<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
A Farewell from the Chairman..................... 6
Glossary of Terms................................ 7
Performance Results.............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 18
Statement of Operations.......................... 19
Statement of Changes in Net Assets............... 20
Financial Highlights............................. 21
Notes to Financial Statements.................... 22
Report of Independent Accountants................ 28
Dividend Reinvestment Plan....................... 29
</TABLE>
VKV ANR 12/98
<PAGE> 2
LETTER TO SHAREHOLDERS
November 20, 1998
Dear Shareholder,
The past decade has been a
remarkable time for investors.
Together, we've witnessed one of the [PHOTO]
greatest bull markets in investment
history, unprecedented growth in mutual
fund investing, and a surge in personal
retirement planning. The coming
millennium promises to hold even more DENNIS J. MCDONNELL AND DON G. POWELL
challenges and opportunities.
To lead us into this new era of
investing, we are proud to announce
that Richard F. Powers III has joined
Van Kampen as President and Chief Executive Officer, and will assume the
additional role of Chairman of Van Kampen in 1999. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. Dick Powers brings 27 years of
experience in the financial services industry, including vast expertise in
product management, strategic planning and brand development. While at Morgan
Stanley Dean Witter, he developed many of the firm's core products and services.
You'll hear more from Dick Powers in the coming months as he becomes
increasingly involved in matters related to your Trust and joins Dennis
McDonnell in addressing shareholders in future reports. (See Don Powell's
farewell to shareholders on page 6.)
ECONOMIC OVERVIEW
After two years of solid gains, the U.S. economy began to lose some of its
luster during the reporting period. No longer immune to the global economic
turmoil, the economy retreated from a 5.5 percent annual growth rate in the
first quarter to a tepid 1.8 percent in the second quarter (as measured by gross
domestic product). By the third quarter, however, growth rebounded to a 3.3
percent annual rate.
A strong dollar was largely responsible for moderating economic growth. As
the Asian financial crisis worsened and spread to other regions, foreign
investors amassed dollar-denominated U.S. Treasury bonds. These purchases sent
the dollar sharply higher, which increased the price of U.S. exports and slashed
the price of imports--resulting in reduced demand for U.S. goods and services
abroad. In light of the reduced demand and global economic problems, corporate
earnings fell, business investment declined, and stock prices plummeted. By the
end of August, the Dow Jones Industrial Average was down 19 percent from its
record high, set in mid-July. Although the stock market has since recovered much
of its losses, consumer confidence has declined and growth in consumer spending
has slowed.
Concerns about further economic deterioration, weakness in the stock market,
and a potential credit crunch prompted the Federal Reserve Board to cut
short-term interest rates
Continued on page 2
1
<PAGE> 3
0.25 percent in late September. It was the first rate cut in almost three years
and was followed by additional cuts of 0.25 percent in October and November.
Despite these rate cuts, the Fed took care to note that inflation was well
contained.
MARKET OVERVIEW
The volatility in overseas markets and U.S. stocks was a boon to bonds.
Foreign investors bought U.S. Treasury bonds in an attempt to escape the global
turmoil, while domestic investors purchased them to avoid further losses in U.S.
stocks. Because these purchases occurred at a time when the supply of new
Treasury issues was declining, Treasury bond prices soared.
The Fed rate cuts propelled bond prices even higher. Following the Fed's
first rate cut, the yield on the 30-year Treasury bond, which moves in the
opposite direction of its price, dropped to a record low of 4.72 percent on
October 5. However, subsequent sales of Treasuries by Asian and institutional
investors dampened the rally. As of October 31, the 30-year Treasury bond had a
5.15 percent yield, down 1 percent from a year ago.
Municipal bond prices followed Treasuries higher, but, as usual, they didn't
gain nearly as much in price. The yield on a typical AAA-rated general
obligation municipal bond fell only 32 basis points to 4.80 percent as of
October 31, from 5.12 percent a year earlier. Earlier in October, municipal bond
yields topped comparable Treasury bond yields, which is a rare event. Municipal
bonds generally yield less than Treasury securities because their interest
payments are exempt from federal and sometimes state and local income taxes.
During the past year, municipal bonds were burdened by an excess of supply
relative to demand. State and local governments, taking advantage of the
market's low interest rates, issued $230.9 billion worth of long-term bonds
during the first 10 months of the year--34 percent more than they had issued
during the same period last year. Approximately 44 percent of the new issues
were refinancings of older, higher-yielding bonds. However, new issuance slowed
recently as the number of bonds eligible for refinancing shrank.
Despite an abundant supply, many investors were reluctant to purchase
municipal bonds because of their generally low yields. Compounding the situation
was the abundance of insured issues, which accounted for almost 60 percent of
the new supply. The dominance of insured bonds reduced the supply of
lower-rated, higher-yielding bonds and narrowed the yield spread between higher-
and lower-rated bonds. (The insurance relates to the timely payment of principal
and interest, when due, on the bonds. The insurance does not protect the bonds
from market risk.)
Continued on page 3
2
<PAGE> 4
[CREDIT QUALITY GRAPH]
Portfolio Composition by Credit Quality*
As of October 31, 1998
<TABLE>
<CAPTION>
<S> <C>
AAA..................... 63.20
AA...................... 7.50
A....................... 11.40
BBB..................... 17.30
Non-Rated............... 1.00
</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. As of October 31, approximately 63
percent of long-term investments were invested in AAA-rated bonds. Under current
market conditions, the yield spread between higher- and lower-rated bonds is
modest, and we believe that investors are not adequately compensated for the
additional credit risk associated with lower-rated securities. Also,
higher-rated bonds have generally performed better than lower-rated securities
when interest rates are falling, which was the case for most of the reporting
period. We had little difficulty finding suitable AAA-rated issues for the
portfolio, due to an abundance of new insured bonds.
