<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Glossary of Terms................................ 5
Performance Results.............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 16
Statement of Operations.......................... 17
Statement of Changes in Net Assets............... 18
Financial Highlights............................. 19
Notes to Financial Statements.................... 20
</TABLE>
VKV SAR 06/98
<PAGE> 2
LETTER TO SHAREHOLDERS
May 22, 1998
Dear Shareholder,
The Taxpayer Relief Act of 1997,
signed into law by President Clinton
last year, was created to fill the need [PHOTO]
for a broad variety of tax-advantaged
investments to promote asset growth. We
are pleased that you selected our Trust
as a vehicle to provide the potential
for tax-free income within your DENNIS J. MCDONNELL AND DON G. POWELL
investment portfolio. As you are aware,
dividends distributed by the Trust are
generally free from federal income taxes, and often from state and local taxes
as well. At Van Kampen American Capital, we strive not only for a high level of
current income, but total return performance as well.
ECONOMIC OVERVIEW
After nearly seven years of continuous growth, the economy remained buoyant
with few signs of accelerating inflation. Wholesale prices in the first quarter
plummeted at an annual rate of 4.2 percent, while consumer prices inched up 0.2
percent and employment costs rose just 0.7 percent. However, inflationary
pressures were eased by factors such as lower oil prices, increasing
productivity, and a pending budget surplus. The Asian financial crisis led to a
stronger dollar and a decline in the prices of Asian imports, which in turn has
discouraged price increases on competing U.S. goods.
To date, Asia's slowdown has had a modest impact on U.S. economic growth. In
the first quarter, the U.S. economy grew at a 4.2 percent annual rate, its
fastest pace in the past year. Strong consumer spending and inventory buildup by
manufacturers offset a decrease in exports to Asia. Despite the economy's
strength, the Federal Reserve Board refrained from raising interest rates, given
the lack of domestic inflationary pressure and concerns about Asia's economic
future.
MARKET OVERVIEW
Against the backdrop of benign inflation and no action by the Fed, U.S. bond
prices rose during the past six months, although they ended the reporting period
below the highs reached in early January.
The yield of the 30-year Treasury bond, which moves in the opposite
direction of its price, fell from 6.15 percent on October 31 to 5.95 percent on
April 30. Bond prices hit a record high as yields reached 5.69 percent in early
January amidst expectations that the Fed would cut interest rates, but the yield
went back to 6.00 percent in early March after the Fed chose not to act. Yields
were volatile for the rest of the reporting period, as
Continued on page two
1
<PAGE> 3
foreign investors sold U.S. Treasury holdings and investors began to fear that
the Fed was leaning toward a rate hike.
Municipal bond yields generally moved in unison with Treasuries but did not
gain nearly as much in price. By the end of the reporting period, the average
yield of AAA-rated, 30-year generic general obligation bonds was 5.14 percent,
two basis points above the yield posted on October 31 of last year. The
underperformance of municipal bonds can be attributed in part to heavy supply
that outpaced demand. Supply increased as state and local governments took
advantage of low interest rates by issuing bonds to refinance outstanding issues
with higher interest rates, as well as to fund new projects. In the first
quarter, long-term municipal issuance totaled $71 billion, up from $40 billion a
year earlier.
More than half of the new issue volume was AAA-rated and insured, which
significantly diminished the amount of uninsured, higher-yielding securities
available in the marketplace. The dominance of insured volume and the high
demand for uninsured paper created an imbalance that compressed the yields
between higher-quality and lower-quality bonds.
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality
as of April 30, 1998*
<TABLE>
<S> <C>
AAA............ 63.7%
AA............. 7.8%
A.............. 10.5%
BBB............ 17.4%
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
We used the following strategies to manage the Trust during the period:
We maintained a portfolio consisting primarily of high-quality bonds with a
heavy emphasis on AAA-rated securities. Under current market conditions, we
believe the yield spread between higher-rated and lower-rated securities does
not adequately compensate the investor for the additional credit risk of the
lower-rated securities. Also, high-quality bonds generally have performed better
than lower-quality holdings when interest rates are falling, which was the case
for most of the reporting period.
Overall, we limited the number of acquisitions, however, because current
market yields were below the average yield of bonds in the Trust. We sold bonds
which had outperformed the market in order to capture the price appreciation,
and replaced them with securities we felt were undervalued and had strong
potential for an increase in price. These trades involved swaps between
different states and different coupons. We had little
Continued on page three
2
<PAGE> 4
trouble finding replacement bonds because of the substantial supply of new
securities from which to choose.
We focused on purchasing long-term discount bonds. In a falling interest
rate environment, these bonds have the potential to appreciate in value faster
than premium bonds as they reach maturity. They also tend to have a longer
duration, making them more sensitive to changing interest rates. Discount bonds
helped offset the declining duration of the portfolio that occurred as the low
interest rate environment caused more securities to be priced to call dates
rather than maturities. As of April 30, the duration of the Trust was 7.26
years, compared with 7.76 years for the Lehman Brothers Municipal Bond Index.
