<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 5
Portfolio of Investments......................... 6
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 18
Report of Independent Accountants................ 24
Dividend Reinvestment Plan....................... 25
</TABLE>
VKV 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 [PHOTO]
financial industry's evolution. Our
latest announcement continues our
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 economy grew at a brisk 3.9 percent annual rate during the first three
quarters of 1997. At the same time, the federal budget deficit fell to its
lowest level in 23 years, while consumer prices rose less than 2.0 percent on an
annual basis and producer prices declined 1.4 percent.
The bond market advanced in price during the first 10 months of 1997, but
its ascension was not a smooth ride. Bond prices fell early in the period as
economic growth soared, fueling concerns about rising inflation and a potential
interest rate hike by the Federal Reserve Board. When the Fed did raise interest
rates by a modest 0.25 percent in late March, bond prices fell further, sending
the yield of the 30-year U.S. Treasury bond above 7.0 percent for the first time
in six months. By mid-April, however, the market's mood had changed, reflecting
few signs of price pressures despite the economy's strength. Bonds also
benefited from continued heavy purchases by foreign investors and concerns that
the stock market rally was nearing an end. The 7.0 percent slump in the Dow
Jones Industrial Average on October 27 reinforced the benefit of owning bonds
for diversification. By the end of October, the yield on the 30-year Treasury
bond was near its lowest level in 20 months, at 6.15 percent.
Throughout 1997, municipal bond prices moved in the same direction as the
Treasury bond market, but gained less when Treasury prices rallied and lost less
when Treasuries fell. Between December 31, 1996 and October 31, 1997, the yield
on the long-term municipal revenue bond index fell 36 basis points as the yield
on the 30-year Treasury 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
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
as of October 31, 1997
<TABLE>
<S> <C>
AAA..................... 63.5%
AA...................... 7.6%
A....................... 7.8%
BBB..................... 20.5%
Non-Rated............... 0.6%
</TABLE>
*As a Percentage of Long-Term Investments
Based upon the highest credit quality ratings as issued by Standard &
Poor's or Moody's.
TRUST STRATEGY
In managing the Trust, we used the following strategies:
We continued to maintain a portfolio heavily weighted toward high-quality
bonds. The emphasis on 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. AAA-rated bonds are extremely liquid and
carry minimal credit risk. When interest rates fall, as they did for most of the
second half of the fiscal year, AAA-rated bonds tend to 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 moderate due to market
conditions that afforded few opportunities to add value to existing holdings.
The average yield of bonds in the Trust's portfolio was higher than average
market yields. As a result, there was little incentive to replace bonds in the
portfolio, because such trades would have reduced the Trust's dividend-paying
ability.
Trading was also restrained by tight spreads between yields of high-quality
and low-quality bonds. These spreads compressed to historically narrow levels
due to the increasing number of insured bonds in the municipal market. For
example, when a new long-term California transportation issue was sold in
September, its BBB-rated portion yielded only 20 basis points more than the
AAA-rated insured component in the same maturity. As a result of these narrow
yield spreads, there was often not enough incentive for the Trust to purchase
lower-rated securities and assume the additional credit risk.
Acquisitions focused on enhancing the Trust's call protection. Because we
hope to limit the number of bonds that could be "called" at any one time, we
purchased new long-term discount securities that will not be callable for many
years. To increase income, we favored high-yielding, lower-rated bonds from a
diversified mix of market sectors. 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.
Continued on page three
2
<PAGE> 4
Throughout the fiscal year, we maintained a duration in line with the index
for the portfolio in order to attempt to limit the Trust's price volatility in
response to changing interest rates. Duration, which is expressed in years, is a
measure of a portfolio's sensitivity to interest rate movements. Portfolios with
long durations tend to perform better when interest rates are falling;
portfolios with short durations tend to do better when rates are rising. During
the second half of the fiscal year, when rates were declining, the Trust's
relatively short duration hindered its performance but its leveraged structure
enhanced gains. As of October 31, the duration of the Trust's bond portfolio
stood at 7.19 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 HOLDINGS BY SECTOR AS OF OCTOBER 31, 1997*
Health Care....................... 17.2%
Industrial Revenue................ 11.8%
Public Building................... 10.7%
Retail Gas/Electric/Telephone...... 8.1%
Higher Education................... 8.0%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1997, the Van Kampen American
Capital Value Municipal Income Trust generated a total return at market price of
16.61 percent(1). The Trust offered a tax-exempt distribution rate of 5.97
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
$13.5625, a 10.4 percent discount to its net asset value of $15.14. Because
income from the Trust is exempt from federal income taxes, this distribution
rate represents a yield equivalent to a taxable investment earning 9.33
percent(4) (for investors in the federal income tax bracket of 36 percent).
