<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio of Investments......................... 5
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 17
Report of Independent Accountants................ 22
Dividend Reinvestment Plan....................... 23
</TABLE>
VKV ANR 12/96
<PAGE> 2
LETTER TO SHAREHOLDERS
December 10, 1996
Dear Shareholder,
The first ten months of 1996 have
been a mixed experience for most
municipal bond fund investors. The
continuation of the 1995 rally at the
beginning of this year was thwarted
early on as the economy gained
momentum, causing the bond market to [photo]
sell off. But by the second half of the
year, the pattern reversed. Growth
slowed and bonds recovered much of DENNIS J. MCDONNELL AND DON G. POWELL
their earlier losses.
This kind of volatility is not
unusual, but it is difficult to predict and serves as a reminder to investors to
maintain their long-term outlook. Bailing out during price declines and
re-entering after market rebounds is often a losing strategy. We believe it is
time in the market, not timing the market, that potentially maximizes long-term
investment gains.
Additionally, we believe our recent acquisition by Morgan Stanley Group Inc.
will further help investors achieve their long-term goals. Morgan Stanley's
strong global presence and commitment to superior investment performance
complement our broad range of investment products, money management
capabilities, and high level of service that we currently offer.
ECONOMIC OVERVIEW
The economy has grown at a moderate pace this year, despite the second
quarter's 4.7 percent surge. By the third quarter, growth slowed to 2.0 percent,
near the level that prevailed early in the year. This moderation of economic
activity, coupled with continued low inflation, eased fears of an interest rate
hike by the Federal Reserve Board--fears that had dominated the market in early
summer and pushed long-term bond yields above 7.0 percent.
Once the market realized that the economy's pace had slowed, bond prices
rose from their 1996 lows and yields fell as they moved in the opposite
direction of bond prices. By the end of October, the 30-year Treasury bond yield
was near 6.5 percent.
During this recovery, municipal bonds rebounded even more than Treasuries,
due to a steady demand that outpaced supply. It is expected that on a nationwide
basis there will be little or no increase in the total number of municipal bonds
outstanding this year. The volume of new issues is expected to almost equal the
volume of bonds that were redeemed or called.
Continued on page two
1
<PAGE> 3
[pie chart]
PORTFOLIO COMPOSITION BY CREDIT QUALITY AS OF OCTOBER 31, 1996
<TABLE>
<S> <C>
AAA 63.8%
AA 7.4%
A 5.2%
BBB 16.9%
BB 6.2%
Non-Rated 0.5%
</TABLE>
Based upon credit quality ratings issued by Standard & Poor's. For securities
not rated by Standard & Poor's, the Moody's rating is used
PERFORMANCE SUMMARY
Many closed-end municipal bond funds, such as this one, are currently
offering higher after-tax yields than taxable income alternatives. The Trust
generated a tax-exempt distribution of 6.55 percent(3), based on the closing
stock price of $12.375 per common share as of October 31, 1996. For shareholders
in the federal income tax bracket of 36 percent, this distribution rate is
equivalent to a yield of 10.23 percent(4) on a taxable investment.
The Trust's one-year total return was 3.7 percent(1), including reinvestment
of all dividends, reflecting a 2.9 percent decrease in market price for the
period ended October 31, 1996.
Top Five Portfolio Holdings by Industry as of October 31, 1996
Health Care....................... 18.1%
Industrial Revenue................ 12.0%
Higher Education.................. 11.2%
Water & Sewer...................... 8.2%
Public Building.................... 7.9%
ECONOMIC OUTLOOK
We believe Fed policy will remain unchanged through the end of the year. We
look for the long Treasury bond to trade within a range of 6.25 and 6.75 percent
and the 5-year Treasury to trade between 5.75 percent and 6.25 percent for the
remainder of 1996. After that, interest rates could rise moderately if the
economy rebounds to a 3.0 percent annual growth rate and inflation edges higher.
Based upon this view of moderate growth and slightly higher inflation, we
believe the outlook for fixed-income markets remains positive.
Relatively stable interest rates early next year would be favorable for the
leveraged structure of our closed-end funds, which involves borrowing short-term
funds to purchase long-term municipal securities. Depending on the difference
between long-term and short-term market rates, this structure provides
opportunities for additional earnings over time.
Continued on page three
2
<PAGE> 4
The leveraged capital structure of the Trust continues to provide common
shareholders with above-market levels of dividend income. It should be noted,
however, that the rise in short-term rates would have an unfavorable effect on
common share performance.
The bond market should find continued support from the results of the recent
national elections. With a Democratic president and a Republican Congress, there
should be checks on potential spending increases and tax cuts so the budget
deficit does not balloon out of control. This split government should also help
minimize chances of major tax reform, which would likely affect investment
markets, including municipal bonds.
The stock market is another factor that could influence the performance of
the bond market in the coming year. If stocks suffer a protracted setback, the
demand for bonds, including municipals, could increase.