Because of the longer-term nature of the Trust, the calculation of this index's
duration has been adjusted to eliminate bonds with maturities of five years or
less.
TOP FIVE PORTFOLIO SECTORS AS OF APRIL 30, 1998*
Health Care....................... 19.2%
Industrial Revenue................ 11.8%
Public Building................... 10.8%
Transportation..................... 8.8%
Retail Gas/Electric/Telephone...... 8.5%
*As a Percentage of Long-Term Investments
PERFORMANCE SUMMARY
For the six-month period ended April 30, 1998, the Trust generated a total
return of 3.37 percent(1). This reflects a gain in market price per common share
from $13.5625 on October 31, 1997, to $13.6250 on April 30, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
5.94 percent(3), based on the closing price of its common shares. Because income
from the Trust is exempt from federal income taxes, this distribution rate is
equivalent to a yield of 9.28 percent(4) on a taxable investment for investors
in the 36 percent federal income tax bracket. Please refer to the chart on page
seven for additional performance numbers.
Continued on page four
3
<PAGE> 5
[DIVIDEND HISTORY GRAPH]
Six-month Dividend History
For the Period Ended April 30, 1998
<TABLE>
<CAPTION>
Distribution per Common Share
<S> <C>
Nov 1997........................ $.0675
Dec 1997........................ $.0675
Jan 1998........................ $.0675
Feb 1998........................ $.0675
Mar 1998........................ $.0675
Apr 1998........................ $.0675
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
ECONOMIC OUTLOOK
We expect the economy to slow from its brisk first-quarter pace, although
the extent of the slowdown depends on the continued effects of Asia's crisis and
on Fed policy. We believe the Fed is biased toward raising rates, given concerns
about the economy's increasing strength. If economic strength ignites
inflationary pressures, then we believe the Fed will raise interest rates later
this year. As a result, the yield of the 30-year Treasury bond could top 6.25
percent.
We will continue to track market developments and their effects on the
Trust. When appropriate, we will make adjustments to the portfolio. As we
mentioned earlier, our goal remains a high level of current income for
investors, plus gains in total return. Thank you for your continued support and
confidence in Van Kampen American Capital and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Please see footnotes on page seven
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to one percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bond holder for loss of income and ownership, the call price is usually
higher than the face value of the bond. Bonds are usually called when interest
rates drop so significantly that the issuer can save money by issuing new bonds
at lower rates.
A callable bond is "priced to call" when it is selling at a premium, because it
is assumed that the issuer will redeem the bond at its call date, rather than at
maturity.
COUPON RATE: The stated rate of interest a bond pays until maturity, expressed
as a percentage of its face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investor Services are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D; Moody's ratings range from a high of Aaa to a low of D.
CREDIT SPREAD: The difference in yield between higher-quality issues and
lower-quality issues. Normally, lower-quality issues provide higher yields than
higher-quality issues in order to compensate investors for the additional credit
risk.
DISCOUNT BOND: A bond whose market price is lower than its face value (or "par
value"). Because bonds usually mature at face value, a discount bond has more
potential to appreciate in price than a par bond.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected
one-percent change in the price of the bond for every one-percent change in
interest rates. The longer a fund's duration, the greater the effect of interest
rate movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL RESERVE BOARD (THE FED): A group that meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
GENERAL OBLIGATION BONDS: Bonds backed by the full faith and credit (taxing
authority) of the issuer for timely payment of interest and principal. These
bonds are issued to finance essential government projects, such as highways and
schools.
5
<PAGE> 7
INFLATION: An economic situation in which money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
INSURED BOND: A bond that is insured against default by the municipal bond
insurer. If the issuer defaults, the insurance company will step in and take
over payments of interest and principal. As a result of this protection against
credit risk, most municipal bonds are AAA-rated. Insurance on the bonds does not
relate to mutual fund shares, which will fluctuate in price.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
MARKET PRICE: The price of a share of a closed-end fund trading on a stock
exchange. When the price is less than a fund's NAV, the fund is trading at a
discount. When the price is more than the NAV, the fund is trading at a premium.
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
governmental entity to finance capital expenditures such as the construction of
highways or public works.
NET ASSET VALUE (NAV): The value of a fund share, calculated by deducting a
fund's liabilities from its total assets and dividing this amount by the number
of shares outstanding.
PREREFUNDING: A process whereby new bonds are issued to refinance an outstanding
bond issue. This typically occurs when interest rates decline and an issuer
replaces its higher-yielding bonds with current lower-yielding issues.
PREMIUM BOND: A bond whose market price is above its face value (or "par
value"). Because bonds usually mature at face value, a premium bond has less
potential to appreciate in price than a par bond.