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
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Per
Common Share $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675 $0.0675
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
Continued on page four
3
<PAGE> 5
OUTLOOK
We expect the economy to remain strong in the coming months, although the
growth rate might slow to a more moderate pace. The weakness in the Far East,
which was the impetus for the recent volatility in world stock markets, will
most likely reduce U.S. exports to the region. In turn, this could trim U.S.
economic growth as well as the earnings of many U.S. companies. As a result, we
believe there is little chance that the Fed will raise interest rates in the
coming months. A rate hike reemerges as a possibility if inflation picks up, or
if growth continues at its current brisk pace.
As a result of this outlook, we expect that the yield on the 30-year
Treasury bond will trade within a range of 5.75 percent and 6.50 percent for the
next six months, possibly falling further in mid-1998. A decline in rates would
not only boost the prices of long-term investments in the portfolio, but could
also positively affect the Trust as a result of its leveraged structure. That
structure, which involves borrowing short-term funds to purchase long-term
municipal bonds, provides common shareholders with above-market levels of
dividend income. It should be noted, however, that if short-term rates rise,
borrowing costs would increase; this would negatively impact the income and
performance of common shares.
We will continue to seek a balance between the Trust's total return and its
dividend income, and to add value through our investment strategies and bond
selection. Thank you for your continued confidence in Van Kampen American
Capital and your Trust's portfolio manager.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page five
4
<PAGE> 6
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VKV)
COMMON SHARE TOTAL RETURNS
<TABLE>
<CAPTION>
<S> <C>
One-year total return based on market price(1)............ 16.61%
One-year total return based on NAV(2)..................... 10.30%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 5.97%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 9.33%
SHARE VALUATIONS
Net asset value........................................... $ 15.14
Closing common stock price................................ $13.5625
One-year high common stock price (10/03/97)............... $13.8750
One-year low common stock price (12/11/96)................ $11.8750
Preferred share (Series A) rate(5)........................ 3.450%
Preferred share (Series B) rate(5)........................ 3.520%
Preferred share (Series C) rate(5)........................ 3.600%
Preferred share (Series D) rate(5)........................ 3.567%
Preferred share (Series E) rate(5)........................ 3.500%
</TABLE>
(1)Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2)Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3)Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4)The taxable-equivalent distribution rate is calculated assuming a 36% federal
income tax bracket.
(5)See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
5
<PAGE> 7
PORTFOLIO OF INVESTMENTS
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 99.3%
ALABAMA 2.5%
$ 3,815 Alabama Agricultural & Mechanical Univ Rev (MBIA
Insd)............................................ 6.500% 11/01/25 $ 4,277,606
5,000 Birmingham Baptist Med Cent AL Spl Care Fac Fin
Auth Rev (MBIA Insd)............................. 5.750 11/15/10 5,332,550
2,650 Huntsville, AL Hlthcare Auth Hlthcare Fac Rev Ser
A (MBIA Insd).................................... 6.375 06/01/22 2,874,534
2,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg.................. 6.950 01/01/20 2,195,520
------------
14,680,210
------------
ALASKA 0.2%
1,000 North Slope Borough, AK Ser B (FSA Insd)......... 7.500 06/30/01 1,111,160
------------
ARIZONA 1.0%
4,990 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 5,582,912
------------
CALIFORNIA 9.3%
980 California Hsg Fin Agy Rev Home Mtg Ser B1....... 6.300 08/01/08 1,032,381
1,660 California Rural Home Mtg Fin Auth Single Family
Mtg Rev Ser B (GNMA Collateralized).............. 7.750 09/01/26 1,900,982
1,500 California St Pub Wks Brd Lease Rev Dept of
Corrections Monterey Ser A (MBIA Insd) (b)....... 6.400 11/01/10 1,678,125
6,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.250 12/01/13 6,147,480
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.000 12/01/19 1,952,880
1,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev
Ser A............................................ 6.500 01/01/32 1,078,210
2,000 Fresno, CA Hlth Fac Rev Holy Cross Hlth Sys Saint
Agnes Med (MBIA Insd)............................ 6.625 06/01/21 2,196,280
1,250 Kings Cnty, CA Waste Mgmt Auth Solid Waste Rev... 7.200 10/01/14 1,394,887
9,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
Crossover Rfdg (FGIC Insd) (b)................... 5.375 09/01/23 9,349,330
12,500 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd)................................ 5.125 12/01/23 12,072,375
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/06 5,517,900