We will closely monitor any new developments in Washington and in the
financial markets in order to evaluate their potential impact on the Trust. We
believe that in the coming year, the municipal market will continue to be an
attractive investment choice for investors seeking high current income. Thank
you for your continued confidence in your investment with Van Kampen American
Capital and for the privilege of working with you to help you achieve your
financial goals.
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.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VKV)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............. 3.70%
One-year total return based on NAV(2)...................... 6.87%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................. 6.55%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)...................................... 10.23%
SHARE VALUATIONS
Net asset value............................................ $ 14.50
Closing common stock price................................. $12.375
One-year high common stock price (02/23/96)................ $13.375
One-year low common stock price (06/27/96)................. $11.500
Preferred share (Series A) rate(5)......................... 3.340%
Preferred share (Series B) rate(5)......................... 3.390%
Preferred share (Series C) rate(5)......................... 3.400%
Preferred share (Series D) rate(5)......................... 3.450%
Preferred share (Series E) rate(5)......................... 3.470%
</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.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS
ALABAMA 2.5%
$ 3,815 Alabama Agricultural & Mechanical Univ Rev (MBIA
Insd)............................................ 6.500% 11/01/25 $ 4,174,030
5,000 Birmingham Baptist Med Cent AL Spl Care Fac Fin
Auth Rev (MBIA Insd)............................. 5.750 11/15/10 5,122,150
2,650 Huntsville, AL Hlthcare Auth Hlthcare Fac Rev Ser
A
(MBIA Insd)...................................... 6.375 06/01/22 2,808,470
2,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg.................. 6.950 01/01/20 2,122,500
-----------
14,227,150
-----------
ALASKA 0.2%
1,000 North Slope Borough, AK Ser B (FSA Insd)......... 7.500 06/30/01 1,123,580
-----------
ARIZONA 1.0%
5,005 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 5,554,099
-----------
CALIFORNIA 9.8%
1,000 California Hsg Fin Agy Rev Home Mtg Ser B1....... 6.300 08/01/08 1,040,500
1,735 California Rural Home Mtg Fin Auth Single Family
Mtg Rev Ser B (GNMA Collateralized).............. 7.750 09/01/26 1,971,550
1,500 California St Pub Wks Brd Lease Rev Dept of
Corrections Monterey Ser A (MBIA Insd)........... 6.400 11/01/10 1,623,645
6,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.250 12/01/13 5,903,400
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.000 12/01/19 1,868,820
1,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev
Ser A............................................ 6.500 01/01/32 1,031,780
2,000 Fresno, CA Hlth Fac Rev Holy Cross Hlth Sys Saint
Agnes Med (MBIA Insd)............................ 6.625 06/01//21 2,168,020
1,250 Kings Cnty, CA Waste Mgmt Auth Solid Waste Rev... 7.200 10/01/14 1,359,413
9,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
Crossover Rfdg (FGIC Insd)....................... 5.375 09/01/23 9,046,090
12,500 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd)................................ 5.125 12/01/23 11,272,625
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/06 5,383,150
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 5.600 06/01/07 1,045,700
2,995 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/08 3,232,533
5,700 Sacramento, CA City Fin Auth Rev Comb Proj B
(MBIA Insd)...................................... * 11/01/15 1,931,331
3,250 San Marcos, CA Pub Fac Auth Rev Pub Impt Civic
Cent Ser A Rfdg.................................. 6.200 08/01/22 3,253,510
4,000 University of CA Rev Multi-Purp Proj Ser C Rfdg
(AMBAC Insd)..................................... 5.000 09/01/23 3,604,520
-----------
55,736,587
-----------
</TABLE>
See Notes to Financial Statements
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO 5.3%
$ 5,640 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser C
(MBIA Insd)...................................... 5.750% 12/01/08 $ 5,928,373
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B................................. 6.950 08/31/20 1,080,880
3,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B................................. 7.000 08/31/26 3,255,240
9,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C................................. * 08/31/26 1,058,940
1,750 Denver, CO City & Cnty Arpt Rev Ser A............ 6.900 11/15/98 1,833,685
1,250 Denver, CO City & Cnty Arpt Rev Ser A............ 8.875 11/15/12 1,488,100
3,095 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 3,547,768
3,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)............................................ 6.250 11/15/07 3,222,810
6,000 Denver, CO City & Cnty Arpt Rev Ser C............ 6.600 11/15/04 6,415,140