Overall, we made a limited number of purchases and sales during the past
year, because current market yields were lower than the yields provided by most
of the Trust's holdings. Our acquisitions favored long-term insured bonds
because they offer the most potential for price appreciation if interest rates
continue to fall. Meanwhile, we sold a number of bonds that were vulnerable to
being called from the portfolio. Also, we sold several bonds issued by states we
believed were overvalued and used the proceeds to purchase bonds from
undervalued states. Prerefundings contributed to the Trust's total return, as
several bonds in the portfolio enjoyed upward price movement when they were
prerefunded. Keep in mind, however, that past performance does not guarantee
future results.
As of October 31, the duration of the Trust was 6.95 years compared with
7.72 years for the Lehman Brothers Municipal Bond Index. Because of the
longer-term nature of the Trust, the calculation of the index's duration has
been adjusted to eliminate bonds with maturities of five years or less.
Continued on page 4
3
<PAGE> 5
Top Five Portfolio Sectors as of October 31, 1998*
Health Care....................... 16.8%
Public Building................... 12.9%
Industrial Revenue................ 12.5%
Retail Electric/Gas/Telephone..... 10.3%
Higher Education................... 7.8%
*As a Percentage of Long-Term
Investments
PERFORMANCE SUMMARY
For the one-year period ended October 31, 1998, the Trust generated a total
return of 15.10 percent.(1) This reflects a gain in market price per common
share from $13.5625 on October 31, 1997, to $14.750 on October 31, 1998, plus
reinvestment of all dividends. The Trust had a tax-exempt distribution rate of
5.49 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 8.58 percent(4) on a taxable investment for investors
in the 36 percent federal income tax bracket. Please refer to the chart on page
9 for additional performance numbers.
[DIVIDEND HISTORY GRAPH]
TWELVE-MONTH DIVIDEND HISTORY
FOR THE PERIOD ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
DISTRIBUTION PER COMMON SHARE
<S> <C>
11/97 $.0675
12/97 $.0675
1/98 $.0675
2/98 $.0675
3/98 $.0675
4/98 $.0675
5/98 $.0675
6/98 $.0675
7/98 $.0675
8/98 $.0675
9/98 $.0675
10/98 $.0675
</TABLE>
The dividend history represents past performance of the Trust and does not
predict the Trust's future distributions.
ECONOMIC OUTLOOK
We believe the economy will continue to grow at a moderate rate for the
remainder of the year, supported by low interest rates. The housing industry has
already benefited from the sharp decline in interest rates, and other sectors
could follow if consumer and business spending picks up.
Looking ahead into next year, we see the potential for stronger economic
growth as long as domestic interest rates remain low and the global financial
crisis stabilizes. We
Continued on page 5
4
<PAGE> 6
believe the current low inflationary environment in the United States paves the
way for further Fed rate cuts if the economy resumes its slowdown.
Overseas, we see some promising signs of recovery, including Japan's new
bank reform package, which includes a willingness to let problem banks fail, and
approval of an International Monetary Fund rescue package for Brazil.
We will closely monitor these global and domestic events and their effects
on the performance of the Trust, adjusting the portfolio when appropriate. We
remain committed to the goal of providing a high level of tax-exempt income
while preserving shareholders' capital. Thank you for your continued support and
confidence in Van Kampen and the management of your Trust.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
Please see footnotes on page 9
5
<PAGE> 7
A FAREWELL FROM THE CHAIRMAN
------------------------ - ------------------------
Dear Shareholder,
Since I became president and chief executive officer in 1987, much has
changed in our business. However, one thing has remained constant through these
years--my commitment to you, the trust shareholder. Through the many events at
Van Kampen that have marked the passage of time--including several mergers,
company name changes, and leadership changes--we have always focused on
providing superior investments and the highest level of customer service to help
you meet your investment objectives. I'm proud to say that during my tenure, Van
Kampen won eight consecutive awards for high-quality customer service--more
consecutive service awards than any other firm in the financial services
industry.(1) My successor, Dick Powers, shares this commitment to meeting your
needs and providing innovative and efficient ways to help you work with your
investment adviser to reach your financial goals.
Although my official retirement begins on January 1, 1999, I will remain
active in the industry and the community. I plan to continue my service as a
member of the board of directors of the Investment Company Institute, the
leading mutual fund industry association, and I will remain a trustee of your
Trust.
In closing, I want to say farewell to all of you. Thank you for your support
of Van Kampen over the years and for giving me the opportunity to serve you.
Best wishes,
[SIG]
Don G. Powell
------------------------ - ------------------------
(1)American Capital, which merged with Van Kampen in 1995, received the DALBAR
Service Award annually from 1990 to 1994. The award was called the Quality
Tested Service Seal until 1997.
6
<PAGE> 8
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 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 dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's 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.
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
expressed as a percentage of the face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
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 does.
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 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations are
expected to perform better in rising rate environments, while funds with
longer durations are expected to perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of 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 bond insurer. If the
issuer defaults, the insurance company will step in and take over payments
of interest and principal when due. Once a bond is insured, it typically
carries the rating of the insurer. Most insurers are rated AAA.
7
<PAGE> 9
MUNICIPAL BOND: A debt security issued by a state, municipality, or other
government entity to finance capital expenditures of public projects, such
as the construction of highways, public works, or school buildings. Interest
on public-purpose municipal bonds is exempt from federal income taxes and,
potentially, from state and local income taxes.
NET ASSET VALUE (NAV): The value of a trust share, calculated by deducting a
trust's liabilities from the total assets applicable to common shareholders
in its portfolio and dividing this amount by the number of common shares
outstanding.
PREREFUNDING: The process of issuing new bonds to refinance an outstanding
municipal bond issue prior to its maturity or call date. The proceeds from
the new bonds are generally invested in U.S. government securities.
Prerefunding 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 does.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO COUPON BONDS: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity
for full face value.