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 5.600 06/01/07 1,077,560
2,995 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/08 3,337,778
5,700 Sacramento, CA City Fin Auth Rev Comb Proj B
(MBIA Insd)...................................... * 11/01/15 2,207,553
3,250 San Marcos, CA Pub Fac Auth Rev Pub Impt Civic
Cent Ser A Rfdg.................................. 6.200 08/01/22 3,330,015
------------
54,273,736
------------
</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>
COLORADO 8.6%
$ 5,640 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser C
(MBIA Insd)...................................... 5.750% 12/01/08 $ 6,160,628
1,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05)........ 6.950 08/31/20 1,182,420
3,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser B (Prerefunded @ 08/31/05)........ 7.000 08/31/26 3,557,100
9,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)........ * 08/31/26 1,321,470
1,750 Denver, CO City & Cnty Arpt Rev Ser A............ 6.900 11/15/98 1,799,368
920 Denver, CO City & Cnty Arpt Rev Ser A............ 8.875 11/15/12 1,070,346
330 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)......................... 8.875 11/15/12 391,304
2,825 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 3,181,469
270 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)......................... 8.500 11/15/23 307,927
3,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)............................................ 6.250 11/15/07 3,349,590
6,000 Denver, CO City & Cnty Arpt Rev Ser C............ 6.600 11/15/04 6,534,600
9,000 Denver, CO City & Cnty Arpt Rev Ser E (MBIA
Insd)............................................ 5.250 11/15/23 8,824,500
8,000 E-470 Pub Hwy Auth CO Rev Sr Ser A Rfdg (MBIA
Insd)............................................ 5.000 09/01/26 7,646,800
7,500 E-470 Pub Hwy Auth CO Rev Sr Ser B Rfdg (MBIA
Insd)............................................ * 09/01/19 2,353,200
2,000 Meridian Metro Dist CO Rfdg...................... 7.500 12/01/11 2,199,780
------------
49,880,502
------------
CONNECTICUT 0.5%
2,500 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford............................ 7.125 11/01/14 2,857,100
------------
FLORIDA 7.8%
1,985 Bay Cnty, FL Sch Brd Ctfs Partn (AMBAC Insd)..... 6.750 07/01/12 2,237,234
3,500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd)................................ 6.500 08/15/12 3,838,905
1,400 Florida Hsg Fin Agy Single Family Mtg Ser A Rfdg
(GNMA Collateralized)............................ 6.650 01/01/24 1,490,706
5,000 Hillsborough Cnty, FL Cap Impt Pg Rev Cnty Cent
Proj Ser 8 Rfdg (MBIA Insd)...................... 5.125 07/01/22 4,886,700
3,000 Hillsborough Cnty, FL Cap Impt Pgm Rev Criminal
Justice Fac Rfdg (FGIC Insd)..................... 5.250 08/01/16 3,004,800
3,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 3,479,700
2,945 Hillsborough Cnty, FL Sch Brd Ctfs Partn (MBIA
Insd)............................................ 6.000 07/01/12 3,162,694
1,300 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (MBIA Insd)............. 7.300 06/01/19 1,398,995
3,000 Lakeland, FL Hosp Sys Rev Lakeland Regl Med Cntr
Rfdg (MBIA Insd)................................. 5.000 11/15/22 2,879,970
10,000 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/17 10,112,300
</TABLE>
See Notes to Financial Statements
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 4,000 Orlando, FL Util Comm Wtr & Elec Rev Ser A
(Prerefunded @ 10/01/01)......................... 6.500% 10/01/20 $ 4,409,880
3,985 Pinellas Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi Cnty Pgm Ser A (GNMA Collateralized)
(b).............................................. 6.700 02/01/28 4,250,242
------------
45,152,126
------------
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 3,139,380
5,000 Georgia Muni Elec Auth Pwr Rev Ser B Rfdg (FGIC
Insd) (b)........................................ 5.700 01/01/19 5,311,500
2,700 Marietta, GA Dev Auth Rev First Mtg Life College
Ser B (FSA Insd)................................. 5.375 09/01/09 2,796,795
------------
11,247,675
------------
HAWAII 0.4%
2,250 Hawaii St Arpt Sys Rev 3rd Ser Rfdg (AMBAC
Insd)............................................ 5.750 07/01/09 2,378,678
------------
ILLINOIS 4.1%
3,500 Chicago, IL Cap Apprec (AMBAC Insd).............. * 01/01/17 1,110,375
1,000 Chicago, IL Park District (b).................... 6.700 01/01/11 1,100,880
1,560 Illinois Hlth Fac Auth Rev Carle Fndtn Ser A Rfdg
(FGIC Insd)...................................... 6.750 01/01/10 1,659,559
3,180 Illinois Hlth Fac Auth Rev Children's Mem Hosp
(MBIA Insd)...................................... 6.250 08/15/13 3,565,607
2,250 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
A Rfdg (FSA Insd)................................ 6.750 04/15/17 2,609,955
1,250 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
C (FSA Insd)..................................... 6.750 04/15/17 1,449,975
1,000 Illinois Hlth Fac Auth Rev Highland Park Hosp
Proj Ser A (MBIA Insd)........................... 5.750 10/01/17 1,033,080
10,060 Metro Pier & Expo Auth IL McCormick Place Rfdg
(MBIA Insd)...................................... * 12/15/21 2,756,138