2,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg.............................. 7,500 12/01/11 2,202,000
-----------
30,032,936
-----------
CONNECTICUT 0.5%
2,500 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford............................ 7.125 11/01/14 2,842,225
-----------
FLORIDA 4.9%
1,985 Bay Cnty, FL Sch Brd Ctfs Partn (AMBAC Insd)..... 6.750 07/01/12 2,218,158
3,500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd)................................ 6.500 08/15/12 3,797,675
1,425 Florida Hsg Fin Agy Single Family Mtg Ser A Rfdg
(GNMA Collateralized)............................ 6.650 01/01/24 1,470,500
3,000 Hillsborough Cnty, FL Cap Impt Pgm Rev Criminal
Justice Fac Rfdg (FGIC Insd)..................... 5.250 08/01/16 2,876,940
3,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 3,494,370
2,945 Hillsborough Cnty, FL Sch Brd Ctfs Partn (MBIA
Insd)............................................ 6.000 07/01/12 3,064,096
1,300 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (MBIA Insd)............. 7.300 06/01/19 1,412,775
4,000 Orlando, FL Util Comm Wtr & Elec Rev Ser A
(Prerefunded @ 10/01/01)......................... 6.500 10/01/20 4,431,240
5,000 Pinellas Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi-Cnty Pgm Ser A (GNMA Collateralized)... 6.700 02/01/28 5,152,150
-----------
27,917,904
-----------
GEORGIA 1.9%
3,000 Burke Cnty, GA Dev Auth Pollutn Ctl Rev GA Pwr Co
Plant Vogtle Proj (MBIA Insd).................... 6.350 05/01/19 3,108,690
5,000 Georgia Muni Elec Auth Pwr Rev Ser B Rfdg (FGIC
Insd)............................................ 5.700 01/01/19 5,104,200
2,700 Marietta, GA Dev Auth Rev 1st Mtg Life Coll Ser B
(FSA Insd)....................................... 5.375 09/01/09 2,689,875
-----------
10,902,765
-----------
</TABLE>
See Notes to Financial Statements
6
<PAGE> 8
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
HAWAII 0.4%
$ 2,250 Hawaii St Arpt Sys Rev 3rd Ser Rfdg (AMBAC
Insd)............................................ 5.750% 07/01/09 $ 2,293,245
-----------
ILLINOIS 4.2%
3,500 Chicago, IL Cap Apprec (AMBAC Insd).............. * 01/01/17 978,915
1,000 Chicago, IL Park Dist............................ 6.700 01/01/11 1,089,340
5,000 Chicago, IL Wtr Rev (FGIC Insd).................. 5.000 11/01/20 4,542,300
1,560 Illinois Hlth Fac Auth Rev Carle Fndtn Ser A Rfdg
(FGIC Insd)...................................... 6.750 01/01/10 1,677,733
3,000 Illinois Hlth Fac Auth Rev Children's Mem Hosp
(MBIA Insd)...................................... 6.250 08/15/13 3,220,320
2,250 Illinois Hlth Fac Auth Rev Evangelical Hosp Ser A
Rfdg
(FSA Insd)....................................... 6.750 04/15/17 2,457,292
1,250 Illinois Hlth Fac Auth Rev Evangelical Hosp Ser C
(FSA Insd)....................................... 6.750 04/15/17 1,365,163
2,070 Northern IL Univ Ctfs Partn Hoffman Estates Cent
Proj (Cap Guar Insd)............................. 5.400 09/01/16 2,019,409
5,000 Regional Tran Auth IL Ser A (AMC Insd)........... 8.000 06/01/17 6,495,200
-----------
23,845,672
-----------
INDIANA 0.9%
12,750 Indiana Tran Fin Auth Hwy Rev Cap Apprec Ser A
(AMBAC Insd)..................................... * 06/01/17 3,806,385
5,500 Indiana Tran Fin Auth Hwy Rev Cap Apprec Ser A
(AMBAC Insd)..................................... * 06/01/18 1,548,305
-----------
5,354,690
-----------
KENTUCKY 2.7%
9,900 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj
Ser A............................................ 7.500 02/01/12 10,647,153
3,500 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj
Ser A............................................ 7.500 02/01/20 3,764,145
1,000 Mount Sterling, KY Lease Rev KY League Cities Ser
B................................................ 6.100 03/01/18 1,028,300
-----------
15,439,598
-----------
LOUISIANA 1.1%
6,000 Saint Charles Parish, LA Solid Waste Disp Rev LA
Pwr & Lt Co Proj (FSA Insd)...................... 7.050 04/01/22 6,551,940
-----------
MAINE 0.9%
3,000 Maine Edl Ln Marketing Corp Student Ln Rev Ser
A4............................................... 5.950 11/01/03 3,137,760
2,000 Maine St Hsg Auth Mtg Purp Ser C2................ 6.875 11/15/23 2,082,280
-----------
5,220,040
-----------
MARYLAND 2.8%
7,400 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm 7th Ser.................... 7.300 04/01/25 7,827,498
8,700 Maryland St Hlth & Higher Edl Fac Auth Rev (FGIC
Insd)............................................ 5.000 07/01/20 7,971,462
-----------
15,798,960
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MASSACHUSETTS 4.0%
$ 2,000 Massachusetts St Hlth & Edl Fac Auth Rev (AMBAC
Insd)............................................ 7.100% 07/01/21 $ 2,215,500
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Brigham
& Womens Hosp Ser C.............................. 7.125 06/01/09 1,072,860
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.750 12/01/20 1,019,620
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.900 12/01/29 1,019,470
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.950 12/01/35 1,019,420
14,500 Massachusetts St Wtr Res Auth Ser A (Prerefunded