YIELD SPREAD: The difference between the yields of distinct bonds, due to
variant credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities are
narrow, there is less incentive to own the bond with the longer maturity. In
both cases, the investor is not being compensated for the additional risk.
ZERO COUPON BONDS: A corporate or municipal debt security that trades at a deep
discount to face value and pays no interest. It may be redeemed at maturity for
full face value.
6
<PAGE> 8
PERFORMANCE RESULTS FOR THE PERIOD ENDED APRIL 30, 1998
VAN KAMPEN AMERICAN CAPITAL VALUE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VKV)
COMMON SHARE TOTAL RETURNS
<TABLE>
<S> <C>
Six-month total return based on market price(1)........... 3.37%
Six-month total return based on NAV(2).................... 2.47%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 5.94%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 9.28%
SHARE VALUATIONS
Net asset value........................................... $ 15.11
Closing common stock price................................ $13.6250
Six-month high common stock price (04/06/98).............. $14.6250
Six-month low common stock price (12/08/97)............... $13.1875
Preferred share (Series A) rate(5)........................ 4.240%
Preferred share (Series B) rate(5)........................ 3.655%
Preferred share (Series C) rate(5)........................ 3.700%
Preferred share (Series D) rate(5)........................ 3.670%
Preferred share (Series E) rate(5)........................ 3.690%
</TABLE>
(1) Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions for
the period in accordance with the Trust's dividend reinvestment plan, and sale
of all shares at the closing common stock price at the end of the period
indicated.
(2) Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
(3) Distribution rate represents the monthly annualized distributions of the
Trust at the end of the period and not the earnings of the Trust.
(4) The taxable-equivalent distribution rate is calculated assuming a 36%
federal income tax bracket.
(5) See "Notes to Financial Statements" footnote #5, for more information
concerning Preferred Share reset periods.
A portion of the interest income may be taxable for those investors subject to
the federal alternative minimum tax (AMT).
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Trust shares,
when sold, may be worth more or less than their original cost.
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MUNICIPAL BONDS 98.6%
ALABAMA 2.5%
$ 3,815 Alabama Agricultural & Mechanical Univ Rev (MBIA
Insd)............................................ 6.500% 11/01/25 $ 4,278,179
5,000 Birmingham Baptist Med Cent AL Spl Care Fac Fin
Auth Rev (MBIA Insd)............................. 5.750 11/15/10 5,122,950
2,650 Huntsville, AL Hlthcare Auth Hlthcare Fac Rev Ser
A (MBIA Insd).................................... 6.375 06/01/22 2,861,338
2,000 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg.................. 6.950 01/01/20 2,219,760
------------
14,482,227
------------
ALASKA 0.2%
1,000 North Slope Borough, AK Ser B (FSA Insd)......... 7.500 06/30/01 1,093,710
------------
ARIZONA 0.9%
4,655 Pima Cnty, AZ Indl Dev Auth Indl Rev Lease Oblig
Irvington Proj Tucson Ser A Rfdg (FSA Insd)...... 7.250 07/15/10 5,165,840
------------
CALIFORNIA 9.7%
960 California Hsg Fin Agy Rev Home Mtg Ser B1....... 6.300 08/01/08 1,020,768
1,660 California Rural Home Mtg Fin Auth Single Family
Mtg Rev Ser B (GNMA Collateralized).............. 7.750 09/01/26 1,913,017
1,500 California St Pub Wks Brd Lease Rev Dept of
Corrections Monterey Ser A (MBIA Insd)........... 6.400 11/01/10 1,667,205
6,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.250 12/01/13 6,173,880
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.000 12/01/19 1,956,000
1,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev
Ser A............................................ 6.500 01/01/32 1,083,050
2,000 Fresno, CA Hlth Fac Rev Holy Cross Hlth Sys Saint
Agnes Med (MBIA Insd)............................ 6.625 06/01/21 2,173,040
1,250 Kings Cnty, CA Waste Mgmt Auth Solid Waste Rev... 7.200 10/01/14 1,397,062
2,325 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
(MBIA Insd)...................................... 4.250 11/15/14 2,072,389
9,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
Crossover Rfdg (FGIC Insd) (b)................... 5.375 09/01/23 9,513,490
12,500 Mount Diablo, CA Hosp Dist Rev Ser A (Embedded
Cap) (AMBAC Insd)................................ 5.125 12/01/23 12,040,375
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/06 5,479,000
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 5.600 06/01/07 1,068,180
2,995 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/08 3,294,650
5,700 Sacramento, CA City Fin Auth Rev Comb Proj B
(MBIA Insd)...................................... * 11/01/15 2,270,025
3,250 San Marcos, CA Pub Fac Auth Rev Pub Impt Civic
Cent Ser A Rfdg.................................. 6.200 08/01/22 3,337,360
------------
56,459,491
------------
COLORADO 8.9%
5,640 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser C
(MBIA Insd)...................................... 5.750 12/01/08 6,138,238
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLORADO (CONTINUED)