8
<PAGE> 10
PERFORMANCE RESULTS FOR THE PERIOD ENDED OCTOBER 31, 1998
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
(NYSE TICKER SYMBOL--VKV)
<TABLE>
<CAPTION>
COMMON SHARE TOTAL RETURNS
<S> <C>
One-year total return based on market price(1)............ 15.10%
One-year total return based on NAV(2)..................... 8.86%
DISTRIBUTION RATES
Distribution rate as a % of closing common stock
price(3)................................................ 5.49%
Taxable-equivalent distribution rate as a % of closing
common stock price(4)..................................... 8.58%
SHARE VALUATIONS
Net asset value........................................... $ 15.64
Closing common stock price................................ $14.7500
One-year high common stock price (10/05/98)............... $15.0000
One-year low common stock price (12/08/97)................ $13.1875
Preferred share (Series A) rate(5)........................ 3.040%
Preferred share (Series B) rate(5)........................ 3.370%
Preferred share (Series C) rate(5)........................ 3.290%
Preferred share (Series D) rate(5)........................ 3.400%
Preferred share (Series E) rate(5)........................ 3.000%
</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.
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MUNICIPAL BONDS 99.0%
ALABAMA 2.2%
$ 3,815 Alabama Agricultural & Mechanical Univ Rev
(Prerefunded @ 11/01/05) (MBIA Insd)............. 6.500% 11/01/25 $ 4,459,277
5,000 Birmingham Baptist Med Cent AL Spl Care Fac Fin
Auth Rev (MBIA Insd)............................. 5.750 11/15/10 5,301,200
2,650 Huntsville, AL Hlthcare Auth Hlthcare Fac Rev Ser
A (MBIA Insd).................................... 6.375 06/01/22 2,901,326
300 Mobile, AL Indl Dev Brd Solid Waste Disp Rev
Mobile Energy Svcs Co Proj Rfdg.................. 6.950 01/01/20 156,000
------------
12,817,803
------------
ALASKA 0.2%
1,000 North Slope Borough, AK Ser B (FSA Insd)......... 7.500 06/30/01 1,096,250
------------
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 5,207,502
------------
ARKANSAS 0.2%
3,050 Arkansas St Cap Apprec College Savings A......... * 06/01/16 1,268,800
------------
CALIFORNIA 7.7%
925 California Hsg Fin Agy Rev Home Mtg Ser B1....... 6.300 08/01/08 993,496
1,480 California Rural Home Mtg Fin Auth Single Family
Mtg Rev Ser B (GNMA Collateralized).............. 7.750 09/01/26 1,686,845
1,500 California St Pub Wks Brd Lease Rev Dept of
Corrections Monterey Ser A (Prerefunded @
11/01/04) (MBIA Insd)............................ 6.400 11/01/10 1,739,850
6,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.250 12/01/13 6,492,180
2,000 California St Pub Wks Brd Lease Rev Dept of
Corrections St Prisons Ser A Rfdg (AMBAC Insd)... 5.000 12/01/19 2,040,580
1,000 Foothill/Eastern Tran Corridor Agy CA Toll Rd Rev
Ser A............................................ 6.500 01/01/32 1,122,110
2,000 Fresno, CA Hlth Fac Rev Holy Cross Hlth Sys Saint
Agnes Med (Prerefunded @ 06/01/02) (MBIA Insd)... 6.625 06/01/21 2,243,080
1,250 Kings Cnty, CA Waste Mgmt Auth Solid Waste Rev... 7.200 10/01/14 1,409,725
2,325 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
(MBIA Insd)...................................... 4.250 11/15/14 2,214,307
9,500 Los Angeles, CA Dept Wtr & Pwr Elec Plant Rev
Crossover Rfdg (FGIC Insd)....................... 5.375 09/01/23 9,789,370
5,000 Orange Cnty, CA Recovery Ctfs Ser A (MBIA
Insd)............................................ 6.000 07/01/06 5,684,600
1,000 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 5.600 06/01/07 1,115,650
2,995 Orange Cnty, CA Recovery Ser A Rfdg (MBIA
Insd)............................................ 6.000 06/01/08 3,440,926
5,700 Sacramento, CA City Fin Auth Rev Comb Proj B
(MBIA Insd)...................................... * 11/01/15 2,488,221
3,250 San Marcos, CA Pub Fac Auth Rev Pub Impt Civic
Cent Ser A Rfdg.................................. 6.200 08/01/22 3,365,342
------------
45,826,282
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLORADO 5.7%
$ 5,640 Adams & Arapahoe Cntys, CO Jt Sch Dist Ser C
(MBIA Insd)...................................... 5.750% 12/01/08 $ 6,328,982
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 1,200,150
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 3,608,970
9,000 Arapahoe Cnty, CO Cap Impt Trust Fund Hwy Rev
E-470 Proj Ser C (Prerefunded @ 08/31/05)........ * 08/31/26 1,421,010
2,825 Denver, CO City & Cnty Arpt Rev.................. 8.500 11/15/23 3,105,974
1,750 Denver, CO City & Cnty Arpt Rev Ser A............ 6.900 11/15/98 1,752,468
920 Denver, CO City & Cnty Arpt Rev Ser A............ 8.875 11/15/12 1,053,382
330 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/01)......................... 8.875 11/15/12 385,014
270 Denver, CO City & Cnty Arpt Rev Ser A
(Prerefunded @ 11/15/00)......................... 8.500 11/15/23 301,517
3,000 Denver, CO City & Cnty Arpt Rev Ser B (MBIA
Insd)............................................ 6.250 11/15/07 3,442,830
6,000 Denver, CO City & Cnty Arpt Rev Ser C............ 6.600 11/15/04 6,568,020
7,500 E-470 Pub Hwy Auth CO Rev Sr Ser B Rfdg (MBIA
Insd)............................................ * 09/01/19 2,626,350
2,000 Meridian Metro Dist CO Peninsular & Oriental
Steam Navig Co Rfdg (LOC: Meridian Assoc East)... 7.500 12/01/11 2,196,000
------------
33,990,667
------------
CONNECTICUT 0.5%
2,500 Connecticut St Hlth & Edl Fac Auth Rev Nursing
Home Pgm AHF/Hartford............................ 7.125 11/01/14 2,889,450
------------
FLORIDA 6.2%