@ 12/01/01)...................................... 6.500 12/01/19 16,073,685
-----------
22,420,555
-----------
MICHIGAN 2.8%
1,250 Battle Creek, MI Downtown Dev Auth Tax Increment
Rev.............................................. 7.600 05/01/16 1,400,337
5,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Projs Ser C1....................... 6.250 07/01/25 5,101,200
2,750 Detroit, MI Ser B Rfdg........................... 7.000 04/01/04 2,993,045
4,000 Michigan St Bldg Auth Rev Ser I Rfdg (MBIA
Insd)............................................ 6.250 10/01/20 4,178,600
2,000 Michigan St Hosp Fin Auth Rev Hosp Port Huron
Hosp Oblig Rfdg (FSA Insd)....................... 5.375 07/01/12 1,955,340
-----------
15,628,522
-----------
MISSISSIPPI 0.3%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res
Inc Rfdg......................................... 7.300 05/01/25 1,572,855
-----------
MISSOURI 0.4%
2,395 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A....................................... 5.750 10/01/03 2,464,982
-----------
NEVADA 2.9%
5,750 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj C Rfdg
(AMBAC Insd)..................................... 7.200 10/01/22 6,535,277
7,205 Clark Cnty, NV Passenger Fac Las Vegas Macarran
Intl Arpt (MBIA Insd)............................ 5.750 07/01/23 7,112,416
2,675 Nevada Hsg Division Single Family Pgm Mezzanine
Ser B............................................ 6.550 10/01/12 2,766,619
-----------
16,414,312
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY 3.2%
$ 1,000 Bordentown, NJ Swr Auth Rev Ser C (MBIA Insd).... 6.800% 12/01/25 $ 1,098,990
1,000 New Jersey Econ Dev Auth Econ Dev Rev Manahawkin
Convalescent Ser A Rfdg (FHA Gtd)................ 6.650 08/01/18 1,041,720
2,500 New Jersey Econ Dev Auth Mkt Transition Fac Rev
Sr Lien Ser A (MBIA Insd)........................ 5.800 07/01/09 2,572,050
1,695 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.000 07/01/06 1,825,566
2,500 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.750 07/01/19 2,771,750
2,250 New Jersey St Edl Fac Auth Rev Glassboro St
College Ser A (MBIA Insd)........................ 6.700 07/01/21 2,451,352
6,750 Salem Cnty, NJ Indl Pollutn Ctl Fin Auth Rev
Pollutn Ctl Pub Svc Elec & Gas Ser A (MBIA
Insd)............................................ 5.450 02/01/32 6,391,440
-----------
18,152,868
-----------
NEW YORK 12.0%
2,575 New York City Muni Wtr Fin Auth Ser A (FSA
Insd)............................................ 5.375 06/15/26 2,475,347
2,070 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A............................................ 7.000 06/15/09 2,279,132
2,105 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A (Prerefunded @ 06/15/01)................... 7.000 06/15/09 2,338,950
7,270 New York City Ser A Rfdg......................... 7.000 08/01/04 7,944,947
5,700 New York City Ser E Rfdg......................... 6.600 08/01/03 6,078,708
5,000 New York City Ser G.............................. 5.750 02/01/14 4,793,750
2,000 New York St Dorm Auth Rev City Univ 3rd Genl
Resources Ser 2 (MBIA Insd)...................... 6.250 07/01/19 2,090,720
7,575 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 7,398,351
4,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.250 05/15/21 3,577,080
2,500 New York St Dorm Auth Rev Dept of Hlth........... 5.500 07/01/25 2,328,100
4,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg (AMBAC Insd)................................ 5.500 05/15/09 4,103,880
5,215 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.375 05/15/14 5,705,836
5,885 New York St Energy Research & Dev Auth Fac Rev... 7.125 12/01/29 6,621,096
2,310 New York St Med Care Fac Fin Agy Rev Saint
Peter's Hosp Proj Ser A (AMBAC Insd)............. 5.375 11/01/13 2,257,193
3,130 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg....................................... 5.500 01/01/16 2,924,171
5,000 New York St Urban Dev Corp Rev St Fac Rfdg....... 5.700 04/01/20 4,907,850
-----------
67,825,111
-----------
NORTH CAROLINA 2.2%
5,000 North Carolina Med Care Comm Cap Apprec Duke Univ
Hosp Ser C....................................... 5.250 06/01/21 4,764,450
7,935 North Carolina Muni Pwr Agy No 1 Catawba Elec Rev
Ser A Rfdg (AMBAC Insd).......................... 5.375 01/01/20 7,659,338
-----------
12,423,788
-----------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NORTH DAKOTA 0.4%
$ 2,000 Ward Cnty, ND Hlthcare Fac Rev Saint Joseph Hosp
Corp Proj........................................ 8.875% 11/15/24 $ 2,192,500
-----------
OHIO 4.3%
2,110 Cleveland Rock Glen Hsg Assistance Corp OH Mtg
Rev Ser A Rfdg (FHA Gtd)......................... 6.750 01/15/25 2,211,343
2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg Dale Brdg
Apt (GNMA Collateralized)........................ 6.600 10/20/30 2,079,080
3,345 Franklin Cnty, OH Hosp Rev & Impt Doctors Hosp
Proj Rfdg........................................ 5.875 12/01/23 3,269,470
5,515 Lucas Cnty, OH Hosp Rev Promedica Hlthcare Oblig
(MBIA Insd)...................................... 6.000 11/15/06 5,916,768