$ 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 $ 1,175,160
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 3,533,940
9,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)........ * 08/31/26 1,338,930
2,825 Denver, CO City & Cnty Arpt Rev Ser A............ 8.500 11/15/23 3,122,303
270 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)......................... 8.500 11/15/23 302,932
920 Denver, CO City & Cnty Arpt Rev Ser A............ 8.875 11/15/12 1,053,050
330 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)......................... 8.875 11/15/12 384,836
1,750 Denver, CO City & Cnty Arpt Rev Ser A............ 6.900 11/15/98 1,778,210
3,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)............................................ 6.250 11/15/07 3,326,160
6,000 Denver, CO City & Cnty Arpt Rev Ser C............ 6.600 11/15/04 6,502,620
19,500 E-470 Pub Hwy Auth CO Rev Sr Ser A Rfdg (MBIA
Insd)............................................ 5.000 09/01/26 18,618,015
7,500 E-470 Pub Hwy Auth CO Rev Sr Ser B Rfdg (MBIA
Insd)............................................ * 09/01/19 2,376,375
2,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg (LOC: Meridian Assoc East)... 7.500 12/01/11 2,173,440
------------
51,824,209
------------
CONNECTICUT 0.5%
2,500 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford............................ 7.125 11/01/14 2,847,575
------------
FLORIDA 5.7%
1,985 Bay Cnty, FL Sch Brd Ctfs Partn (Prerefunded @
07/01/04) (AMBAC Insd)........................... 6.750 07/01/12 2,264,270
3,500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd)................................ 6.500 08/15/12 3,802,155
1,400 Florida Hsg Fin Agy Single Family Mtg Ser A Rfdg
(GNMA Collateralized)............................ 6.650 01/01/24 1,490,832
3,000 Hillsborough Cnty, FL Cap Impt Pgm Rev Criminal
Justice Fac Rfdg (FGIC Insd)..................... 5.250 08/01/16 3,006,090
3,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 3,448,830
2,945 Hillsborough Cnty, FL Sch Brd Ctfs Partn
(Prerefunded @ 07/01/04) (MBIA Insd)............. 6.000 07/01/12 3,241,149
1,300 Jacksonville, FL Hlth Fac Auth Hosp Rev Baptist
Med Cent Proj Ser A Rfdg (Prerefunded @ 06/01/99)
(MBIA Insd)...................................... 7.300 06/01/19 1,372,605
10,000 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/17 10,105,200
3,985 Pinellas Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi Cnty Pgm Ser A (GNMA Collateralized)... 6.700 02/01/28 4,250,520
------------
32,981,651
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
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 $ 3,117,330
5,000 Georgia Muni Elec Auth Pwr Rev Ser B Rfdg (FGIC
Insd)............................................ 5.700 01/01/19 5,333,700
2,700 Marietta, GA Dev Auth Rev First Mtg Life College
Ser B (FSA Insd)................................. 5.375 09/01/09 2,807,298
------------
11,258,328
------------
HAWAII 0.4%
2,250 Hawaii St Arpt Sys Rev Third Ser Rfdg (AMBAC
Insd)............................................ 5.750 07/01/09 2,352,668
------------
ILLINOIS 4.2%
3,500 Chicago, IL Cap Apprec (Prerefunded @ 07/01/05)
(AMBAC Insd)..................................... * 01/01/17 1,203,475
1,000 Chicago, IL Park District (Prerefunded @
01/01/02)........................................ 6.700 01/01/11 1,097,160
1,560 Illinois Hlth Fac Auth Rev Carle Fndtn Ser A Rfdg
(FGIC Insd)...................................... 6.750 01/01/10 1,645,457
3,180 Illinois Hlth Fac Auth Rev Children's Mem Hosp
(MBIA Insd)...................................... 6.250 08/15/13 3,568,405
2,250 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
A Rfdg (FSA Insd)................................ 6.750 04/15/17 2,583,112
1,250 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
C (FSA Insd)..................................... 6.750 04/15/17 1,441,838
1,000 Illinois Hlth Fac Auth Rev Highland Park Hosp
Proj Ser A (MBIA Insd)........................... 5.750 10/01/17 1,042,490
10,060 Metro Pier & Expo Auth Illinois McCormick Place
Rfdg (MBIA Insd)................................. * 12/15/21 2,776,560
2,070 Northern IL Univ Ctfs Partn Hoffman Estates Cent
Proj (Cap Guar Insd)............................. 5.400 09/01/16 2,113,967
5,000 Regional Tran Auth IL Ser A (AMBAC Insd)......... 8.000 06/01/17 6,710,800
------------
24,183,264
------------
KENTUCKY 2.6%
9,900 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/12 10,929,501
3,500 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/20 3,863,965
500 Mt Sterling, KY Lease Rev KY League Cities Fdg
Ser B............................................ 6.100 03/01/18 550,640
------------
15,344,106
------------
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 6,471,240
------------
MAINE 0.9%
3,000 Maine Edl Ln Mktg Corp Student Ln Rev Ser A4..... 5.950 11/01/03 3,166,590
1,770 Maine St Hsg Auth Mtg Purp Ser C2................ 6.875 11/15/23 1,888,041
------------
5,054,631
------------
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 7,923,624
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS 3.8%
$ 2,000 Massachusetts St Hlth & Edl Fac Auth Rev (AMBAC
Insd)............................................ 7.100% 07/01/21 $ 2,175,400
1,000 Massachusetts St Hlth & Edl Fac Auth Rev Brigham