2,070 Northern IL Univ Ctfs Partn Hoffman Estates Cent
Proj (Cap Guar Insd)............................. 5.400 09/01/16 2,104,963
5,000 Regional Tran Auth IL Ser A (AMBAC Insd)......... 8.000 06/01/17 6,684,300
------------
24,074,832
------------
KENTUCKY 3.5%
5,000 Jefferson Cnty, KY Hlth Fac Rev (MBIA Insd)...... 5.125 10/01/27 4,789,700
9,900 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/12 10,956,330
3,500 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/20 3,873,450
500 Mt Sterling, KY Lease Rev KY League Cities Fdg
Ser B............................................ 6.100 03/01/18 542,185
------------
20,161,665
------------
LOUISIANA 1.1%
6,000 Saint Charles Parish, LA Solid Waste Disp Rev LA
Pwr & Lt Co Proj (FSA Insd) (b).................. 7.050 04/01/22 6,528,420
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MAINE 0.9%
$ 3,000 Maine Edl Ln Mktg Corp Student Ln Rev Ser A4..... 5.950% 11/01/03 $ 3,159,660
2,000 Maine St Hsg Auth Mtg Purp Ser C2................ 6.875 11/15/23 2,135,120
------------
5,294,780
------------
MARYLAND 1.4%
7,400 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Seventh Ser................ 7.300 04/01/25 7,916,890
------------
MASSACHUSETTS 3.9%
2,000 Massachusetts St Hlth & Edl Fac Auth Rev (AMBAC
Insd) (b)........................................ 7.100 07/01/21 2,199,200
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Brigham
& Women's Hosp Ser C (Prerefunded @ 06/01/99).... 7.125 06/01/09 1,066,620
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................................. 6.750 12/01/20 1,084,840
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.950 12/01/35 1,089,640
14,500 Massachusetts St Wtr Res Auth Ser A (Prerefunded
@ 12/01/01)...................................... 6.500 12/01/19 16,003,795
------------
22,535,705
------------
MICHIGAN 2.4%
1,250 Battle Creek, MI Downtown Dev Auth Tax Increment
Rev.............................................. 7.600 05/01/16 1,485,400
5,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Proj Ser C1........................ 6.250 07/01/25 5,295,000
2,750 Detroit, MI Ser B Rfdg........................... 7.000 04/01/04 3,083,795
4,000 Michigan St Bldg Auth Rev Ser I Rfdg (MBIA
Insd)............................................ 6.250 10/01/20 4,314,320
------------
14,178,515
------------
MISSISSIPPI 0.3%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res
Inc Rfdg......................................... 7.300 05/01/25 1,588,755
------------
MISSOURI 0.4%
2,395 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A....................................... 5.750 10/01/03 2,527,276
------------
NEVADA 1.6%
5,750 Clark Cnty, NV Indl Dev Rev NV Pwr Co Proj Ser C
Rfdg (AMBAC Insd)................................ 7.200 10/01/22 6,452,248
2,640 Nevada Hsg Div Single Family Pgm Mezz B.......... 6.550 10/01/12 2,779,999
------------
9,232,247
------------
NEW JERSEY 3.2%
1,000 Bordentown, NJ Swr Auth Rev Ser C (MBIA Insd)
(b).............................................. 6.800 12/01/25 1,090,180
1,000 New Jersey Econ Dev Auth Econ Dev Rev Manahawkin
Convalescent Ser A Rfdg (FHA Gtd)................ 6.650 08/01/18 1,081,410
2,500 New Jersey Econ Dev Auth Mkt Transition Fac Rev
Sr Lien Ser A (MBIA Insd)........................ 5.800 07/01/09 2,671,350
1,695 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.000 07/01/06 1,876,314
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 2,500 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.750% 07/01/19 $ 2,888,725
2,250 New Jersey St Edl Fac Auth Rev Glassboro St
College Ser A (Prerefunded @ 07/01/01) (MBIA
Insd)............................................ 6.700 07/01/21 2,481,435
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 6,595,830
------------
18,685,244
------------
NEW YORK 14.6%
6,550 New York City Muni Wtr Fin Auth Wtr & Swr Sys
Rev.............................................. 5.250 06/15/29 6,372,364
2,070 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A............................................ 7.000 06/15/09 2,276,896
2,105 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A (Prerefunded @ 06/15/01)................... 7.000 06/15/09 2,320,236
7,270 New York City Ser A Rfdg......................... 7.000 08/01/04 8,191,109
5,700 New York City Ser E Rfdg......................... 6.600 08/01/03 6,251,646
5,000 New York City Ser G.............................. 5.750 02/01/14 5,092,550
2,000 New York St Dorm Auth Rev City Univ 3rd Genl Res
Ser 2 (MBIA Insd)................................ 6.250 07/01/19 2,145,940
7,575 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 7,827,475
4,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.250 05/15/21 3,843,280
2,500 New York St Dorm Auth Rev Dept of Hlth........... 5.500 07/01/25 2,478,725
3,750 New York St Dorm Auth Rev St Univ Edl Fac........ 5.000 05/15/17 3,585,450
4,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg (AMBAC Insd)................................ 5.500 05/15/09 4,260,400
5,215 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.375 05/15/14 5,679,761
5,885 New York St Energy Research & Dev Auth Fac Rev... 7.125 12/01/29 6,727,909
