumulated Net Realized Loss............................... (3,086,802)
-----------
Net Assets Applicable to Common Shares................ 40,516,153
-----------
NET ASSETS.................................................. $65,516,153
===========
NET ASSET VALUE PER COMMON SHARE ($40,516,153 divided
by 2,658,295 shares outstanding).......................... $ 15.24
===========
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,624,955
----------
EXPENSES:
Investment Advisory Fee..................................... 417,415
Administrative Fee.......................................... 128,435
Preferred Share Maintenance................................. 71,666
Trustees Fees and Expenses.................................. 28,670
Custody..................................................... 6,945
Amortization of Organizational Costs........................ 4,997
Legal....................................................... 4,080
Other....................................................... 103,418
----------
Total Expenses.......................................... 765,626
----------
NET INVESTMENT INCOME....................................... $2,859,329
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (56,229)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 2,421,250
End of the Period......................................... 4,343,290
----------
Net Unrealized Appreciation During the Period............... 1,922,040
----------
NET REALIZED AND UNREALIZED GAIN............................ $1,865,811
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $4,725,140
==========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
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.................................. $ 2,859,329 $ 2,863,444
Net Realized Gain/Loss................................. (56,229) 301,150
Net Unrealized Appreciation During the Period.......... 1,922,040 263,612
----------- -----------
Change in Net Assets from Operations................... 4,725,140 3,428,206
----------- -----------
Distributions from Net Investment Income:
Common Shares........................................ (2,060,064) (1,913,894)
Preferred Shares..................................... (784,911) (777,484)
----------- -----------
Total Distributions.................................... (2,844,975) (2,691,378)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 1,880,165 736,828
NET ASSETS:
Beginning of the Period................................ 63,635,988 62,899,160
----------- -----------
End of the Period (Including accumulated undistributed
net investment income of $366,358 and $352,004,
respectively)........................................ $65,516,153 $63,635,988
=========== ===========
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, 1993
(Commencement
Year Ended October 31, of Investment
---------------------------------------- Operations) to
1997 1996 1995 1994 October 31, 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period (a)......................... $14.534 $14.257 $12.269 $15.470 $14.658
------- ------- ------- ------- -------
Net Investment Income.............. 1.076 1.077 1.078 1.090 .392
Net Realized and Unrealized
Gain/Loss........................ .701 .212 2.013 (3.162) .754
------- ------- ------- ------- -------
Total from Investment Operations..... 1.777 1.289 3.091 (2.072) 1.146
------- ------- ------- ------- -------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders........ .775 .720 .774 .828 .276
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders..................... .295 .292 .329 .227 .058
Distributions from Net Realized
Gain:
Paid to Common Shareholders........ -0- -0- -0- .063 -0-
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders..................... -0- -0- -0- .011 -0-
------- ------- ------- ------- -------
Total Distributions.................. 1.070 1.012 1.103 1.129 .334
------- ------- ------- ------- -------
Net Asset Value, End of the Period... $15.241 $14.534 $14.257 $12.269 $15.470
======= ======= ======= ======= =======
Market Price Per Share at End of the
Period............................. $14.500 $12.375 $12.000 $11.375 $15.375
Total Investment Return at Market
Price (b).......................... 23.97% 9.26% 12.26% (20.95%) 4.38%*
Total Return at Net Asset Value
(c)................................ 10.51% 7.13% 23.19% (15.40%) 5.01%*
Net Assets at End of the Period (In
millions).......................... $65.5 $63.6 $62.9 $57.6 $66.1
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares............................. 1.95% 2.06% 2.17% 2.12% 1.91%
Ratio of Expenses to Average Net
Assets............................. 1.19% 1.24% 1.27% 1.26% 1.40%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d).................. 5.29% 5.49% 5.65% 6.22% 4.45%
Portfolio Turnover................... 8% 12% 65% 108% 35%*
</TABLE>
(a) Net Asset Value at April 30, 1993, is adjusted for common and preferred
share offering costs of $.342 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
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Massachusetts Value Municipal Income Trust (the
"Trust") is registered as a non-diversified closed-end management investment
company under the Investment Company Act of 1940, as amended. The Trust's
investment objective is to seek to provide Common Shareholders with a high level
of current income exempt from federal income taxes and Massachusetts personal
income tax, consistent with preservation of capital. The Trust will invest
substantially all of its assets in Massachusetts municipal securities rated
investment grade at the time of investment. The Trust commenced investment
operations on April 30, 1993.
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. At October 31, 1997, there were no
when issued or delayed delivery purchase commitments.
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.
12
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
D. ORGANIZATIONAL COSTS--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Trust's organization in the amount of $25,000. These costs
are being amortized on a straight line basis over the 60 month period ending
April 29, 1998. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Trust
originally purchased by VKAC are redeemed during the amortization period, the
Trust will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
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 $3,086,802 which will expire between October
31, 2002 and October 31, 2005.