& Women's Hosp Ser C (Prerefunded @ 06/01/99).... 7.125 06/01/09 1,053,600
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.750 12/01/20 1,092,810
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.900 12/01/29 1,099,270
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.950 12/01/35 1,097,360
14,500 Massachusetts St Wtr Res Auth Ser A (Prerefunded
@ 12/01/01) (b).................................. 6.500 12/01/19 15,841,105
------------
22,359,545
------------
MICHIGAN 3.4%
1,250 Battle Creek, MI Downtown Dev Auth Tax Increment
Rev (Prerefunded @ 05/01/04)..................... 7.600 05/01/16 1,466,313
5,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Proj Ser C1........................ 6.250 07/01/25 5,332,800
2,750 Detroit, MI Ser B Rfdg........................... 7.000 04/01/04 3,059,897
4,000 Michigan St Bldg Auth Rev Ser I Rfdg (MBIA
Insd)............................................ 6.250 10/01/20 4,271,000
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd).............................. 5.500 10/01/18 1,002,470
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd).............................. 5.500 10/01/27 1,994,120
3,000 Michigan St Hosp Fin Auth Rev Str John Hlth Sys
Ser A Rfdg (AMBAC Insd).......................... 5.000 05/15/28 2,818,290
------------
19,944,890
------------
MISSISSIPPI 0.3%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res
Inc Rfdg......................................... 7.300 05/01/25 1,583,835
------------
MISSOURI 0.4%
2,395 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A....................................... 5.750 10/01/03 2,521,001
------------
NEBRASKA 0.8%
5,000 Nebraska Invt Fin Auth Formerly Nebraska Mtg Fin
Fund............................................. 5.125 12/01/17 4,876,100
------------
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 6,391,470
2,615 Nevada Hsg Div Single Family Pgm Mezz B.......... 6.550 10/01/12 2,759,243
------------
9,150,713
------------
NEW JERSEY 3.3%
1,000 Bordentown, NJ Swr Auth Rev Ser C (MBIA Insd).... 6.800 12/01/25 1,076,390
1,000 New Jersey Econ Dev Auth Econ Dev Rev Manahawkin
Convalescent Ser A Rfdg (FHA Gtd)................ 6.650 02/01/23 1,096,030
2,500 New Jersey Econ Dev Auth Mkt Transition Fac Rev
Sr Lien Ser A (MBIA Insd)........................ 5.800 07/01/09 2,673,750
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,695 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.000% 07/01/06 $ 1,864,042
2,500 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.750 07/01/19 2,979,150
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 2,453,513
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 6,749,392
------------
18,892,267
------------
NEW YORK 13.7%
2,070 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A............................................ 7.000 06/15/09 2,250,421
2,105 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A (Prerefunded @ 06/15/01)................... 7.000 06/15/09 2,289,061
7,270 New York City Ser A.............................. 7.000 08/01/04 8,149,452
5,700 New York City Ser E Rfdg......................... 6.600 08/01/03 6,223,317
5,000 New York City Ser G.............................. 5.750 02/01/14 5,169,150
2,000 New York St Dorm Auth Rev City Univ 3rd Genl Res
Ser 2 (MBIA Insd)................................ 6.250 07/01/19 2,161,980
7,575 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 7,877,318
4,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.250 05/15/21 3,860,040
2,500 New York St Dorm Auth Rev Dept of Hlth........... 5.500 07/01/25 2,489,300
4,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg (AMBAC Insd)................................ 5.500 05/15/09 4,260,680
5,215 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.375 05/15/14 5,594,131
5,885 New York St Energy Research & Dev Auth Fac Rev... 7.125 12/01/29 6,653,464
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 2,331,991
5,000 New York St Urban Dev Corp Rev................... 5.000 01/01/14 4,784,850
3,130 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg....................................... 5.500 01/01/16 3,137,512
5,000 New York St Urban Dev Corp Rev St Fac Rfdg....... 5.700 04/01/20 5,224,050
7,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 7,207,480
------------
79,664,197
------------
NORTH CAROLINA 0.6%
3,750 North Carolina Med Care Comm Hlthcare Fac Rev
Novant Hlth Proj Ser A (MBIA Insd) (a)........... 5.000 10/01/24 3,565,313
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
OHIO 5.0%
$ 2,050 Columbus, OH Muni Arpt Auth Rev Arpt Improvement
Port Columbus B (AMBAC Insd)..................... 5.000% 01/01/28 $ 1,958,385
2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg Dale
Bridge Apt (GNMA Collateralized)................. 6.600 10/20/30 2,142,400
3,345 Franklin Cnty, OH Hosp Rev & Impt Doctor's Hosp
Proj Rfdg........................................ 5.875 12/01/23 3,423,842
5,515 Lucas Cnty, OH Hosp Rev Promedica Hlthcare Oblig
(MBIA Insd)...................................... 6.000 11/15/06 6,034,789
4,500 Mahoning Cnty, OH Hosp Fac Rev Forum Hlth Oblig
Group Ser A (MBIA Insd).......................... 5.000 11/15/17 4,347,450
3,610 Miami Cnty, OH Hosp Fac Rev Upper Vly Med Cent
Ser C Rfdg & Impt................................ 5.600 05/15/02 3,694,257