1,985 Bay Cnty, FL Sch Brd Ctfs Partn (Prerefunded @
07/01/04) (AMBAC Insd)........................... 6.750 07/01/12 2,306,987
4,750 Broward Cnty, FL Port Fac Rev Ser B Rfdg (MBIA
Insd)............................................ 5.000 09/01/27 4,639,752
3,500 Citrus Cnty, FL Hosp Brd Rev Citrus Mem Hosp Ser
A Rfdg (FSA Insd)................................ 6.500 08/15/12 3,860,430
1,400 Florida Hsg Fin Agy Single Family Mtg Ser A Rfdg
(GNMA Collateralized)............................ 6.650 01/01/24 1,506,988
3,000 Hillsborough Cnty, FL Cap Impt Pgm Rev Criminal
Justice Fac Rfdg (FGIC Insd)..................... 5.250 08/01/16 3,064,650
3,000 Hillsborough Cnty, FL Indl Dev Auth Pollutn Ctl
Rev Tampa Elec Co Proj Ser 92 Rfdg............... 8.000 05/01/22 3,458,910
2,945 Hillsborough Cnty, FL Sch Brd Ctfs Partn
(Prerefunded @ 07/01/04) (MBIA Insd)............. 6.000 07/01/12 3,311,211
10,000 Orange Cnty, FL Sch Brd Ctfs Partn Ser A (MBIA
Insd)............................................ 5.375 08/01/17 10,415,200
3,985 Pinellas Cnty, FL Hsg Fin Auth Single Family Mtg
Rev Multi Cnty Pgm Ser A (GNMA Collateralized)... 6.700 02/01/28 4,295,870
------------
36,859,998
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <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 $ 3,103,950
5,000 Georgia Muni Elec Auth Pwr Rev Ser B Rfdg (FGIC
Insd)............................................ 5.700 01/01/19 5,478,000
2,700 Marietta, GA Dev Auth Rev First Mtg Life College
Ser B (FSA Insd)................................. 5.375 09/01/09 2,895,939
------------
11,477,889
------------
HAWAII 0.4%
2,250 Hawaii St Arpt Sys Rev Third Ser Rfdg (AMBAC
Insd)............................................ 5.750 07/01/09 2,437,133
------------
ILLINOIS 4.2%
3,500 Chicago, IL Cap Apprec (Prerefunded @ 07/01/05)
(AMBAC Insd)..................................... * 01/01/17 1,274,945
1,000 Chicago, IL Park District (Prerefunded @
01/01/02)........................................ 6.700 01/01/11 1,107,160
1,560 Illinois Hlth Fac Auth Rev Carle Fndtn Ser A Rfdg
(FGIC Insd)...................................... 6.750 01/01/10 1,641,167
3,180 Illinois Hlth Fac Auth Rev Children's Mem Hosp
(MBIA Insd)...................................... 6.250 08/15/13 3,762,799
2,250 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
A Rfdg (FSA Insd)................................ 6.750 04/15/17 2,599,177
1,250 Illinois Hlth Fac Auth Rev Evangelical Hosps Ser
C (FSA Insd)..................................... 6.750 04/15/17 1,452,013
1,000 Illinois Hlth Fac Auth Rev Highland Park Hosp
Proj Ser A (MBIA Insd)........................... 5.750 10/01/17 1,081,290
10,060 Metro Pier & Expo Auth Illinois McCormick Place
Rfdg (MBIA Insd)................................. * 12/15/21 3,081,680
2,070 Northern IL Univ Ctfs Partn Hoffman Estates Cent
Proj (Cap Guar Insd)............................. 5.400 09/01/16 2,190,722
5,000 Regional Tran Auth IL Ser A (AMBAC Insd)......... 8.000 06/01/17 6,910,600
------------
25,101,553
------------
KENTUCKY 2.6%
9,900 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/12 10,836,540
3,500 Kenton Cnty, KY Arpt Brd Arpt Rev Spl Fac Delta
Airls Proj Ser A................................. 7.500 02/01/20 3,839,990
500 Mt Sterling, KY Lease Rev KY League Cities Fdg
Ser B............................................ 6.100 03/01/18 566,620
------------
15,243,150
------------
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 6,514,140
------------
MAINE 0.9%
3,000 Maine Edl Ln Mktg Corp Student Ln Rev Ser A4..... 5.950 11/01/03 3,229,080
1,770 Maine St Hsg Auth Mtg Purp Ser C2................ 6.875 11/15/23 1,906,060
------------
5,135,140
------------
MARYLAND 1.3%
7,400 Maryland St Cmnty Dev Admin Dept Hsg & Cmnty Dev
Rev Single Family Pgm Ser 7...................... 7.300 04/01/25 7,982,084
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS 3.6%
$ 2,000 Massachusetts St Hlth & Edl Fac Auth Rev (AMBAC
Insd)............................................ 7.100% 07/01/21 $ 2,191,340
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.750 12/01/20 1,099,730
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.900 12/01/29 1,105,870
1,000 Massachusetts St Indl Fin Agy Wtr Treatment
American Hingham................................. 6.950 12/01/35 1,113,620
14,500 Massachusetts St Wtr Res Auth Ser A (Prerefunded
@ 12/01/01)...................................... 6.500 12/01/19 15,980,595
------------
21,491,155
------------
MICHIGAN 4.0%
1,250 Battle Creek, MI Downtown Dev Auth Tax Increment
Rev (Prerefunded @ 05/01/04)..................... 7.600 05/01/16 1,489,375
5,000 Detroit, MI Downtown Dev Auth Tax Increment Rev
Dev Area No 1 Proj Ser C1 (Prerefunded @
07/01/06)........................................ 6.250 07/01/25 5,776,000
2,750 Detroit, MI Ser B Rfdg........................... 7.000 04/01/04 3,108,270
4,000 Michigan St Bldg Auth Rev Ser I Rfdg (MBIA
Insd)............................................ 6.250 10/01/20 4,325,440
1,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd).............................. 5.500 10/01/18 1,017,620
2,000 Michigan St Hosp Fin Auth Rev Hosp Genesys Regl
Med Rfdg (ACA Insd).............................. 5.500 10/01/27 2,028,600
3,000 Michigan St Hosp Fin Auth Rev Detroit Med Cent
Oblig Ser A...................................... 5.250 08/15/23 2,932,650
3,000 Michigan St Hosp Fin Auth Rev Detroit Med Cent
Oblig Ser A...................................... 5.250 08/15/28 2,926,950
------------
23,604,905
------------
MISSISSIPPI 0.6%