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 2,327,163
3,130 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg....................................... 5.500 01/01/16 3,131,784
5,000 New York St Urban Dev Corp Rev St Fac Rfdg....... 5.700 04/01/20 5,193,400
7,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 7,166,320
------------
84,872,408
------------
OHIO 4.3%
2,110 Cleveland Rock Glen Hsg Assistance Corp OH Mtg
Rev Ser A Rfdg (FHA Gtd)......................... 6.750 01/15/25 2,255,316
2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg Dale
Bridge Apt (GNMA Collateralized)................. 6.600 10/20/30 2,126,020
3,345 Franklin Cnty, OH Hosp Rev & Impt Doctor's Hosp
Proj Rfdg........................................ 5.875 12/01/23 3,399,624
5,515 Lucas Cnty, OH Hosp Rev Promedica Hlthcare Oblig
(MBIA Insd)...................................... 6.000 11/15/06 6,080,618
3,610 Miami Cnty, OH Hosp Fac Rev Upper Vly Med Cent
Ser C Rfdg & Impt................................ 5.600 05/15/02 3,700,575
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO (CONTINUED)
$ 5,130 Muskingum Cnty, OH Hosp Fac Rev Rfdg & Impt
Bethesda Care Sys (Connie Lee Insd).............. 6.250% 12/01/10 $ 5,698,660
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev OH
Edison Co Proj Rfdg.............................. 5.950 05/15/29 2,028,360
------------
25,289,173
------------
OKLAHOMA 1.9%
10,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc
(b).............................................. 7.375 12/01/20 10,866,000
------------
OREGON 0.7%
3,795 Oregon St Dept Admin Serv Ctfs Partn Ser A (MBIA
Insd)............................................ 5.250 11/01/10 3,882,399
------------
PENNSYLVANIA 4.6%
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
43............................................... 7.500 10/01/25 1,089,390
3,000 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/01)........ 7.250 03/01/11 3,334,350
4,000 Philadelphia, PA Water & Wstwtr Ser A (AMBAC
Insd) (a)........................................ 5.000 08/01/16 3,881,280
9,450 Philadelphia, PA Gas Wks Rev 14th Ser (FSA Insd)
(b).............................................. 6.250 07/01/08 10,375,344
2,525 Philadelphia, PA Gas Wks Rev 14th Ser Rfdg (FSA
Insd) (b)........................................ 6.375 07/01/26 2,754,699
800 Philadelphia, PA Hosps & Higher Ed Fac Auth Rev
Cmnty College Ser A (MBIA Insd).................. 6.100 05/01/09 873,000
1,370 Philadelphia, PA Hosps & Higher Ed Fac Auth Rev
Cmnty College Ser B Rfdg (MBIA Insd)............. 6.500 05/01/08 1,573,760
2,500 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser
A................................................ 6.000 12/01/05 2,571,675
------------
26,453,498
------------
RHODE ISLAND 0.2%
1,050 Rhode Island St Hlth & Edl Bldg Corp Rev Higher
Edl Fac Roger Williams (Prerefunded @ 11/15/04)
(Connie Lee Insd)................................ 7.200 11/15/14 1,241,394
------------
TENNESSEE 0.9%
2,250 Tennessee Hsg Dev Agy Homeownership Proj T....... 7.375 07/01/23 2,380,342
2,810 Tennessee Hsg Dev Agy Mtg Fin Ser A.............. 7.125 07/01/26 3,003,525
------------
5,383,867
------------
TEXAS 3.6%
9,065 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc Proj................................... 7.500 12/01/29 9,882,119
2,250 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Hermann Hosp Proj (MBIA Insd).................... 6.375 10/01/24 2,425,747
1,275 Matagorda Cnty, TX Navig Dist No 1 Rev Houston Lt
& Pwr Ser A Rfdg (AMBAC Insd).................... 6.700 03/01/27 1,394,672
5,000 Tarrant Cnty, TX Hlth Fac Dev TX Hlth Res Sys Ser
A (MBIA Insd).................................... 5.000 02/15/26 4,718,150
2,250 Tomball, TX Hosp Auth Rev Rfdg................... 6.125 07/01/23 2,301,503
------------
20,722,191
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTAH 0.3%
$ 4,950 Intermountain Pwr Agy UT Pwr Supply Rev Ser A
Rfdg (FGIC Insd)................................. * 07/01/17 $ 1,686,663
------------
VIRGINIA 1.6%
2,250 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Prerefunded @ 08/15/01) (FGIC Insd)............. 6.600% 08/15/23 2,481,885
3,000 Isle Wight Cnty, VA Indl Dev Auth Solid Waste
Disp Fac Rev Union Camp Corp Proj................ 6.550 04/01/24 3,258,990
2,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)........... 6.900 03/01/19 2,249,460
1,500 Virginia St Hsg Dev Auth Multi-Family Ser E
Rfdg............................................. 5.900 11/01/17 1,538,415
------------
9,528,750
------------
WASHINGTON 4.0%
5,000 King Cnty, WA Ser B.............................. 5.900 12/01/14 5,347,950
2,500 King Cnty, WA Ser B.............................. 6.625 12/01/15 2,844,650
4,000 Washington St Pub Pwr Supply Ser A Rfdg (FGIC
Insd)............................................ 7.000 07/01/08 4,716,600
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev (AMBAC Insd)............................... 5.700 07/01/09 10,628,600
------------
23,537,800
------------
WEST VIRGINIA 2.5%
5,920 Harrison Cnty, WV Cnty Cmnty Solid Waste Disp Rev
West PA Pwr Co Ser C (AMBAC Insd)................ 6.750 08/01/24 6,587,954
4,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 4,411,680