5,130 Muskingum Cnty, OH Hosp Fac Rev Rfdg & Impt
Bethesda Care Sys (Connie Lee Insd).............. 6.250 12/01/10 5,685,733
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev OH
Edison Co Proj Rfdg.............................. 5.950 05/15/29 2,044,120
------------
29,330,976
------------
OKLAHOMA 1.9%
10,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc
(b).............................................. 7.375 12/01/20 10,779,100
------------
OREGON 0.7%
3,795 Oregon St Dept Admin Serv Ctfs Partn Ser A (MBIA
Insd)............................................ 5.250 11/01/10 3,913,062
------------
PENNSYLVANIA 3.9%
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
43............................................... 7.500 10/01/25 1,086,980
3,000 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/01)........ 7.250 03/01/11 3,291,510
9,450 Philadelphia, PA Gas Wks Rev 14th Ser Rfdg (FSA
Insd)............................................ 6.250 07/01/08 10,336,315
2,525 Philadelphia, PA Gas Wks Rev 14th Ser Rfdg (FSA
Insd)............................................ 6.375 07/01/26 2,759,068
800 Philadelphia, PA Hosps & Higher Ed Fac Auth Rev
Cmnty College Ser A (MBIA Insd).................. 6.100 05/01/09 876,712
1,370 Philadelphia, PA Hosps & Higher Ed Fac Auth Rev
Cmnty College Ser B Rfdg (MBIA Insd)............. 6.500 05/01/08 1,565,595
2,500 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser
A................................................ 6.000 12/01/05 2,642,375
------------
22,558,555
------------
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 1,228,374
------------
TENNESSEE 0.9%
2,250 Tennessee Hsg Dev Agy Homeownership Proj T....... 7.375 07/01/23 2,374,470
2,510 Tennessee Hsg Dev Agy Mtg Fin Ser A.............. 7.125 07/01/26 2,680,956
------------
5,055,426
------------
TEXAS 3.6%
9,065 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc Proj................................... 7.500 12/01/29 9,797,270
2,250 Harris Cnty, TX Hlth Fac Dev Corp Hosp Rev
Hermann Hosp Proj (Prerefunded @ 10/01/04) (MBIA
Insd)............................................ 6.375 10/01/24 2,503,080
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,275 Matagorda Cnty, TX Navig Dist No 1 Rev Houston Lt
& Pwr Ser A Rfdg (AMBAC Insd).................... 6.700% 03/01/27 $ 1,383,388
5,000 Tarrant Cnty, TX Hlth Fac Dev TX Hlth Res Sys Ser
A (MBIA Insd).................................... 5.000 02/15/26 4,720,300
2,250 Tomball, TX Hosp Auth Rev Rfdg................... 6.125 07/01/23 2,345,040
------------
20,749,078
------------
UTAH 0.3%
4,950 Intermountain Pwr Agy UT Pwr Supply Rev Ser A
Rfdg (FGIC Insd)................................. * 07/01/17 1,739,678
------------
VIRGINIA 1.6%
2,250 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Prerefunded @ 08/15/01) (FGIC Insd)............. 6.600 08/15/23 2,446,312
3,000 Isle Wight Cnty, VA Indl Dev Auth Solid Waste
Disp Fac Rev Union Camp Corp Proj................ 6.550 04/01/24 3,265,830
2,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)........... 6.900 03/01/19 2,233,060
1,500 Virginia St Hsg Dev Auth Multi-Family Ser E
Rfdg............................................. 5.900 11/01/17 1,547,625
------------
9,492,827
------------
WASHINGTON 4.1%
5,000 King Cnty, WA Ser B.............................. 5.900 12/01/14 5,419,350
2,500 King Cnty, WA Ser B.............................. 6.625 12/01/15 2,862,200
4,000 Washington St Pub Pwr Supply Ser A Rfdg (FGIC
Insd)............................................ 7.000 07/01/08 4,685,360
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev (AMBAC Insd)............................... 5.700 07/01/09 10,650,500
------------
23,617,410
------------
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 6,563,563
4,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 4,369,800
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 3,435,570
------------
14,368,933
------------
WISCONSIN 1.9%
3,500 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 6.450 03/01/17 3,704,470
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Children's
Hosp (Embedded Cap) (FGIC Insd).................. 5.000 08/15/10 4,999,950
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
WISCONSIN (CONTINUED)
$ 2,360 Wisconsin St Hlth & Edl Fac Waukesha Mem Hosp Ser
A (AMBAC Insd)................................... 5.000% 08/15/09 $ 2,376,827
------------
11,081,247
------------
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 8,016,330
10,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Rfdg Ser M (MBIA Insd)........................... 5.600 07/01/08 10,787,400
------------
18,803,730
------------
TOTAL LONG-TERM INVESTMENTS 98.6%
(Cost $533,693,639).......................................................... 572,718,821
SHORT-TERM INVESTMENTS 0.3%
(Cost $1,800,000)............................................................ 1,800,000
------------
TOTAL INVESTMENTS 98.9%
(Cost $535,493,639).......................................................... 574,518,821
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1%.................................... 6,393,499
------------
NET ASSETS 100.0%............................................................. $580,912,320
============
</TABLE>
*Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open option transactions.