At October 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $60,151,633; the aggregate gross unrealized
appreciation is $4,365,790 and the aggregate gross unrealized depreciation is
$22,500, resulting in net unrealized appreciation of $4,343,290.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays dividends from
net investment income to common shareholders monthly. Net realized gains, if
any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
For the year ended October 31, 1997, 99.9% 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
13
<PAGE> 15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $1,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of
the Trust is an affiliated person.
For the year ended October 31, 1997, the Trust recognized expenses of
approximately $39,200 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 trustee's annual retainer fee, which is
currently $2,500.
At October 31, 1997, VKAC owned 6,700 common shares of the Trust.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $5,008,405 and $4,935,298, 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 utilizes Indexed Securities, a type of derivative, as a hedge
against a rise in the short-term interest rate paid on the Trust's preferred
shares. 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 on investments. Upon disposition, a
realized gain or loss is recognized accordingly. The price of these Indexed
14
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
Securities, which are identified in the portfolio of investments, may be more
volatile than the price of a comparable fixed rate security.
A. An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level.
B. An Embedded Swap security includes a swap component such that the fixed
coupon component of the underlying bond is adjusted by the difference between
the security's fixed swap rate and the floating swap index.
5. PREFERRED SHARES
The Trust has outstanding 500 Auction Preferred Shares ("APS"). Dividends are
cumulative and the dividend rate is currently reset every seven days through an
auction process. The rate in effect on October 31, 1997 was 3.100%. During the
year ended October 31, 1997, the rates ranged from 2.00% to 4.15%.
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.
15
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Massachusetts Value Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Massachusetts Value Municipal Income 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. 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 Massachusetts Value Municipal Income 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
16
<PAGE> 18
DIVIDEND REINVESTMENT PLAN
The Trust offers a dividend reinvestment plan (the "Plan") pursuant to which
Common Shareholders may elect to have dividends and capital gains distributions
reinvested in Common Shares of the Trust. The Trust declares dividends out of
net investment income, and will distribute annually net realized capital gains,
if any. Common Shareholders may join or withdraw from the Plan at any time.
If you decide to participate in the Plan, State Street Bank and Trust
Company, as your Plan Agent, will automatically invest your dividends and
capital gains distributions in Common Shares of the Trust for your account.
HOW TO PARTICIPATE
If you wish to participate and your shares are held in your own name, call
1-800-341-2929 for more information and a Plan brochure. If your shares are held
in the name of a brokerage firm, bank, or other nominee, you should contact your
nominee to see if it would participate in the Plan on your behalf. If you wish
to participate in the Plan, but your brokerage firm, bank or nominee is unable
to participate on your behalf, you should request that your shares be re-
registered in your own name which will enable your participation in the Plan.
HOW THE PLAN WORKS
Participants in the Plan will receive the equivalent in Common Shares valued on
the valuation date, generally at the lower of market price or net asset value,
except as specified below. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the national
securities exchange or market system on which the Common Shares are listed for
trading, the next preceding trading day. If the market price per Common Share on
the valuation date equals or exceeds net asset value per Common Share on that
date, the Trust will issue new Common Shares to participants valued at the
higher of net asset value or 95% of the market price on the valuation date. In
the foregoing situation, the Trust will not issue Common Shares under the Plan
below net asset value. If net asset value per Common Share on the valuation date
exceeds the market price per Common Share on that date, or if the Board of
Trustees should declare a dividend or capital gains distribution payable to the
Common Shareholders only in cash, participants in the Plan will be deemed to
have elected to receive Common Shares from the Trust valued at the market price
on that date. Accordingly, in this circumstance, the Plan Agent will, as agent
for the participants, buy the Trust's Common Shares in the open market for the
participants' accounts on or shortly after the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share of the Common Shares, the average per share purchase price paid by the
Plan Agent may exceed the net asset value of the Trust's Common Shares,
resulting in the acquisition of fewer Common Shares than if the dividend or
distribution had been paid in Common Shares issued by the Trust. All
reinvestments are in full and fractional Common Shares and are carried to three
decimal places.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
changes sent to all Common Shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent by at least 90 days written notice to all Common
Shareholders of the Trust.
COSTS OF THE PLAN
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
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
17
<PAGE> 19
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley funds.
18
<PAGE> 20
VAN KAMPEN AMERICAN CAPITAL MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
DENNIS J. MCDONNELL*--Chairman
THEODORE A. MYERS
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND
TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
19
<PAGE> 21
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,
2,282,630 shares voted for the proposal, 28,887 shares voted against, 41,472
shares abstained and 0 shares represented broker non-votes.
2) With regard to the election of the following Trustees:
<TABLE>
<CAPTION>
# OF SHARES
-------------------------
IN FAVOR ABSTAINED
- -------------------------------------------------------------------------
<S> <C> <C>
David C. Arch................................. 2,329,509 22,980
Howard J Kerr................................. 2,330,426 22,063
Dennis J. McDonnell........................... 2,330,509 21,980
</TABLE>
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the Trust, 2,316,871 shares voted for the proposal, 8,809
shares voted against, 27,309 shares abstained and 0 shares represented broker
non-votes.
20