3,000 West Virginia St Wtr Dev Auth Wtr Dev Rev Ln Pgm
II Ser A (Prerefunded @ 11/01/04) (FSA Insd)..... 6.750 11/01/33 3,464,070
------------
14,463,704
------------
WISCONSIN 1.9%
3,500 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 6.450 03/01/17 3,683,715
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Children's
Hosp (Embedded Cap) (FGIC Insd).................. 5.000 08/15/10 5,004,600
2,360 Wisconsin St Hlth & Edl Fac Waukesha Mem Hosp Ser
A (AMBAC Insd)................................... 5.000 08/15/09 2,359,811
------------
11,048,126
------------
PUERTO RICO 3.2%
7,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser Y
Rfdg (Embedded Cap) (FSA Insd)................... 5.730 07/01/21 8,040,900
10,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Rfdg Ser M (MBIA Insd)........................... 5.600 07/01/08 10,826,100
------------
18,867,000
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
- ---------------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 99.3%
(Cost $536,665,179).......................................................... $577,731,401
SHORT-TERM INVESTMENTS AT AMORTIZED COST 0.5%................................. 2,975,000
------------
TOTAL INVESTMENTS 99.8%
(Cost $539,640,179).......................................................... 580,706,401
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2%.................................... 885,976
------------
NET ASSETS 100.0%............................................................. $581,592,377
============
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option and open futures transactions.
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $539,640,179)....................... $580,706,401
Cash........................................................ 27,457
Interest Receivable......................................... 10,594,069
Unamortized Organizational Costs............................ 3,169
Other....................................................... 1,563
------------
Total Assets.......................................... 591,332,659
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 8,639,583
Income Distributions--Common and Preferred Shares......... 324,409
Investment Advisory Fee................................... 319,621
Administrative Fee........................................ 98,345
Affiliates................................................ 26,259
Variation Margin on Futures............................... 15,625
Accrued Expenses............................................ 224,173
Trustees' Deferred Compensation and Retirement Plans........ 70,392
Options at Market Value (Net premiums received of
$57,761).................................................. 21,875
------------
Total Liabilities..................................... 9,740,282
------------
NET ASSETS.................................................. $581,592,377
============
NET ASSETS CONSIST OF:
Preferred Shares ($.01 par value, authorized 100,000,000
shares, 4,500 issued with liquidation preference of
$50,000 per share)........................................ $225,000,000
------------
Common Shares ($.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................................. 40,763,585
Accumulated Undistributed Net Investment Income............. 1,963,126
Accumulated Net Realized Loss............................... (34,487,965)
------------
Net Assets Applicable to Common Shares................ $356,592,377
------------
NET ASSETS.................................................. $581,592,377
============
NET ASSET VALUE PER COMMON SHARE ($356,592,377 divided
by 23,555,115 shares outstanding)......................... $ 15.14
============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $33,297,738
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,709,503
Administrative Fee.......................................... 1,141,387
Preferred Share Maintenance................................. 611,538
Custody..................................................... 38,129
Trustees' Fees and Expenses................................. 33,511
Legal....................................................... 16,845
Amortization of Organizational Costs........................ 7,997
Other....................................................... 334,656
-----------
Total Expenses.......................................... 5,893,566
-----------
NET INVESTMENT INCOME....................................... $27,404,172
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 3,219,458
Options................................................... (448,451)
Futures................................................... (2,989,509)
-----------
Net Realized Loss........................................... (218,502)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 25,714,797
-----------
End of the Period:
Investments............................................. 41,066,222
Options................................................. 35,886
Futures................................................. (338,523)
-----------
40,763,585
-----------
Net Unrealized Appreciation During the Period............... 15,048,788
-----------
NET REALIZED AND UNREALIZED GAIN............................ $14,830,286