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $535,493,639)....................... $574,518,821
Cash........................................................ 749,014
Interest Receivable......................................... 10,342,628
Other....................................................... 7,160
------------
Total Assets.......................................... 585,617,623
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 3,645,304
Investment Advisory Fee................................... 312,693
Income Distributions--Common and Preferred Shares......... 267,759
Administrative Fee........................................ 96,213
Affiliates................................................ 44,277
Accrued Expenses............................................ 188,841
Trustees' Deferred Compensation and Retirement Plans........ 81,810
Options at Market Value (Net premiums received of
$55,800).................................................. 68,406
------------
Total Liabilities..................................... 4,705,303
------------
NET ASSETS.................................................. $580,912,320
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 39,012,576
Accumulated Undistributed Net Investment Income............. 1,862,095
Accumulated Net Realized Loss............................... (33,315,982)
------------
Net Assets Applicable to Common Shares................ 355,912,320
------------
NET ASSETS.................................................. $580,912,320
============
NET ASSET VALUE PER COMMON SHARE ($355,912,320 divided
by 23,555,115 shares outstanding)......................... $ 15.11
============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF OPERATIONS
For the Six Months Ended April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $16,398,489
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,891,058
Administrative Fee.......................................... 581,864
Preferred Share Maintenance................................. 306,233
Custody..................................................... 18,875
Trustees' Fees and Expenses................................. 12,748
Legal....................................................... 4,057
Amortization of Organizational Costs........................ 3,169
Other....................................................... 146,565
-----------
Total Expenses.......................................... 2,964,569
-----------
NET INVESTMENT INCOME....................................... $13,433,920
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,395,340
Options................................................... 205,941
Futures................................................... (429,298)
-----------
Net Realized Gain........................................... 1,171,983
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 40,763,585
-----------
End of the Period:
Investments............................................. 39,025,182
Options................................................. (12,606)
-----------
39,012,576
-----------
Net Unrealized Depreciation During the Period............... (1,751,009)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (579,026)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $12,854,894
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 1998 and
the Year Ended October 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 13,433,920 $ 27,404,172
Net Realized Gain/Loss.................................. 1,171,983 (218,502)
Net Unrealized Appreciation/Depreciation During the
Period................................................ (1,751,009) 15,048,788
------------ ------------
Change in Net Assets from Operations.................... 12,854,894 42,234,458
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (9,539,589) (19,079,234)
Preferred Shares...................................... (3,995,362) (8,026,282)
------------ ------------
Total Distributions..................................... (13,534,951) (27,105,516)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... (680,057) 15,128,942
NET ASSETS:
Beginning of the Period................................. 581,592,377 566,463,435
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $1,862,095 and $1,963,126,
respectively)......................................... $580,912,320 $581,592,377
============ ============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one common share of
the Trust outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 26, 1993
(Commencement
Six Months Year Ended October 31, of Investment
Ended ---------------------------------------- Operations) to
April 30, 1998 1997 1996 1995 1994 October 31, 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period
(a)......................... $15.139 $14.496 $14.366 $12.901 $ 16.427 $14.789
------- ------- ------- ------- -------- -------
Net Investment Income....... .570 1.163 1.168 1.183 1.177 .639
Net Realized and Unrealized
Gain/Loss................. (.024) .631 .131 1.571 (3.340) 1.487
------- ------- ------- ------- -------- -------
Total from Investment
Operations.................. .546 1.794 1.299 2.754 (2.163) 2.126
------- ------- ------- ------- -------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............ .405 .810 .829 .912 .912 .380
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ .170 .341 .340 .377 .238 .108
Distributions from Net
Realized Gain on
Investments:
Paid to Common
Shareholders............ -0- -0- -0- -0- .177 -0-
Common Share Equivalent of
Distributions Paid to
Preferred
Shareholders............ -0- -0- -0- -0- .036 -0-
------- ------- ------- ------- -------- -------
Total Distributions.......... .575 1.151 1.169 1.289 1.363 .488
------- ------- ------- ------- -------- -------