3,610 Miami Cnty, OH Hosp Fac Rev Upper Vly Med Cent
Ser C Rfdg & Impt................................ 5.600 05/15/02 3,644,078
5,130 Muskingum Cnty, OH Hosp Fac Rev Bethesda Care Sys
Rfdg & Impt (Connie Lee Insd).................... 6.250 12/01/10 5,503,618
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev OH
Edison Co Proj Rfdg.............................. 5.950 05/15/29 1,910,220
-----------
24,534,577
-----------
OKLAHOMA 1.9%
10,000 Tulsa, OK Muni Arpt Tran Rev American Airls
Inc (b).......................................... 7.375 12/01/20 10,640,400
-----------
OREGON 1.7%
6,000 Oregon Hlth Sciences Univ Rev Ser B (MBIA
Insd)............................................ 5.250 07/01/28 5,736,780
3,795 Oregon St Dept Admin Serv Ctfs Partn Ser A (MBIA
Insd)............................................ 5.250 11/01/10 3,756,101
-----------
9,492,881
-----------
PENNSYLVANIA 5.2%
3,730 Delaware Cnty, PA Auth Hlthcare Rev Mercy Hlth
Corp of Southeastn PA Ser A Rfdg (Connie Lee
Insd)............................................ 5.375 11/15/23 3,522,090
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
43............................................... 7.500 10/01/25 1,053,500
3,000 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/01)........ 7.250 03/01/11 3,365,070
9,450 Philadelphia, PA Gas Wks Rev 14th Ser (FSA
Insd)............................................ 6.250 07/01/08 10,124,163
2,525 Philadelphia, PA Gas Wks Rev 14th Ser Rfdg (FSA
Insd)............................................ 6.375 07/01/26 2,681,702
3,000 Philadelphia, PA Hosp & Higher Edl Fac Auth Hosp
Rev (MBIA Insd).................................. 5.000 02/15/21 2,701,740
800 Philadelphia, PA Hosp & Higher Edl Fac Auth Rev
Cmnty College Ser A (MBIA Insd).................. 6.100 05/01/09 849,680
1,370 Philadelphia, PA Hosp & Higher Edl Fac Auth Rev
Cmnty College Ser B Rfdg (MBIA Insd)............. 6.500 05/01/08 1,534,701
3,500 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser
A................................................ 6.000 12/01/05 3,524,360
-----------
29,357,006
-----------
RHODE ISLAND 0.2%
1,050 Rhode Island St Hlth & Edl Bldg Corp Rev Higher
Edl Fac Roger Williams (Connie Lee Insd)......... 7.200 11/15/14 1,180,095
-----------
SOUTH CAROLINA 0.4%
2,240 Marion Cnty, SC Hosp Dist (Connie Lee Insd)...... 5.500 11/01/10 2,247,347
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TENNESSEE 1.7%
$ 2,250 Tennessee Hsg Dev Agy Homeownership Proj T....... 7.375% 07/01/23 $ 2,349,922
3,000 Tennessee Hsg Dev Agy Mtg Fin Ser A.............. 7.125 07/01/26 3,153,480
4,000 Tennessee St Sch Bond Auth Higher Edl Fac Ser A
(MBIA Insd)...................................... 5.500 05/01/26 3,922,760
-----------
9,426,162
-----------
TEXAS 3.6%
9,065 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc
Proj (b)......................................... 7.500 12/01/29 9,665,556
2,250 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Hermann Hosp Proj (MBIA Insd).................... 6.375 10/01/24 2,379,848
5,000 Harris Cnty, TX Toll Rd Sr Lien Rfdg (FGIC
Insd)............................................ 5.000 08/15/16 4,640,650
1,275 Matagorda Cnty, TX Navig Dist No 1 Rev Houston Lt
& Pwr Ser A Rfdg (AMC Insd)...................... 6.700 03/01/27 1,396,431
2,250 Tomball, TX Hosp Auth Rev Rfdg................... 6.125 07/01/23 2,165,535
-----------
20,248,020
-----------
UTAH 0.3%
4,950 Intermountain Pwr Agy UT Pwr Supply Rev Ser A
Rfdg (FGIC Insd)................................. * 07/01/17 1,464,656
-----------
VIRGINIA 1.6%
2,250 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Inverse Fltg) (FGIC Insd)....................... 6.600 08/15/23 2,387,498
3,000 Isle Wight Cnty, VA Indl Dev Auth Solid Waste
Disposal Fac Rev Union Camp Corp Proj............ 6.550 04/01/24 3,166,890
2,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)........... 6.900 03/01/19 2,242,160
1,500 Virginia St Hsg Dev Auth Multi-Family Ser E
Rfdg............................................. 5.900 11/01/17 1,516,680
-----------
9,313,228
-----------
WASHINGTON 2.6%
4,000 Washington St Pub Pwr Supply Ser A Rfdg (FGIC
Insd)............................................ 7.000 07/01/08 4,585,680
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev (AMC Insd)................................. 5.700 07/01/09 10,097,600
-----------
14,683,280
-----------
WEST VIRGINIA 2.5%
5,920 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp Rev
West PA Pwr Co Ser C (AMC Insd).................. 6.750 08/01/24 6,524,136
4,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 4,443,040
3,000 West Virginia St Wtr Dev Auth Wtr Dev Rev Ln Prog
II Ser A (Prerefunded @ 11/01/04) (FSA Insd)..... 6.750 11/01/33 3,435,630
-----------
14,402,806
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN 1.9%
$ 3,500 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 6.450% 03/01/17 $ 3,613,470
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Children's
Hosp (Embedded Cap) (FGIC Insd).................. 5.000 08/15/10 4,769,600
2,360 Wisconsin St Hlth & Edl Fac Waukesha Mem Hosp Ser
A (AMC Insd)..................................... 5.000 08/15/09 2,258,709