1,500 Claiborne Cnty, MS Pollutn Ctl Rev Sys Energy Res
Inc Rfdg......................................... 7.300 05/01/25 1,574,925
2,000 Mississippi Business Fin Corp MS Pollutn Ctl Rev
Sys Energy Res Inc Proj (a)...................... 5.875 04/01/22 2,001,120
------------
3,576,045
------------
MISSOURI 0.4%
2,395 Kansas City, MO Port Auth Fac Riverfront Park
Proj Ser A....................................... 5.750 10/01/03 2,566,051
------------
NEBRASKA 0.8%
5,000 Nebraska Invt Fin Auth........................... 5.125 12/01/17 4,993,750
------------
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 6,479,387
2,580 Nevada Hsg Div Single Family Pgm Mezz B.......... 6.550 10/01/12 2,758,665
------------
9,238,052
------------
NEW JERSEY 3.2%
1,000 Bordentown, NJ Swr Auth Rev Ser C (MBIA Insd).... 6.800 12/01/25 1,078,850
1,000 New Jersey Econ Dev Auth Econ Dev Rev Manahawkin
Convalescent Ser A Rfdg (FHA Gtd)................ 6.650 02/01/23 1,105,830
2,500 New Jersey Econ Dev Auth Mkt Transition Fac Rev
Sr Lien Ser A (MBIA Insd)........................ 5.800 07/01/09 2,757,975
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <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 $ 1,915,096
2,500 New Jersey Hlthcare Fac Fin Auth Rev Genl Hosp
Cent at Passaic (FSA Insd)....................... 6.750 07/01/19 3,074,750
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 2,468,295
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 6,893,235
------------
19,294,031
------------
NEW MEXICO 0.3%
2,000 New Mexico St Hosp Equip Ln Council Hosp Rev Mem
Med Ctr Inc Proj (a)............................. 5.500 06/01/28 1,957,080
------------
NEW YORK 13.8%
2,070 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A............................................ 7.000 06/15/09 2,259,157
2,105 New York City Muni Wtr Fin Auth Wtr & Swr Sys Rev
Ser A (Prerefunded @ 06/15/01)................... 7.000 06/15/09 2,299,860
7,270 New York City Ser A.............................. 7.000 08/01/04 8,334,110
5,700 New York City Ser E Rfdg......................... 6.600 08/01/03 6,336,804
5,000 New York City Ser G.............................. 5.750 02/01/14 5,355,100
2,000 New York St Dorm Auth Rev City Univ Third Genl
Res Ser 2 (Prerefunded @ 07/01/04) (MBIA Insd)... 6.250 07/01/19 2,239,560
7,575 New York St Dorm Auth Rev Cons City Univ Sys Ser
A................................................ 5.625 07/01/16 8,185,999
4,000 New York St Dorm Auth Rev Court Fac Lease Ser
A................................................ 5.250 05/15/21 4,020,760
2,500 New York St Dorm Auth Rev Dept of Hlth........... 5.500 07/01/25 2,582,150
4,000 New York St Dorm Auth Rev St Univ Edl Fac Ser A
Rfdg (AMBAC Insd)................................ 5.500 05/15/09 4,426,600
5,215 New York St Dorm Auth Rev St Univ Edl Fac Ser B
Rfdg............................................. 7.375 05/15/14 5,585,578
5,885 New York St Energy Research & Dev Auth Fac Rev... 7.125 12/01/29 6,794,056
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 2,456,431
5,000 New York St Urban Dev Corp Rev................... 5.000 01/01/14 5,023,050
3,130 New York St Urban Dev Corp Rev Correctional Fac
Ser A Rfdg....................................... 5.500 01/01/16 3,214,541
5,000 New York St Urban Dev Corp Rev St Fac Rfdg....... 5.700 04/01/20 5,432,500
7,000 Port Auth NY & NJ Spl Oblig Rev Spl Proj JFK Intl
Arpt Terminal 6 (MBIA Insd)...................... 5.750 12/01/25 7,423,850
------------
81,970,106
------------
NORTH CAROLINA 0.5%
2,750 North Carolina Med Care Comm Hlth Care Fac Rev
Novant Hlth Proj Ser A (MBIA Insd)............... 5.000 10/01/24 2,712,517
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OHIO 6.6%
$ 2,000 Cuyahoga Cnty, OH Multi-Family Rev Hsg Dale
Bridge Apt (GNMA Collateralized)................. 6.600% 10/20/30 $ 2,191,160
3,345 Franklin Cnty, OH Hosp Rev & Impt Doctor's Hosp
Proj Rfdg........................................ 5.875 12/01/23 3,478,231
12,000 Hamilton Cnty, OH Sales Tax Hamilton Cnty
Football Proj B (MBIA Insd)...................... 5.000 12/01/27 11,863,440
5,515 Lucas Cnty, OH Hosp Rev Promedica Hlthcare Oblig
(MBIA Insd)...................................... 6.000 11/15/06 6,236,638
3,500 Mahoning Cnty, OH Hosp Fac Rev Forum Hlth Oblig
Group Ser A (MBIA Insd).......................... 5.000 11/15/17 3,489,255
3,610 Miami Cnty, OH Hosp Fac Rev Upper Vly Med Cent
Ser C Rfdg & Impt................................ 5.600 05/15/02 3,761,367
5,130 Muskingum Cnty, OH Hosp Fac Rev Bethesda Care Sys
Rfdg & Impt (Connie Lee Insd).................... 6.250 12/01/10 5,843,686
2,000 Ohio St Wtr Dev Auth Pollutn Ctl Fac Rev OH
Edison Co Proj Rfdg.............................. 5.950 05/15/29 2,062,840
------------
38,926,617
------------
OKLAHOMA 1.8%
10,000 Tulsa, OK Muni Arpt Tran Rev American Airls Inc
(b).............................................. 7.375 12/01/20 10,704,500
------------
OREGON 0.7%
3,795 Oregon St Dept Admin Serv Ctfs Partn Ser A (MBIA
Insd)............................................ 5.250 11/01/10 4,044,863
------------
PENNSYLVANIA 3.9%
1,000 Pennsylvania Hsg Fin Agy Single Family Mtg Ser
43............................................... 7.500 10/01/25 1,095,180
3,000 Pennsylvania St Higher Edl Fac Auth Rev Med
College PA Ser A (Prerefunded @ 03/01/01)........ 7.250 03/01/11 3,297,660
9,450 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)............................................ 6.250 07/01/08 10,512,464
2,525 Philadelphia, PA Gas Wks Rev Ser 14 Rfdg (FSA
Insd)............................................ 6.375 07/01/26 2,810,199