Net Asset Value, End of the
Period...................... $15.110 $15.139 $14.496 $14.366 $12.901 $16.427
======= ======= ======= ======= ======== =======
Market Price Per Share at
End of the Period........... $13.6250 $13.5625 $12.375 $12.750 $10.750 $15.250
Total Investment Return at
Market Price (b)............ 3.37%* 16.61% 3.70% 27.67% (23.52%) 4.25%*
Total Return at Net Asset
Value (c)................... 2.47%* 10.30% 6.87% 19.04% (15.48%) 12.14%*
Net Assets at End of the
Period
(In millions)............... $ 580.9 $ 581.6 $ 566.5 $ 563.4 $ 528.9 $ 611.9
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares**............. 1.65% 1.70% 1.77% 1.80% 1.70% 1.46%
Ratio of Net Investment
Income to Average Net Assets
Applicable to Common Shares
(d)......................... 5.26% 5.61% 5.78% 5.90% 6.39% 5.59%
Portfolio Turnover........... 12%* 32% 42% 50% 79% 66%*
* Non-Annualized
** Ratio of Expenses to
Average Net
Assets Including Preferred
Shares.................... 1.02% 1.03% 1.06% 1.06% 1.03% 1.00%
</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.
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
the Trust's organization in the amount of $40,000. These costs were amortized on
a straight line basis over the 60 month period ended March 25, 1998.
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 April 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $535,493,639; the aggregate gross unrealized
appreciation is $39,025,182 and the aggregate gross unrealized depreciation is
$12,606, resulting in net unrealized appreciation including options of
$39,012,576.
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.
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.
For the six months ended April 30, 1998, the Trust recognized expenses of
approximately $2,200 representing legal services provided by Skadden, Arps,
Slate,
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Meagher & Flom (Illinois), counsel to the Trust, of which a trustee of the Trust
is an affiliated person.
For the six months ended April 30, 1998, the Trust recognized expenses of
approximately $57,100 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 per trustee under the plan is $2,500.
At April 30, 1998, 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 $67,411,930 and $71,831,276,
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.
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.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended April 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1997................... 200 $ 57,761
Options Written and Purchased (Net)............... 999 214,969
Options Terminated in Closing Transactions
(Net)........................................... (200) (57,761)
Options Expired (Net)............................. (800) (159,169)
---- ---------
Outstanding at April 30, 1998..................... 199 $ 55,800
==== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
April 30, 1998, 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
June 1998--Written Puts (Current
Notional Value of $121,063 per
contract)......................... 199 Jun/118 $(68,406)
=== ========
</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).
Transactions in futures contracts for the six months ended April 30, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1997............................. 150
Futures Opened.............................................. 215
Futures Closed.............................................. (365)
----
Outstanding at April 30, 1998............................... -0-
====
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
April 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 April 30, 1998 was
3.802%. During the six months ended April 30, 1998, the rates ranged from 2.50%
to 4.90%.
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.
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
STEVEN MULLER
THEODORE A. MYERS
DON G. POWELL*
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN*
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
Vice President
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
CUSTODIAN AND
TRANSFER AGENT
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Trust, as defined in
the Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
25
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> VALUE MUNICIPAL INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 535,493,639
<INVESTMENTS-AT-VALUE> 574,518,821
<RECEIVABLES> 10,342,628
<ASSETS-OTHER> 7,160
<OTHER-ITEMS-ASSETS> 749,014
<TOTAL-ASSETS> 585,617,623
<PAYABLE-FOR-SECURITIES> 3,645,304
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,059,999
<TOTAL-LIABILITIES> 4,705,303
<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> 1,862,095
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (33,315,982)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,012,576
<NET-ASSETS> 580,912,320
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,398,489
<OTHER-INCOME> 0
<EXPENSES-NET> (2,964,569)
<NET-INVESTMENT-INCOME> 13,433,920
<REALIZED-GAINS-CURRENT> 1,171,983
<APPREC-INCREASE-CURRENT> (1,751,009)
<NET-CHANGE-FROM-OPS> 12,854,894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,534,951)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (680,057)
<ACCUMULATED-NII-PRIOR> 1,963,126
<ACCUMULATED-GAINS-PRIOR> (34,487,965)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,891,058
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,964,569
<AVERAGE-NET-ASSETS> 586,755,644
<PER-SHARE-NAV-BEGIN> 15.139
<PER-SHARE-NII> 0.570
<PER-SHARE-GAIN-APPREC> (0.024)
<PER-SHARE-DIVIDEND> (0.575)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.110
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