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $42,234,458
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
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................................... $ 27,404,172 $ 27,521,890
Net Realized Gain/Loss.................................. (218,502) 533,057
Net Unrealized Appreciation During the Period........... 15,048,788 2,544,494
------------ ------------
Change in Net Assets from Operations.................... 42,234,458 30,599,441
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (19,079,234) (19,526,930)
Preferred Shares...................................... (8,026,282) (8,000,204)
------------ ------------
Total Distributions..................................... (27,105,516) (27,527,134)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 15,128,942 3,072,307
NET ASSETS:
Beginning of the Period................................. 566,463,435 563,391,128
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,963,126 and $1,664,470,
respectively)......................................... $581,592,377 $566,463,435
============ ============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 26, 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).... $14.496 $14.366 $12.901 $16.427 $14.789
------- ------- ------- ------- ------
Net Investment Income.......... 1.163 1.168 1.183 1.177 .639
Net Realized and Unrealized
Gain/Loss.................... .631 .131 1.571 (3.340) 1.487
------- ------- ------- ------- ------
Total from Investment
Operations..................... 1.794 1.299 2.754 (2.163) 2.126
------- ------- ------- ------- ------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............... .810 .829 .912 .912 .380
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders..... .341 .340 .377 .238 .108
Distributions from Net Realized
Gain on Investments:
Paid to Common
Shareholders............... -0- -0- -0- .177 -0-
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders..... -0- -0- -0- .036 -0-
------- ------- ------- ------- ------
Total Distributions.............. 1.151 1.169 1.289 1.363 .488
------ ------- ------- ------- ------
Net Asset Value, End of the
Period......................... $15.139 $14.496 $14.366 $12.901 $16.427
======= ======= ======= ======= =======
Market Price Per Share at
End of the Period.............. $13.5625 $12.375 $12.750 $10.750 $15.250
Total Investment Return at Market
Price (b)...................... 16.61% 3.70% 27.67% (23.52%) 4.25%*
Total Return at Net Asset Value
(c)............................ 10.30% 6.87% 19.04% (15.48%) 12.14%*
Net Assets at End of the Period
(In millions).................. $ 581.6 $ 566.5 $ 563.4 $ 528.9 $ 611.9
Ratio of Expenses to Average Net
Assets Applicable to Common
Shares......................... 1.70% 1.77% 1.80% 1.70% 1.46%
Ratio of Expenses to Average Net
Assets......................... 1.03% 1.06% 1.06% 1.03% 1.00%
Ratio of Net Investment Income to
Average Net Assets Applicable
to Common Shares (d)........... 5.61% 5.78% 5.90% 6.39% 5.59%
Portfolio Turnover............... 32% 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
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
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.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. ORGANIZATIONAL COSTS--The Trust 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 $40,000. These costs
are being amortized on a
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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 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 carry
forward for tax purposes of $34,790,602 which will expire between October 31,
2002 and October 31, 2004. Net realized gains or losses differ for financial
reporting and tax purposes as a result of gains and losses recognized for tax
purposes on open option and futures positions at October 31, 1997.
At October 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $539,640,179; the aggregate gross unrealized
appreciation is $41,066,222 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation of $41,066,222.
F. DISTRIBUTION OF INCOME AND GAINS--The Trust declares and pays monthly
dividends from net investment income to common shareholders. Net realized gains,
if any, are distributed annually on a pro rata basis to common and preferred
shareholders. Distributions from net realized gains for book purposes may
include short-term capital gains, which are included as ordinary income for tax
purposes.
For the year ended October 31, 1997, 99.6% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1998, the Trust
will provide tax information to shareholders for the 1997 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Trust for an annual fee payable
monthly of .65% of the average net assets of the Trust. In addition, the Trust
will pay a monthly administrative
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
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 $7,100 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 $112,400 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 who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Trust. The maximum annual
benefit under the plan is equal to the trustees' annual retainer fee, which is
currently $2,500.