800 Philadelphia, PA Hosps & Higher Ed Fac Auth Rev
Cmnty College Ser A (MBIA Insd).................. 6.100 05/01/09 893,424
1,370 Philadelphia, PA Hosps & Higher Ed Fac Auth Rev
Cmnty College Ser B Rfdg (MBIA Insd)............. 6.500 05/01/08 1,615,394
2,500 Ridley Park, PA Hosp Auth Rev Taylor Hosp Ser
A................................................ 6.000 12/01/05 2,677,950
------------
22,902,271
------------
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 1,250,697
------------
TENNESSEE 0.4%
2,200 Tennessee Hsg Dev Agy Mtg Fin Ser A.............. 7.125 07/01/26 2,372,920
------------
TEXAS 4.8%
9,065 Alliance Arpt Auth Inc TX Spl Fac Rev American
Airls Inc Proj................................... 7.500 12/01/29 9,720,309
3,000 Brazos River Auth TX Rev Houston Inds Inc Proj
Ser D Rfdg (MBIA Insd)........................... 4.900 10/01/15 3,039,600
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 2,555,167
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 5,000 Houston, TX Arpt Sys Rev Sub Lien Ser B (FGIC
Insd) (a)........................................ 5.000% 07/01/25 $ 4,838,750
1,275 Matagorda Cnty, TX Navig Dist No 1 Rev Houston Lt
& Pwr Ser A Rfdg (AMBAC Insd).................... 6.700 03/01/27 1,400,192
4,500 Tarrant Cnty, TX Hlth Fac Dev TX Hlth Res Sys Ser
A (MBIA Insd).................................... 5.000 02/15/26 4,404,555
2,250 Tomball, TX Hosp Auth Rev Rfdg................... 6.125 07/01/23 2,368,418
------------
28,326,991
------------
UTAH 0.3%
4,950 Intermountain Pwr Agy UT Pwr Supply Rev Ser A
Rfdg (FGIC Insd)................................. * 07/01/17 1,919,165
------------
VIRGINIA 1.6%
2,250 Fredericksburg, VA Indl Dev Auth Hosp Fac Rev
(Prerefunded @ 08/15/01) (FGIC Insd)............. 6.600 08/15/23 2,461,387
3,000 Isle Wight Cnty, VA Indl Dev Auth Solid Waste
Disp Fac Rev Union Camp Corp Proj................ 6.550 04/01/24 3,285,870
2,000 Loudoun Cnty, VA Ctfs Partn (FSA Insd)........... 6.900 03/01/19 2,273,720
1,500 Virginia St Hsg Dev Auth Multi-Family Ser E
Rfdg............................................. 5.900 11/01/17 1,570,815
------------
9,591,792
------------
WASHINGTON 4.1%
5,000 King Cnty, WA Ser B.............................. 5.900 12/01/14 5,546,200
2,500 King Cnty, WA Ser B.............................. 6.625 12/01/15 2,953,700
4,000 Washington St Pub Pwr Supply Ser A Rfdg (FGIC
Insd)............................................ 7.000 07/01/08 4,834,400
10,000 Washington St Pub Pwr Supply Sys Nuclear Proj No
1 Rev (AMBAC Insd)............................... 5.700 07/01/09 10,979,000
------------
24,313,300
------------
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 6,700,611
4,000 Marshall Cnty, WV Pollutn Ctl Rev OH Pwr Co Proj
Ser C Rfdg (MBIA Insd)........................... 6.850 06/01/22 4,427,400
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 3,502,140
------------
14,630,151
------------
WISCONSIN 2.2%
3,500 Wisconsin Hsg & Econ Dev Auth Homeownership Rev
Ser A............................................ 6.450 03/01/17 3,740,975
5,000 Wisconsin St Hlth & Edl Fac Auth Rev Children's
Hosp (FGIC Insd)................................. 5.000 08/15/10 5,134,250
2,000 Wisconsin St Hlth & Edl Fac Auth Rev Marquette
Univ (MBIA Insd) (a)............................. 4.750 06/01/23 1,903,800
2,360 Wisconsin St Hlth & Edl Fac Waukesha Mem Hosp Ser
A (AMBAC Insd)................................... 5.000 08/15/09 2,464,831
------------
13,243,856
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUERTO RICO 5.1%
$ 7,000 Puerto Rico Comwlth Hwy & Tran Auth Hwy Rev Ser Y
Rfdg (Embedded Cap) (FSA Insd)................... 5.730% 07/01/21 $ 8,331,260
10,000 Puerto Rico Elec Pwr Auth Pwr Rev Formerly Puerto
Rico Comwlth Wtr Resources Auth Pwr Rev (MBIA
Insd)............................................ 5.375 07/01/27 10,436,800
10,000 Puerto Rico Pub Bldgs Auth Gtd Pub Edl & Hlth Fac
Rfdg Ser M (MBIA Insd)........................... 5.600 07/01/08 11,216,600
------------
29,984,660
------------
TOTAL LONG-TERM INVESTMENTS 99.0%
(Cost $536,296,255).......................................................... 587,463,316
TOTAL SHORT-TERM INVESTMENTS 0.2%
(Cost $1,500,000)............................................................ 1,500,000
------------
TOTAL INVESTMENTS 99.2%
(Cost $537,796,255).......................................................... 588,963,316
OTHER ASSETS IN EXCESS OF LIABILITIES 0.8%.................................... 4,541,249
------------
NET ASSETS 100.0%............................................................. $593,504,565
============
</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
17
<PAGE> 19
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $537,796,255)....................... $588,963,316
Cash........................................................ 70,924
Receivables:
Interest.................................................. 10,341,007
Investments Sold.......................................... 5,956,455
Other....................................................... 2,279
------------
Total Assets.......................................... 605,333,981
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,700,718
Investment Advisory Fee................................... 329,198
Income Distributions--Common and Preferred Shares......... 317,748
Administrative Fee........................................ 101,292
Affiliates................................................ 36,013
Accrued Expenses............................................ 171,837