------------
10,641,779
------------
PUERTO RICO 3.2%
7,000 Puerto Rico Comwlth Hwy & Tran Ser Y (Embedded
Cap) (FSA Insd).................................. 5.730 07/01/21 7,668,570
10,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Rfdg Ser M (MBIA Insd)........................... 5.600 07/01/08 10,428,600
------------
18,097,170
------------
TOTAL LONG-TERM INVESTMENTS 98.4%
(Cost $531,006,133) (a)...................................................... 557,666,291
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%.................................... 8,797,144
------------
NET ASSETS 100.0%............................................................. $566,463,435
------------
</TABLE>
*Zero coupon bond
(a) At October 31, 1996, cost for federal income tax purposes is $531,006,133;
the aggregate gross unrealized appreciation is $27,230,574 and the aggregate
gross unrealized depreciation is $570,416, resulting in net unrealized
appreciation of $26,660,158.
(b) Assets segregated as collateral for open option and open futures
transactions.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $531,006,133) (Note 1)............... $557,666,291
Interest Receivable..................................................... 10,293,214
Options at Market Value (Net premiums paid of $288,110) (Note 4)........ 26,298
Unamortized Organizational Expenses (Note 1)............................ 11,166
Other................................................................... 8,153
------------
Total Assets...................................................... 568,005,122
------------
LIABILITIES:
Payables:
Custodian Bank........................................................ 406,738
Income Distributions--Common and Preferred Shares..................... 348,733
Investment Advisory Fee (Note 2)...................................... 310,367
Administrative Fee (Note 2)........................................... 95,498
Variation Margin on Futures (Note 4).................................. 52,813
Affiliates (Note 2)................................................... 4,079
Accrued Expenses........................................................ 274,633
Deferred Compensation and Retirement Plans (Note 2)..................... 48,826
------------
Total Liabilities................................................. 1,541,687
------------
NET ASSETS.............................................................. $566,463,435
------------
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000 shares, 4,500
issued with liquidation preference of $50,000 per share) (Note 5)..... $225,000,000
------------
Common Shares ($.01 par value with an unlimited number of shares
authorized, 23,555,115 shares issued and outstanding)................. 235,551
Paid in Surplus......................................................... 348,118,080
Net Unrealized Appreciation on Securities............................... 25,714,797
Accumulated Undistributed Net Investment Income......................... 1,664,470
Accumulated Net Realized Loss on Securities............................. (34,269,463)
------------
Net Assets Applicable to Common Shares............................ 341,463,435
------------
NET ASSETS.............................................................. $566,463,435
------------
NET ASSET VALUE PER COMMON SHARE ($341,463,435 divided
by 23,555,115 shares outstanding)..................................... $ 14.50
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................. $33,489,602
-----------
EXPENSES:
Investment Advisory Fee (Note 2)......................................... 3,658,334
Administrative Fee (Note 2).............................................. 1,125,642
Preferred Share Maintenance (Note 5)..................................... 651,749
Legal (Note 2)........................................................... 53,070
Trustees Fees and Expenses (Note 2)...................................... 23,834
Amortization of Organizational Expenses (Note 1)......................... 8,019
Other.................................................................... 447,064
-----------
Total Expenses....................................................... 5,967,712
-----------
NET INVESTMENT INCOME.................................................... $27,521,890
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments............................................................ $ 1,943,969
Options................................................................ (592,273)
Futures................................................................ (818,639)
-----------
Net Realized Gain on Securities.......................................... 533,057
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period................................................ 23,170,303
-----------
End of the Period:
Investments.......................................................... 26,660,158
Options.............................................................. (261,812)
Futures.............................................................. (683,549)
-----------
25,714,797