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 $181,321,687 and $179,220,438,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Trust has a variety of reasons to use derivative instruments, such as to
attempt to protect the Trust against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Trust's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation. Upon disposition, a realized gain or loss is
recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
Summarized below are the specific types of derivative financial instruments
used by the Trust.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Trust
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended October 31, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1996................... 153 $(288,110)
Options Written and Purchased (Net)............... 3,092 (96,595)
Options Terminated in Closing Transactions
(Net)........................................... (3,045) 442,466
------ ---------
Outstanding at October 31, 1997................... 200 $ 57,761
====== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
October 31, 1997, and the description and market value is as follows:
<TABLE>
<CAPTION>
MARKET
EXP. MONTH/ VALUE
CONTRACTS EXERCISE PRICE OF OPTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond Index Futures
December 1997--Written Puts
(Current Notional Value of
$121,844 per contract)............ 200 December/108 $(21,875)
=== ========
</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.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended October 31, 1997, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1996............................. 130
Futures Opened.............................................. 1,012
Futures Closed.............................................. (992)
----
Outstanding at October 31, 1997............................. 150
====
</TABLE>
The futures contracts outstanding as of October 31, 1997, and the
descriptions and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
Short Contracts:
Ten-year U.S. Treasury Bond Futures
December 1997--(Current Notional Value
$111,750 per contract)..................... 50 $(62,903)
Municipal Bond Index Futures
December 1997--(Current Notional Value
$121,844 per contract)..................... 100 (275,620)
--- ---------
150 $(338,523)
=== =========
</TABLE>
C. EMBEDDED CAPS--These securities, which are identified in the portfolio of
investments, include 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 price of these securities may be more
volatile than the price of a comparable fixed rate security. 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, 1997 was
3.527%. During the year ended October 31, 1997, the rates ranged from 3.09% to
4.19%.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1997
- --------------------------------------------------------------------------------
The Trust pays annual fees equivalent to .25% of the preferred share
liquidation value for the remarketing efforts associated with the preferred
auctions. These fees are included as a component of Preferred Share Maintenance
expense.
The APS are redeemable at the option of the Trust in whole or in part at the
liquidation value of $50,000 per share plus accumulated and unpaid dividends.
The Trust is subject to certain asset coverage tests and the APS are subject to
mandatory redemption if the tests are not met.
23
<PAGE> 25
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, 1997, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital 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
24
<PAGE> 26
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
25
<PAGE> 27
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.
26
<PAGE> 28
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 (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
27
<PAGE> 29
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,
19,019,644 shares voted for the proposal, 208,536 shares voted against, 319,068
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 WITHHELD
- -------------------------------------------------------------------------
<S> <C> <C>
David C. Arch.................................. 19,350,473 273,934
Howard J Kerr.................................. 19,354,213 270,193
Dennis J. McDonnell............................ 19,358,829 265,577
</TABLE>
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the Trust, 19,840,487 shares voted for the proposal,
102,532 shares voted against, 184,230 shares abstained and 0 shares represented
broker non-votes.
28
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 539,640,179
<INVESTMENTS-AT-VALUE> 580,706,401
<RECEIVABLES> 10,594,069
<ASSETS-OTHER> 3,169
<OTHER-ITEMS-ASSETS> 29,020
<TOTAL-ASSETS> 591,332,659
<PAYABLE-FOR-SECURITIES> 8,639,583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,100,699
<TOTAL-LIABILITIES> 9,740,282
<SENIOR-EQUITY> 225,000,000
<PAID-IN-CAPITAL-COMMON> 348,353,631
<SHARES-COMMON-STOCK> 23,555,115
<SHARES-COMMON-PRIOR> 23,555,115
<ACCUMULATED-NII-CURRENT> 1,963,126
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (34,487,965)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,763,585
<NET-ASSETS> 581,592,377
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33,297,738
<OTHER-INCOME> 0
<EXPENSES-NET> (5,893,566)
<NET-INVESTMENT-INCOME> 27,404,172
<REALIZED-GAINS-CURRENT> (218,502)
<APPREC-INCREASE-CURRENT> 15,048,788
<NET-CHANGE-FROM-OPS> 42,234,458
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,105,516)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15,128,942
<ACCUMULATED-NII-PRIOR> 1,664,470
<ACCUMULATED-GAINS-PRIOR> (34,269,463)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,709,503
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,893,566
<AVERAGE-NET-ASSETS> 345,710,683
<PER-SHARE-NAV-BEGIN> 14.496
<PER-SHARE-NII> 1.163
<PER-SHARE-GAIN-APPREC> 0.631
<PER-SHARE-DIVIDEND> (1.151)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.139
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