Trustees' Deferred Compensation and Retirement Plans........ 94,485
Options at Market Value (Net premiums received of
$123,380)................................................. 78,125
------------
Total Liabilities..................................... 11,829,416
------------
NET ASSETS.................................................. $593,504,565
============
NET ASSETS CONSIST OF:
Preferred Shares ($.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................................. 51,212,316
Accumulated Undistributed Net Investment Income............. 1,797,071
Accumulated Net Realized Loss............................... (32,858,453)
------------
Net Assets Applicable to Common Shares................ 368,504,565
------------
NET ASSETS.................................................. $593,504,565
============
NET ASSET VALUE PER COMMON SHARE ($368,504,565 divided
by 23,555,115 shares outstanding)......................... $ 15.64
============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF OPERATIONS
For the Year Ended October 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $32,936,024
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,820,673
Administrative Fee.......................................... 1,175,592
Preferred Share Maintenance................................. 617,517
Custody..................................................... 38,302
Trustees' Fees and Expenses................................. 36,430
Legal....................................................... 5,352
Amortization of Organizational Costs........................ 3,169
Other....................................................... 348,217
-----------
Total Expenses.......................................... 6,045,252
-----------
NET INVESTMENT INCOME....................................... $26,890,772
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 1,797,069
Options................................................... 261,741
Futures................................................... (429,298)
-----------
Net Realized Gain........................................... 1,629,512
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 40,763,585
-----------
End of the Period:
Investments............................................. 51,167,061
Options................................................. 45,255
-----------
51,212,316
-----------
Net Unrealized Appreciation During the Period............... 10,448,731
-----------
NET REALIZED AND UNREALIZED GAIN............................ $12,078,243
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $38,969,015
===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended October 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 1998 October 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................... $ 26,890,772 $ 27,404,172
Net Realized Gain/Loss.................................. 1,629,512 (218,502)
Net Unrealized Appreciation During the Period........... 10,448,731 15,048,788
------------ ------------
Change in Net Assets from Operations.................... 38,969,015 42,234,458
------------ ------------
Distributions from Net Investment Income:
Common Shares......................................... (19,079,154) (19,079,234)
Preferred Shares...................................... (7,977,673) (8,026,282)
------------ ------------
Total Distributions..................................... (27,056,827) (27,105,516)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..... 11,912,188 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 $1,797,071 and $1,963,126,
respectively)......................................... $593,504,565 $581,592,377
============ ============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
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
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........ 1.142 1.163 1.168 1.183 1.177 .639
Net Realized and Unrealized
Gain/Loss.................. .512 .631 .131 1.571 (3.340) 1.487
------- ------- ------- ------- ------- -------
Total from Investment
Operations................... 1.654 1.794 1.299 2.754 (2.163) 2.126
------- ------- ------- ------- ------- -------
Less:
Distributions from Net
Investment Income:
Paid to Common
Shareholders............. .810 .810 .829 .912 .912 .380
Common Share Equivalent of
Distributions Paid to
Preferred Shareholders... .339 .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............ 1.149 1.151 1.169 1.289 1.363 .488
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $15.644 $15.139 $14.496 $14.366 $12.901 $16.427
======= ======= ======= ======= ======= =======
Market Price Per Share at End
of the Period................ $14.7500 $13.5625 $12.375 $12.750 $10.750 $15.250
Total Investment Return at
Market Price (b)............. 15.10% 16.61% 3.70% 27.67% (23.52%) 4.25%*
Total Return at Net Asset Value
(c).......................... 8.86% 10.30% 6.87% 19.04% (15.48%) 12.14%*
Net Assets at End of the Period
(In millions)................ $ 593.5 $ 581.6 $ 566.5 $ 563.4 $ 528.9 $ 611.9
Ratio of Expenses to Average
Net Assets Applicable to
Common Shares**.............. 1.67% 1.70% 1.77% 1.80% 1.70% 1.46%
Ratio of Net Investment Income
to Average Net Assets
Applicable to Common Shares
(d).......................... 5.21% 5.61% 5.78% 5.90% 6.39% 5.59%
Portfolio Turnover............. 24% 32% 42% 50% 79% 66%*
* Non-Annualized
** Ratio of Expenses to Average
Net Assets Including
Preferred Shares............ 1.03% 1.03% 1.06% 1.06% 1.03% 1.00%
(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.