-----------
Net Unrealized Appreciation on Securities During the Period.............. 2,544,494
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES........................... $ 3,077,551
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS............................... $30,599,441
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1996 October 31, 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 27,521,890 $ 27,860,675
Net Realized Gain/Loss on Securities.............. 533,057 (24,781,547)
Net Unrealized Appreciation on Securities
During the Period............................... 2,544,494 61,794,014
------------ ------------
Change in Net Assets from Operations.............. 30,599,441 64,873,142
------------ ------------
Distributions from Net Investment Income:
Common Shares................................... (19,526,930) (21,482,127)
Preferred Shares................................ (8,000,204) (8,891,837)
------------ ------------
Total Distributions............................... (27,527,134) (30,373,964)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 3,072,307 34,499,178
NET ASSETS:
Beginning of the Period........................... 563,391,128 528,891,950
------------ ------------
End of the Period (Including undistributed net
investment income of $1,664,470 and $1,669,714,
respectively)................................... $566,463,435 $563,391,128
------------ ------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 26, 1993
(Commencement
Year Ended October 31, of Investment
-------------------------------- Operations) to
1996 1995 1994 October 31, 1993
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of the Period (a).......... $14.366 $12.901 $16.427 $14.789
------- ------- ------- -------
Net Investment Income................ 1.168 1.183 1.177 .639
Net Realized and Unrealized Gain/Loss
on Securities...................... .131 1.571 (3.340) 1.487
------- ------- ------- -------
Total from Investment Operations....... 1.299 2.754 (2.163) 2.126
------- ------- ------- -------
Less:
Distributions from Net Investment
Income:
Paid to Common Shareholders........ .829 .912 .912 .380
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders..................... .340 .377 .238 .108
Distributions from Net Realized Gain
on Investments (Note 1):
Paid to Common Shareholders........ -0- -0- .177 -0-
Common Share Equivalent of
Distributions Paid to Preferred
Shareholders..................... -0- -0- .036 -0-
------- ------- ------- -------
Total Distributions.................... 1.169 1.289 1.363 .488
------- ------- ------- -------
Net Asset Value, End of the Period..... $14.496 $14.366 $12.901 $16.427
------- ------- ------- -------
Market Price Per Share at
End of the Period.................... $12.375 $12.750 $10.750 $15.250
Total Investment Return at Market
Price (b)............................ 3.70% 27.67% (23.52%) 4.25%*
Total Return at Net Asset Value (c).... 6.87% 19.04% (15.48%) 12.14%*
Net Assets at End of the Period
(In millions)........................ $ 566.5 $ 563.4 $ 528.9 $ 611.9
Ratio of Expenses to Average Net Assets
Applicable to Common Shares.......... 1.77% 1.80% 1.70% 1.46%
Ratio of Expenses to Average Net
Assets............................... 1.06% 1.06% 1.03% 1.00%
Ratio of Net Investment Income to
Average Net Assets Applicable to
Common Shares (d).................... 5.78% 5.90% 6.39% 5.59%
Portfolio Turnover..................... 42% 50% 79% 66%*
</TABLE>
(a) Net asset value at March 26, 1993, is adjusted for common and preferred
share offering costs of $.211 per common share.
(b) Total investment return at market price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Trust's dividend reinvestment plan.
(c) Total return at net asset value (NAV) reflects the change in value of the
Trust's assets with reinvestment of dividends based upon NAV.
(d) Net investment income is adjusted for the common share equivalent of
distributions paid to preferred shareholders.
* Non-Annualized
See Notes to Financial Statements
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
October 31, 1996
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Value Municipal Income Trust (the "Trust") is
registered as a diversified closed-end management investment company under the
Investment Company Act of 1940, as amended. The Trust's investment objective is
to provide a high level of current income exempt from federal income 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 March 26, 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, 1996, 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.
D. ORGANIZATIONAL EXPENSES--The Trust has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
connection with the Trust's organization in the amount of $40,000. These costs
are being amortized on a straight line basis over the 60 month period ending
March 25, 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 expenses 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, 1996, the Trust had an accumulated capital loss carry
forward for tax purposes of $35,214,824 which will expire between October 31,
2002 and October 31, 2004.
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, 1996, 99.9% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1997, the Trust
will provide tax information to shareholders for the 1996 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative fee to VKAC, the Trust's Administrator, at an
annual rate of .20% of the average net assets of the Trust. The administrative
services provided by the Administrator include record keeping and reporting
responsibilities with respect to the Trust's portfolio and preferred shares and
providing certain services to shareholders.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Trust, of which a trustee of the Trust is an affiliated person.
For the year ended October 31, 1996, the Trust recognized expenses of
approximately $26,800 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 has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At October 31, 1996, 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 $236,546,425 and $240,190,323,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on investments. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
Transactions in options for the year ended October 31, 1996, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1995.................. -0- $ -0-
Options Written and Purchased (Net).............. 2,566 (2,691,195)
Options Terminated in Closing Transactions
(Net).......................................... (2,413) 2,979,305
------ -----------
Outstanding at October 31, 1996.................. 153 $ 288,110
------ -----------
</TABLE>
The related futures contracts of the outstanding option transactions as of
October 31, 1996, and the description and market value is as follows:
<TABLE>
<CAPTION>
MARKET
EXP. MONTH/ VALUE
CONTRACTS EXERCISE PRICE OF OPTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Futures
December 1996--Purchased Puts..... 153 Nov/110 $26,298
--- -------
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Trust generally invests in futures on U.S. Treasury Bonds and the Municipal Bond
Index and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Trust maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract. The fluctuation in market value of the contracts is settled daily
through a cash margin account.
Transactions in futures contracts for the year ended October 31, 1996, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ---------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1995............................. 165
Futures Opened.............................................. 555
Futures Closed.............................................. (590)
----
Outstanding at October 31, 1996............................. 130
----
</TABLE>
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1996
- --------------------------------------------------------------------------------
The futures contracts outstanding as of October 31, 1996, and the
description and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bond Futures December
1996--Sells to Open......................... 130 $683,549
--- ---------
</TABLE>
C. INDEXED SECURITIES--These instruments are identified in the portfolio of
investments. The price of these securities may be more volatile than the price
of a comparable fixed rate security.
An Inverse Floating security is one where the coupon is inversely indexed to
a short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. These instruments are typically used by the
Trust to enhance the yield of the portfolio.
An Embedded Cap security includes a cap strike level such that the coupon
payment may be supplemented by cap payments if the floating rate index upon
which the cap is based rises above the strike level. The Trust invests in these
instruments as a hedge against a rise in the short-term interest rates which it
pays on its preferred shares.
5. PREFERRED SHARES
The Trust has outstanding 4,500 Auction Preferred Shares ("APS") in five series.
Series A, B, C and D each contain 1,000 shares and Series E contains 500 shares.
Dividends are cumulative and the dividend rate is periodically reset through an
auction process. The dividend period for Series A and E is seven days, and for
Series B, C and D is 28 days. The average rate in effect on October 31, 1996 was
3.403%. During the year ended October 31, 1996, the rates ranged from 3.00% to
5.05%.
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
21
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Value Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Value Municipal Income Trust (the "Trust"), including
the portfolio of investments, as of October 31, 1996, 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, 1996, 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 Value Municipal Income Trust as of October 31, 1996, 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, 1996
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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
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<PAGE> 25
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
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free
Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal
Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies 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 direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
24
<PAGE> 26
VAN KAMPEN AMERICAN CAPITAL 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
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.,
1996 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
RESULTS OF SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Trust was held on May 23, 1996, where
shareholders voted on the election of trustees and the selection of independent
public accountants. With regard to the election of Don G. Powell as elected
trustee by the common shareholders of the Trust, 15,442,754 shares voted in his
favor, 364,784 withheld. With regard to the election of Hugo F. Sonnenschein as
elected trustee by the common shareholders of the Trust, 15,436,871 shares voted
in his favor, 370,667 withheld. With regard to the election of Theodore A. Myers
as elected trustee by the preferred shareholders of the Trust, 3,329 shares
voted in his favor, 66 withheld. With regard to the ratification of KPMG Peat
Marwick LLP as independent public accountants for the Trust, 15,486,487 voted in
favor, 133,306 voted against and 191,140 abstained.
A Special Meeting of Shareholders of the Trust was held on October 23, 1996,
where shareholders voted on a new investment advisory agreement and changes to
investment policies. With regard to the approval of a new investment advisory
agreement between Van Kampen American Capital Investment Advisory Corp. and the
Trust, 19,453,943 shares voted for the proposal, 523,233 voted against and
547,708 abstained. With regard to the approval of certain changes to the Trust's
fundamental investment policies with respect to investment in other investment
companies, 9,296,686 shares voted for the proposal, 599,305 voted against and
609,378 abstained.
25