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Value Municipal Income Trust, formerly known as 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 Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Trust's
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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, 1998, the Trust had an accumulated capital loss carry
forward for tax purposes of $32,813,198 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 positions at October 31, 1998.
At October 31, 1998, for federal income tax purposes, cost of long- and
short-term investments is $537,796,255; the aggregate gross unrealized
appreciation is $51,364,117 and the aggregate gross unrealized depreciation is
$197,056, resulting in net unrealized appreciation on long- and short-term
investments of $51,167,061.
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, 1998, 99.93% of the income distributions made
by the Trust were exempt from federal income taxes. In January, 1999, the Trust
will provide tax information to shareholders for the 1998 calendar year.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Trust's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. will provide investment advice and facilities to the
Trust for an annual fee payable monthly of .65% of the average net assets of the
Trust. In addition, the Trust will pay a monthly administrative fee to Van
Kampen, 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.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
For the year ended October 31, 1998, the Trust recognized expenses of
approximately $3,200 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, 1998, the Trust recognized expenses of
approximately $156,600 representing Van Kampen's cost of providing accounting
and legal services to the Trust.
Certain officers and trustees of the Trust are also officers and directors
of Van Kampen. The Trust does not compensate its officers or trustees who are
officers of Van Kampen.
The Trust has implemented deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Trust. The maximum
annual benefit per trustee under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $137,146,466 and $139,455,595,
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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
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, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at October 31, 1997................... 200 $ 57,761
Options Written and Purchased (Net)............... 1,199 338,349
Options Terminated in Closing Transactions
(Net)........................................... (200) (57,761)
Options Expired (Net)............................. (999) (214,969)
----- ---------
Outstanding at October 31, 1998................... 200 $ 123,380
===== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
October 31, 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
Dec 1998--Written Puts (Current
Notional Value of $125,469 per
contract)......................... 200 Dec/121 $(78,125)
=== =========
</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).
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts each with a par value of $100,000, for the
year ended October 31, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at October 31, 1997............................. 150
Futures Opened.............................................. 215
Futures Closed.............................................. (365)
----
Outstanding at October 31, 1998............................. -0-
====
</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, 1998 was
3.244%. During the year ended October 31, 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.
6. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
October 31, 1998
- --------------------------------------------------------------------------------
business to continue unaffected as a result of the century change. At this time,
there can be no assurance that the steps taken will be sufficient to avoid any
adverse impact to the Trust, but Van Kampen does not anticipate that the move to
Year 2000 will have a material impact on its ability to continue to provide the
Trust with service at current levels. In addition, it is possible that the
securities markets in which the Trust invests may be detrimentally affected by
computer failures throughout the financial services industry beginning January
1, 2000. Improperly functioning trading systems may result in settlement
problems and liquidity issues.
27
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Value Municipal Income Trust:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Value Municipal Income Trust (the "Trust"), including the portfolio of
investments, as of October 31, 1998, 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, 1998, 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 Value Municipal Income Trust as of October 31, 1998, 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 1, 1998
28
<PAGE> 30
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
change 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 Funds Inc.
Attn: Closed-End Funds
2800 Post Oak Blvd.
Houston, TX 77056
29
<PAGE> 31
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
30
<PAGE> 32
VAN KAMPEN 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
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
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 Funds Inc., 1998 All rights reserved.
(SM)denotes a service mark of Van Kampen Funds Inc.
31
<PAGE> 33
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Trust was held on July 28, 1998, where
shareholders voted on the election of trustees and the selection of independent
public accountants.
1) With regard to the election of the following trustee by the preferred
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------
<S> <C> <C>
Rod Dammeyer..................................... 3,879 2
</TABLE>
2) With regard to the election of the following trustees by the common
shareholders of the Trust:
<TABLE>
<CAPTION>
# OF SHARES
----------------------
IN FAVOR WITHHELD
- ------------------------------------------------------------------------
<S> <C> <C>
Steven Muller.................................... 18,896,526 241,036
Wayne W. Whalen.................................. 18,906,514 231,049
</TABLE>
The other trustees of the Trust whose terms did not expire in 1998 are David C.
Arch, Howard J Kerr, Dennis J. McDonnell, Theodore A. Myers, Don G. Powell and
Hugo F. Sonnenschein.
3) With regard to the ratification of KPMG Peat Marwick LLP as independent
public accountants for the Trust, 18,877,987 shares voted in favor of the
proposal, 64,314 shares voted against and 199,143 shares abstained.
32
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> VALUE MUNICIPAL INCOME TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 537,796,255
<INVESTMENTS-AT-VALUE> 588,963,316
<RECEIVABLES> 16,297,462
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 73,203
<TOTAL-ASSETS> 605,333,981
<PAYABLE-FOR-SECURITIES> 10,700,718
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,128,698
<TOTAL-LIABILITIES> 11,829,416
<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> 1,797,071
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (32,858,453)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 51,212,316
<NET-ASSETS> 593,504,565
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 32,936,024
<OTHER-INCOME> 0
<EXPENSES-NET> (6,045,252)
<NET-INVESTMENT-INCOME> 26,890,772
<REALIZED-GAINS-CURRENT> 1,629,512
<APPREC-INCREASE-CURRENT> 10,448,731
<NET-CHANGE-FROM-OPS> 38,969,015
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (27,056,827)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,912,188
<ACCUMULATED-NII-PRIOR> 1,963,126
<ACCUMULATED-GAINS-PRIOR> (34,487,965)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,820,673
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,045,252
<AVERAGE-NET-ASSETS> 587,898,307
<PER-SHARE-NAV-BEGIN> 15.139
<PER-SHARE-NII> 1.142
<PER-SHARE-GAIN-APPREC> 0.512
<PER-SHARE-DIVIDEND> (1.149)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.644
<EXPENSE-RATIO> 1.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
